Honesty plays a very important role in economic life. It affects the productivity of employees who are not constantly monitored by their bosses as well as the willingness to pay taxes. Sometimes people face situations in which being honest is not the best possible way of acting and they may even get rewarded for lying. But their decision whether to remain honest or to lie is not only driven by monetary incentives.
A new IZA discussion paper by Yuval Arbel, Ronen Bar-El, Erez Siniver and Yossef Tobol provides evidence that the degree of honesty is strongly determined by religiosity, gender and behavioral codes. The economists compared the behavior of students from the secular College of Management in Israel and the Jerusalem College of Technology, which is only attended by (ultra-)orthodox Jews. They asked the students to throw dice and report the outcome, which no one else got to see. The higher the reported number, the higher the monetary reward.
The paper shows that the average number reported by non-religious females was significantly higher than for orthodox or ultra-orthodox women. This suggests that the group of secular women cheated more often to achieve higher payments. Likewise, the group of religious men tended to be more honest than the secular men, but only to a small extent.
Looking at gender differences, the authors found a surprising result: In contrast to many other studies, where men were said to be less honest then women, the female groups in this experiment reported more fives or sixes than the males. The lowest degree of honesty was found among secular females. When the monetary incentive was removed, the non-religious men and women started to behave honestly. So it is evident that they had lied for the money.
Read abstract or download discussion paper.
Reservation wages represent the lowest wage for which an individual is willing to work. They are an important economic variable because they determine, among other things, whether or not an unemployed person will pick up a certain job. However, reservation wages are quite difficult to measure as they are usually not directly observable in the real world.
A new IZA discussion paper by Andreas Müller and Alan B. Krueger provides fresh evidence on the behavior of reservation wages over the unemployment spell using high-frequency longitudinal data from a survey of unemployed workers in New Jersey. The workers were interviewed on a weekly basis for up to 24 weeks.
The authors find that self-reported reservation wages decline at a modest rate over the spell of unemployment: per week of unemployment wages decline between 0.05 to 0.14 percent. This decline is driven primarily by older individuals and those with personal savings at the start of the survey.
The longitudinal nature of the data also allows to test the relationship between job acceptance and the reservation wage and offered wage. Job offers are more likely to be accepted if the offered wage exceeds the reservation wage, and the reservation wage has more predictive power in this regard than the pre-displacement wage, suggesting the reservation wage contains useful information about workers’ future decisions.
In addition, there is a discrete rise in job acceptance when the offered wage exceeds the reservation wage. In comparison to a calibrated job search model, the reservation wage starts out too high and declines too slowly, on average, suggesting that many workers persistently misjudge their prospects or anchor their reservation wage on their previous wage.
Read abstract or download discussion paper [PDF].
In tracked educational systems the choice of school track is one of the most crucial decisions in students’ lives. It has been shown that those who choose academic (or more selective) tracks tend to have a higher probability of continuing and succeeding in tertiary education, better employment opportunities and higher earnings. But do students and their families have all the relevant information they need to make a conscious choice? A new IZA discussion paper by Massimiliano Bratti, Martino Bernardi and Gianfranco De Simone tries to provide an answer to this question.
The starting point is data collected by an independent school track counseling service called Arianna, created by the municipality of Turin, the second largest city in Northern Italy. Arianna consists of a battery of tests able to measure cognitive and non-cognitive abilities of students in the final year of lower secondary school. Test scores along with other information collected from students and schools are used to give advice to students on the upper secondary school track that best matches their ability profile.
The paper demonstrates that the information and the recommendations provided by Arianna are indeed useful to students and parents. In fact, very often students tend to misperceive their actual ability, overestimating or underestimating their potential. As a result, students often choose tracks that stress their weaknesses instead of promoting their strengths. However, students and their families show an inclination to revise their initial enrollment intentions once new credible information is made available to them. When the Arianna program gives an indication of enrollment intentions not in line with the actual potential of the individual, the student and her family tend to change their initial choice accordingly and opt for a different track.
