Increase in imports adversely affects provision of public services across U.S. localities

factory-ruinRecent research suggests that workers living in places with a heavy manufacturing presence in the U.S. have experienced both a decline in wages and a deterioration of employment prospects due to increased imports from China. While social assistance and trade adjustment programs at the federal level did kick in, they did not make up for the adverse labor market outcomes in these areas. As a result, workers in the manufacturing sector, but also in non-manufacturing sectors which do not face direct competition from China, have experienced a decline in incomes.

Local governments may play an important role in this context both by mitigating risk through welfare spending and by investing in public services, such as high quality education and infrastructure, to ensure the competitiveness of workers and firms. The problem is that funding for these public services is highly localized in the U.S., with a heavy reliance on property and sales tax revenues. Therefore, a decline in the level of local economic activity and incomes in an area’s labor market depresses revenues and restricts the ability of local governments to fund services, precisely at a time when these expenditures may be needed the most.

To what extent are the local governments in the U.S. able to smooth out such trade-induced income shocks? A recent IZA paper by Johns Hopkins University researchers Leo Feler and Mine Z. Senses addresses this question by analyzing the effect of trade-induced income shocks on local government finances and the provision of local public services in the U.S. Their findings suggest that the adverse effects of trade on workers in the hardest hit localities extend beyond the labor market to include deteriorating public services – relatively lower local spending on public housing, welfare and public transport, higher crime rates in the communities and lower quality schools for children.

Hardest hit areas show relative declines in government spending

The paper documents that between 1990 and 2007, localities that experienced a relative decline in employment and incomes due to higher exposure to Chinese imports have also experienced a relative decline in business activity and house prices. The resulting decrease in local government revenues, mainly due to declining property and sales tax receipts, has translated into a decline in local government expenditures on almost all major budget items.

Specifically, a $1000 increase in Chinese imports per worker (equivalent to the difference between the top and bottom quartile localities in terms of exposure) resulted in a relative decline in per capita expenditures on public welfare by 7.7%, on public transport by 2.4%, on public housing by 6.8%, and on public education by 0.9%; public safety spending remained unchanged.

Federalist system could smooth shocks through transfers

A decline in locally generated revenues results in a proportional decline in expenditures unless intergovernmental transfers compensate for the revenue loss. Within a federalist system like the U.S., it is possible that the state and/or the federal government could help equalize local per capita expenditures and public goods provision across localities through intergovernmental transfers.

The findings of the paper suggest, however, that state and federal governments have limited ability to smooth local shocks. Moreover, the state intergovernmental transfers can function as a mechanism to smooth local outcomes only when localities and the remaining areas of a state face different economic shocks. When both the locality and the remaining areas of a state experience negative economic shocks, or in other words, when shocks at the locality and the rest of state are highly correlated, then the negative effects on local revenues, expenditures, and outcomes can become compounded.

Local resources drying up exactly when public services are needed most

Precisely at a time when local resources for public services were declining or remaining constant in trade-affected localities, there was an increase in the demand for local public goods such as education, public safety, and public welfare in these areas. In their study, Feler and Senses document that expenditures on public safety remained constant at a time when local poverty and unemployment rates were rising. Given the documented association between worsening economic outcomes and higher crime rates, the consequence of this funding decision is an increase property crime rates in these areas relative to less exposed localities.

Similarly, a relative decline in education spending coincides with an increase in the demand for education as students respond to a deterioration in employment prospects for low-skilled workers by remaining in school longer. The result is a deterioration of public schools in trade-exposed localities.

Furthermore, expenditure cuts on public services, especially those that disproportionately benefit low-income households such as public welfare, public housing, and public transport, at a time when the poverty rate in these localities is increasing are also likely to result in deterioration of public services in these localities.

Deterioration of public services exacerbate the negative income shock

Improving the response of local governments and their ability to provide local services and amenities will help mitigate or further amplify the effects of the initial negative economic shock on the locality. The areas that experience a decline in incomes may have greater difficulty in recovering from these shocks if they fail to provide high quality public services. Given an array of policies that makes it more difficult for workers, especially low-skilled workers, to migrate to more economically vibrant areas, the consequence would be greater disparity both in incomes and in the quality of essential public services across the U.S.

In tracing out how trade and income shocks can ultimately affect local public services, the results of this study constitute an important input to the design of welfare enhancing government policies to either equalize opportunities or reduce barriers to migration across localities.

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Can European integration increase people’s life satisfaction?

by Milena Nikolova and Boris Nikolaev United Kingdoms’s decision to leave the European Union, or the so-called Brexit, poses important questions for the rest of Europe. Fears of a chain reaction and a contagion of “exits” have flooded public debates. Amidst the flurry of confusion and uncertainty, a relevant question that experts and ordinary people ask is whether EU membership has brought any tangible benefits. Nauro Campos and co-authors have offered one answer: Every country except Greece gained from EU membership and the average EU member is 12 percent richer in terms of per capita income due to joining the EU (this excludes the 2007 and 2013 enlargements).

In a novel paper, we offer an alternative way of measuring the benefits of European integration based on the new science of well-being measurement. The advantage of this approach is its simplicity: relying on people’s own judgment about how satisfied they are with their lives aggregates their experiences in a way that reflects their own preferences. We focus on Bulgaria and Romania, which joined the EU on January 1, 2007. These two countries are the EU’s poorest and among the least happy and most corrupt members. For example, in 2014, the purchasing-power-parity-adjusted GDP per capita of Bulgaria and Romania was about 42 percent of that in the advanced EU members (EU-15), while life satisfaction was about 76 percent of the average EU-15 level.

Comparing countries with different EU accession dates

Using Eurobarometer data, we compare the before-and-after life satisfaction scores of individuals in Bulgaria and Romania with those of Croatians. Why Croatians? The important point for our analysis is that during the study period (2006-2008), Croatia was on a membership path but joined the EU later than Bulgaria and Romania did. In this way, Croatia demonstrates what would have happened to life satisfaction in Bulgaria and Romania if the two countries had not joined the EU. Croatia is a good comparison as it is geographically similar, is also a former socialist country, and experienced similar macroeconomic and institutional developments as Bulgaria and Romania during the analysis period.

Our most important finding is that joining the EU increased life satisfaction in Bulgaria, while the effect in Romania was positive but not significant in the statistical sense. One explanation is that trust in the EU only increased in Bulgaria after joining. In addition, Romania experienced political turmoil only a few months after joining, which may have canceled out the positive consequences of EU membership.

Implications for EU membership candidates

Yet, the analysis also reveals that life satisfaction increased in Romania in the first two quarters of 2008, after the political war subsided. In both countries, the positive life satisfaction effects of EU membership were felt some months after joining, likely because Bulgarians and Romanians required time to start “feeling” European. We also show that the young, employed, and those with high-school education and some college experience were most successful in integrating into the EU.

These results are important not only for countries evaluating whether they should stay in the EU but also for those preparing for EU accession. With the exception of Turkey, the next nation states waiting to join—Albania, former Yugoslav Republic of Macedonia, Montenegro, Serbia, Kosovo, and Bosnia and Herzegovina—have similar historical and politico-economic backgrounds to Bulgaria and Romania. Our findings can thus guide the expectations of policymakers in these countries about the well-being consequences of EU membership.

Cultural integration is a complex process

Importantly, our results imply that the EU-related life satisfaction boost may be a short-run phenomenon. Joining the EU by itself is not a silver bullet and cannot close the quality of life gap between the new and old EU members. Furthermore, although becoming a EU citizen in the legal sense can happen overnight, cultural integration is a complex process that entails both positive and negative experiences with a period of adjustment and adaptation. While our study shows that EU membership could raise the life satisfaction in new member countries in the short run, joining the EU is by no means a substitute for social transformation and national reforms targeted at improving the governance and quality of life.