Furthermore, the findings suggest that those who make choices in line with the suggestions of the counseling services face a lower risk of retaining grades in the upper secondary education. Hence, the authors conclude that providing better information through counseling services may help to prevent failure and drop out in upper secondary education.
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Heated debates surround the economic effects of immigration in receiving countries. Research has shown that fears about competition for jobs or welfare are misguided, as immigrants contribute to receiving countries’ GDP (also per capita), employment rate, public budgets, or cross-border trade and business relationships; and immigrant entrepreneurs directly create jobs.
Much less is known, however, about the effects of immigration on inequality. This is because these effects are complex, as immigration changes the composition of the host population, may affect the distribution of wages or rents, and its effects may also be channeled through a behavioral response of natives or policy adjustment.
A new study by IZA director Klaus F. Zimmermann and CEU professor and IZA visiting research fellow Martin Kahanec published in the IZA Journal of Migration shows that skilled immigration increases the quality of the labor force, which in turn leads to a lower measure of inequality, the Gini coefficient, in receiving countries. The argument is supported by a theoretical model and empirically tested using data for the countries from the World Income Inequality database and OECD. The authors show that these effects are independent of a range of economic and demographic variables, such as GDP per capita, unemployment and participation rates, government size, or share of working age population. The authors conclude that immigration may decrease inequality in receiving countries.
Read and download the paper at: http://www.izajom.com/content/3/1/2.
Free mobility of labor, one of the pillars of the European Union, has experienced a decrease in popularity in several European countries. Indeed, Swiss citizens in a very recent referendum voted to impose quotas on immigrants from EU countries. Especially migration from recent Central and Eastern European accession countries has raised concerns in many European countries about increasing pressure in labor markets and social security systems.
In their IZA Discussion Paper “Migration as an Adjustment Mechanism in the Crisis? A Comparison of Europe and the United States” Julia Jauer, Thomas Liebig, John P. Martin, and Patrick A. Puhani show that free labor mobility contributed to alleviating asymmetric labor market shocks in Europe, especially during the financial crisis since 2008. The data for almost 300 European and more than 500 American regions are drawn from the European Labor Force Survey and the American Community Survey.
The authors find that recent migration flows have reacted quite significantly to the EU enlargements in 2004 and 2007 and to changes in labor market conditions. Indeed, in contrast to the pre-crisis situation and the findings of previous empirical studies, there is tentative evidence that the migration response to the crisis has been considerable in Europe. This contrasts with the experience of the United States, where the crisis and subsequent sluggish recovery were not accompanied by greater interregional labor mobility in reaction to labor market shocks.
The estimates suggest that, if all measured population changes in Europe’s regions were due to migration for employment purposes – i.e. an upper-bound estimate – up to about a quarter of the asymmetric labor market shock would be absorbed by migration within a year.
In Europe’s free mobility area, it is often overlooked that migrants exhibit higher employment rates than non-mobile Europeans. This is especially true for migrants with EU-10 (central European recent EU accession countries) citizenship. Citizens from southern Europe moving to another Eurozone country, however, have relatively low employment rates. For the Eurozone to function well as a common currency area, raising the contribution of Eurozone citizens to labor market adjustment requires a continued move towards freer movement of labor within Europe.
Read abstract or download disussion paper.
The Toll Index for January 2014 is just out, indicating that the German business cycle has started the year impressively at a six-year high. According to the index, which is based on the monthly transportation activity performed by heavy transport vehicles across the country, the German economy is doing only slightly worse than in January 2008. Compared to December 2013, transport activities per working day increased by 1.15%.
Note: The Toll Index is based on data from the MAUT system on German highways. The data and some of the nowcasting properties are discussed in a paper by Nikos Askitas and Klaus F. Zimmermann which appeared in the Journal of Forecasting. The paper had originally appeared as IZA DP 5522 and the data can be obtained from the IDSC of IZA.