This is a slightly edited version of an article that originally appeared on the Brookings Institution’s Up Front blog. Reposted with kind permission.

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Immigrants’ enclaves – stepping stones or stumbling blocks for integration?

Immigrants typically do not settle evenly across the countries in which they move. Rather, they tend to cluster in particular neighborhoods. In public discourse these ethnic enclaves are often seen as an inhibitor to societal and labor market integration. Statistics show that employment rates of immigrants are lower than those of natives in most countries that receive immigrants (see graph below).

Schueller_graph-1_OECDBut does clustering in ethnic enclaves actually help explain the persistent differences in employment rates and earnings between immigrants and the native population?
An IZA World of Labor article by Simone Schüller (Ifo Institute, FBK-IRVAPP, and IZA) scrutinizes existing studies on the topic and provides advice for immigration policies that make use of the potential of these neighborhoods on immigrants’ economic integration.

The true effects of ethnic enclaves on immigrants’ labor market outcomes are far from obvious. On the one hand, immigrants can profit from living in an enclave. Social networks within the community can provide immigrants with valuable information about job opportunities and provide shelter from discrimination, both of which could be conducive to labor market success.

At the same time, ethnic enclaves might hamper immigrants’ economic assimilation into broader society. An enclave economy can only offer a limited number of jobs, usually with below-average wages. Enclaves might also become “mobility traps” in the long term by reducing the incentives for immigrants to acquire important skills necessary in the host country, especially language skills.

“Low quality enclaves” can reduce employment chances of immigrants

Schüller’s article shows that immigrants can benefit from living in an ethnic enclave if the other immigrants living in the neighborhood are well-educated, work in well-paid jobs, and if the employment rate in the community is high. On the contrary, low levels of employment and education might significantly harm labor market outcomes for immigrants. Hence, labor market integration could improve if newly-arriving economic migrants, refugees, and asylum-seekers settle in neighborhoods with relatively high average education levels and relatively high employment rates among the co-ethnic population.

Possible policies might include a targeted geographical allocation of incoming refugees and asylum-seekers across areas according to socio-economic characteristics, such as education levels and employment rates of the resident ethnic populations. With respect to labor migrants, policy makers should opt for measures that encourage and incentivize especially the low-skilled immigrants to settle in regions with relatively high employment rates and education levels among co-nationals.

Policies should  discourage socioeconomic segregation

Overall, enclave quality (measured in terms of levels of income, standards of education, and rates of employment) is more important than enclave size for driving economic success. Therefore, Schüller advises policy makers to focus less on avoiding ethnic “ghettoization” per se, but instead aim to discourage socioeconomic residential segregation and implement housing policies that promote mixed residential areas in terms of high- and low-skilled workers.

Read the complete article on IZA World of Labor:

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Discrimination against female migrants wearing a headscarf

anonyme-bewerbungGermany is currently experiencing a high influx of Muslim migrants. Their labor market integration is a crucial policy goal. However, females with backgrounds of migration from Muslim countries, and especially of those wearing headscarves, are still faced with high levels of hiring discrimination, according to the findings published in a new IZA Discussion Paper.

In a field experiment focusing on Turkish migrants, who have constituted a large demographic group in Germany since the 1970s, Doris Weichselbaumer (University of Linz & IZA) sent out job applications for three fictitious female characters with identical qualifications: one applicant had a German name, one a Turkish name, and one had a Turkish name and was wearing a headscarf in the photograph included in the application material. Germany was the ideal location for the experiment as job seekers typically attach their picture to their résumé.

Whereas the applicant with a typical German name (Sandra Bauer) received an 18.8 percent callback rate, the same person with a Turkish-sounding name (Meryem Öztürk) got callbacks only on 13.5 percent of her applications. In the case of the female with a Turkish name wearing a headscarf, the callback rate was only 4.2 percent. Everything else equal, a female with a Turkish name who wears a headscarf has to send 4.5 times as many applications (and even 7.6 times as many for higher-ranking jobs) as an applicant with a German name and no headscarf to receive the same number of callbacks for an interview.


Source: IZA Discussion Paper No. 10217, p. 22.

This massive rejection of the headscarf is remarkable given the very modern and progressive binding used in the current experimental setting. The headscarf in the application photograph did not cover the applicant’s throat, thus signaling that she is not particularly strict with respect to her religion. Discrimination is likely to be even higher against a more traditional binding of the headscarf, according to the study.

“A heated debate is being led in the West about the apparently inferior position of women in Muslim (migrant) culture. However, little discussion takes place about how Muslim women are actually treated by the Western majority population,” writes Weichselbaumer, stressing the need to lower the obstacles to labor market integration for Muslim women.

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Genes, education and labor market outcomes

dnaWhat can genetic information teach us about the intergenerational transmission of economic inequality? A new IZA Discussion Paper by Nicholas W. Papageorge (Johns Hopkins University & IZA) and Kevin Thom (New York University) uses molecular genetic data to better understand the economic returns to ability endowments over the life-cycle, and how they are influenced by economic circumstances during childhood.

The paper follows the cutting edge in behavioral genetics research, which has led to the discovery of robust associations between particular genetic markers and educational attainment. Many of these genetic variants are implicated in biological processes affecting fetal brain development. For further analysis, individual markers are summarized as an “index” or “polygenic score” variable for any individual for whom genetic data are available. This score can be interpreted as a measurement of one type of endowed genetic ability.

The polygenic score is computed for a sample of over 8,000 genetically European individuals from the Health and Retirement Study (HRS), which also contains detailed information on education and labor outcomes including employment, wages, occupation, retirement, and wealth.

The score is robustly associated with educational attainment at all margins – from high school completion to college graduation. Furthermore, the rich HRS data permit an examination of how the genetic endowments captured by this score interact with investments over the lifecycle, e.g. childhood socioeconomic status (SES), to produce human capital.

Childhood poverty and wasted human potential

The research shows that genetic endowments do indeed matter. People with higher polygenic scores (who possess more of the genetic markers associated with education) do better – not only in terms of schooling, but also in the labor market. An important caveat to the analysis is that simply regressing an outcome (e.g., wages) onto a measure of genetic ability does not produce a causal estimate. This issue of how to interpret estimates is discussed at length in the paper.

Next, the authors consider the role of childhood poverty and a surprising pattern emerges. To fix ideas, compare two individuals with the same polygenic score, but who grew up in different economic circumstances. Doing so reveals large differences in educational attainment (e.g. college completion). For the individual from a wealthier background, a higher polygenic score raises the likelihood of college. For the poorer individual, a higher score also raises the likelihood of college, but to a lesser degree. That is, for poorer children, high ability does not translate to high educational attainment in the same way it would for wealthier children. More bluntly, there appears to be a subset of high-ability kids who do not make it to college because they are born into poor families.

Wage returns to genetic endowments

These discrepancies continue in the labor market. The polygenic score predicts higher wages even after controlling for educational attainment. However, these wage returns to genetic ability are limited to individuals with a college degree. Moreover, the genetic premium for college graduates appears to have grown substantially in more recent birth cohorts. This may reflect interactions between genetic ability and the processes that have exacerbated income inequality over the last several decades (e.g. skill biased technological change).

These results are particularly noteworthy in combination with the finding that high-ability individuals from poorer families are less likely to obtain college degrees. Poor childhood circumstances reduce the amount of education received by such high-ability individuals, excluding them from occupations or career paths which offer returns to their talents. Put succinctly, poverty generates wasted human potential.

How much wasted potential is there? Perhaps the data would show that poor kids tend to have much lower genetic abilities (polygenic scores) so that relatively few high-ability individuals are held back by poverty. Strikingly, this does not appear to be the case. The distribution of the polygenic score is nearly identical for individuals from richer or poorer families. This is very troubling as it suggests substantial waste.

Distinguishing ability endowments from human capital investments

To understand the potential value of using genetic measures of ability, it is important to contrast insights gained from a genetic score with those based on cognitive test scores (e.g., IQ), which are often used as proxies for ability. While such scores may reflect natural aptitude, they also directly reflect the investments that parents make to boost those scores.

To fix ideas, suppose two individuals exhibit the same cognitive test score, but one grew up in a wealthy household with access to tutors and test prep services, and the other grew up poor without such resources. In this scenario, the individual who grew up poor likely started out with a higher level of raw ability. Therefore, it may be problematic to use cognitive test scores to draw policy-relevant conclusions about ability. Among other things, we could attribute the low performance of people growing up in poverty to low ability when it is actually a product of low investments. This could lead to an under-estimation of the importance of policies that invest in poor children, such as public education or college subsidies.

In fact, in an additional set of the results, the study provides evidence that using cognitive test scores can generate different results from those based on the polygenic score. An (adult) cognitive test score in the HRS predicts higher wages across the board, not just for the college educated. This stands in sharp contrast to the results using the polygenic score, which indicate that investments in higher education are necessary for individuals to experience returns to endowed ability.

Implications for inequality

To offer some concrete numbers, consider two representative individuals – one individual who has been favorably endowed with a polygenic score that is one standard deviation above the mean, and one that has been less favorably endowed with a score that is one standard deviation below the mean. The study’s estimates imply the following:

1) Among low SES households, the high ability individual would be 9.4 percent more likely than the low ability individual to obtain at least a four-year college degree. However, in high SES households, the high ability individual would be 18.8 percent more likely to obtain at least a four year college degree.

2) Among low SES households, the high ability individual would be 14.3 percent more likely to at least graduate from high school. However, in high SES households, this difference is only 8.3 percent. In other words, genes seem to matter more among low-SES kids for high school completion.

3) For individuals without a four-year degree, there is no statistically significant relationship between the polygenic score and wages after accounting for completed education. However, for those with a college degree, there is a substantial return that has grown among younger birth cohorts. For individuals born after 1942 who earned a college degree, estimates suggest that the high ability individual is expected to earn 24 percent higher wages than the low ability individual, again controlling for completed education. This may reflect adaptability to computerization and other technological advances in the workplace. This hypothesis is corroborated by associations between the score and occupations that require the kind of non-routine job tasks that benefited from computerization. However, notice that only people who went to college profit from their ability in this way. Therefore, high-ability individuals born into poor households may be shut out of career tracks that complement their talents.

4) Results on wasted potential are not limited to poor households. Acutely adverse events prevent high-ability individuals from reaching their full potential. A very bleak example is child abuse, reported by about 6 percent of the sample. Estimates suggest that individuals with similar genetic scores report up to 39 percent less wealth if they were abused as children.

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How the world’s largest social pension reform is transforming family old-age care

By Xi Chen (Yale University and IZA)


Social pensions are designed to provide the elderly population, especially those with low lifetime incomes, basic protection against poverty in old age. In 2009 China introduced a government subsidized social pension system called the New Rural Pension Scheme (NRPS), which now covers 400 million rural residents and has become the world’s largest social pension program.

The NRPS was introduced in part due to erosion of the traditional system of intergenerational cohabitation in which children would provide care for the elderly. The erosion has been mainly caused by migration of younger generations to cities, lower number of children, a growing elderly population, and increased life expectancy. This is causing some to demand more market-based services to compensate for their loss of family care. Many rural elderly are thus increasingly likely to suffer from too little support were it not for the introduction of the rural pension system. The NRPS, on average, amounts to one-fifth of pensioners’ earned income but still contains large regional variations.

Modest pension benefits in China could also benefit other generations

Through a longitudinal study of households of elderly parents and children in impoverished China, IZA Discussion Paper No. 9482 compares families with adult sons and those with adult daughters, as the former lend stronger support to their parents and therefore their co-residence decisions are more sensitive to their parents’ pension receipt.

The NRPS pension benefits do not require people above 60 to contribute, and their receipt is not dependent on retirement decisions. Because there is, therefore, a large jump in actual pension receipt exactly when the elderly pass the age 60 eligibility cut-off, the study is able to overcome two main challenges that plague the literature: firstly, usually pension-eligible individuals can be quite different from those who are ineligible; and secondly, differences in characteristics between age cohorts may confound the pension’s impact.

The results of the analysis reveal that elderly parents consume more healthcare and other services, even though health insurance coverage shows no significant changes after the pension eligibility cutoff. However, the study also finds a sizable reduction in sons’ (but not daughters’) co-residence with elderly parents after parents begin receiving pensions. Since half of these elderly persons are below the USD 1.25 poverty line, they are very likely to be credit constrained. The larger effect for poorer groups indicates that pension benefits may help to relieve this constraint and make services more affordable to substitute for instrumental support directly provided by their children.

These empirical findings hold important implications. They show that even modest pension benefits in China, as compared to other developing nations, could benefit other generations of the extended families.

Reduced support by children may offset pension benefits

Researchers caution that, meanwhile, substantive changes in living arrangements may offset pension benefits through reduced instrumental support to parents directly provided by children.

IZA Discussion Paper No. 10016 goes further to examine the implication of reduced intergenerational co-residence on career choices of the younger generation, including off-farm activities and migration. The results show that sons (but not daughters) are much more inclined to migrate out of their home county around the pension eligibility age cut-off. Adult children are also more likely to migrate out if their parents are healthy.

These findings suggest pensions may affect informal old-age support not merely through living under different roofs, but also because the distance between elderly parents and children will become much larger. The erosion of this very important old-age support system will likely generate changes in health among seniors, even in the short term.

Pension income decreases susceptibility of the elderly to depression

Fortunately, overall, the NRPS improves the well-being of the elderly beyond their increased utilization of healthcare. Employing China’s most recent national sample, IZA Discussion Paper No. 10037 finds a reduction in the susceptibility of becoming depressed after receiving pension income. The improvement in mental health is found to be larger for vulnerable populations with financial and health constraints.

The study argues that pension payments may affect mental health through at least three plausible channels: (i) changes in lifestyle factors, such as independent living, service consumption, leisure time, and social network connectedness; (ii) health investments, such as nutritional intake and medical treatment; (iii) reduced financial stress, increased self-esteem and life satisfaction, and improved confidence in the future. Even though a recent study has found that pension income weakens the non-pecuniary and pecuniary transfers from children to elderly parents, the size of the effect is very small compared to the positive income change for pensioners.

Even more ambitious social pension reform ahead

The NRPS had achieved universal coverage at the county level in 2012, thus providing a nationwide, subsidized old-age support system to the older population in rural China. Between 2012 and 2014, China rapidly implemented a similar social pension program for all eligible urban residents. Starting from 2014, China has set an ambitious plan to integrate the rural and urban social pensions into one system across the country, establishing a national pension system that provides wide coverage, basic security, multi-level options and sustainability. Once completed in 2020, this unified pension system will likely serve more than 800 million residents in China.

Besides tremendous social and economic impacts for China, the study of social pensions there may have general implications for the U.S. and beyond. As policymakers attempt to address the financial sustainability of the U.S. Social Security program, it is important to evaluate the extent to which Social Security benefits may directly improve old-age health. And if improved, Social Security benefits may be offset by reduced health care expenditures out of the Medicaid or Medicare program.

Similar questions have also been raised in Europe where demographic changes are creating important policy questions. Due to the fact that a large proportion of seniors in many developing countries live in poverty with no formal safety net, and that both the family and the community often provide strong informal old-age support, these studies may also provide some valuable insights and understanding into the effects of reforming pension programs around the world.

This article is based on:

This research was supported by NIH/NIA grant (1 R03 AG048920), Natural Science Fund of China (NSFC) (Approval Nos. 70525003 and 70828002) and the James Tobin Summer Research Fund at Department of Economics at Yale University.

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Differences in risk attitudes do not explain gender gap in leadership positions

cardsA recent IZA World of Labor article suggests that gender differences in attitudes toward risk are less significant than previously claimed and cannot explain women’s under-representation in high-level occupations.

The commonly accepted argument in the economics literature is that women are more risk averse than men. They are therefore less likely to choose a career path leading to high-level jobs in which a large share of the remuneration comes from bonuses based on company performance—deemed higher risk—and are, as a result, likely to be underrepresented in such positions.

As attitude toward risk is still generally considered an innate behavioral trait, attributing gender differences in labor market outcomes to gender differences in risk attitudes implies that policy interventions can play only a very restricted role in dealing with labor market inequality.

Female risk aversion overrated

Summarizing the recent experimental economics literature, Antonio Filippin (University of Milan & IZA) challenges the previous consensus about gender differences in risk attitudes. He argues that beliefs about higher risk aversion among women are stronger than the actual evidence supporting them. In fact, there is no direct proof demonstrating that greater female risk aversion can explain why women are underrepresented in top-level positions in the labor market.


Moreover, recent research shows that gender differences in risk attitudes are neither large nor ubiquitous. Rather, gender explains only a very small fraction of the variance in risk attitudes, and even finding such differences depends on the method used to elicit the risk preferences.

[1] IZA DP No. 8184 (forthcoming in: Management Science)

If risk preferences only play a limited role, if any, in explaining unequal labor market outcomes, this leaves plenty of room for policies aimed at eliminating discrimination and supporting women’s participation in the labor market.

Women ask, but they don’t get

Apart from their disadvantages in career advancement, women typically earn less than men. It is often argued that this may be because (i) women ‘don’t ask’ and (ii) the reason they fail to ask is out of concern for the quality of their relationships at work.  This account is difficult to assess with standard labor-economics data sets. Hence a new IZA paper by Benjamin Artz, Amanda H. Goodall and Andrew J. Oswald examines direct survey evidence from Australia.

Using matched employer-employee data from 2013-14, the paper finds that the women-don’t-ask account is incorrect.  Once an hours-of-work variable is included in ‘asking’ equations, hypotheses (i) and (ii) can be rejected. “If we find that women are asking and aren’t getting the pay rises, it points the finger toward discrimination,” says Amanda Goodall.

Gender differences in behavior under competitive pressure

While the above studies find male-female differences in competitive behavior to be overrated, evidence from professional sports suggests that substantial gender differences do exist in high-pressure situations. Data on top male basketball (NBA playoffs) and top female basketball players (WNBA playoffs) reveal that men increase risk-taking when they could win the match with a risky strategy. Women, in contrast, reduce their risk-taking in these situations. The less time left in a match, the larger is this gap.

However, such gender differences seem to disappear when women compete against men. In an analysis of 4,279 episodes of the popular US game show Jeopardy!, this surprising result emerges with remarkable consistency for the probability to (i) respond, (ii) respond correctly, and (iii) respond correctly in high-stakes situations. Even risk preferences in wagering decisions, where gender differences are especially pronounced, do not differ across gender once a woman competes against males. Derived from a large real-life setting, these findings suggest that gender differences in performance and risk attitudes are not gender-inherent, but rather emerge in distinct social environments.

A third scenario – female competitors exposed to the presence of men without the element of direct competition – is analyzed in a new study that looks at data from the New York City Marathon. Being overtaken by men changes nothing about the anticipated rewards to female performance or the returns to effort in this competitive environment. However, lower-ability female runners are shown to reduce their pace after the initial passing by the fastest running men.

Further reading:
IZA World of Labor research on the gender gap and women in the labor market.

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