Learning from the older brother? Sibling spillover effects in school achievement

brothersHow much a younger sibling’s school achievement is affected by his/her older sibling’s achievement at school is an important question to answer as it helps us understand whether investments in children may have multiplier effects through their impact on younger children. Cheti Nicoletti and Birgitta Rabe are the first to investigate this “sibling spillover effect” in a new IZA paper.

The older sibling’s achievement may have a direct effect on the younger sibling’s school grades if 1) the older sibling teaches the younger sibling or helps with homework; 2) the younger sibling imitates the older sibling, for example in their work style, or conversely tries to be different, for example to avoid competition; 3) the older sibling passes on important information about educational choices or school and teachers to the younger sibling.

When trying to assess the extent of any sibling spillover effects, it is important to distinguish the direct influence of the older to the younger sibling from any similarities in their exam grades that are caused by the fact that they come from the same family and are likely to go to the same school. Nicoletti and Rabe do this by combining several techniques known to economists.

The study shows that there is a small direct effect from the older sibling’s test scores to the younger sibling’s exam marks. More precisely, for each GCSE exam grade improvement of the older sibling – for example from a B to an A – the younger sibling’s exam marks would go up by just 4% of a grade. This effect is about equivalent to the impact of increasing yearly spending per pupil in the younger sibling’s school by £670.

The spillover effect is larger for siblings in families eligible for free school meals, living in deprived neighbourhoods and speaking a language other than English at home. This means that children from more deprived backgrounds benefit more from a high attaining older sibling than children from more affluent backgrounds.

It may be that the effect arises through information sharing about educational choices and schools/teachers. Information on this is likely harder to come by in poorer families, and the benefit to younger children therefore high. The findings of the study indicate that siblings can play an important role in conveying education-related information in families where parents have less access to such information. This suggests that investments into children from deprived families can have considerable multiplier effects on younger siblings.

Read abstract or download complete paper [PDF].

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European unemployment insurance faces dilemma

unemployment europeMore substantial fiscal integration in Europe by way of a common unemployment insurance scheme for eurozone member states? This question is currently a subject of intense discussion. Would an automatic stabilizer like this necessarily turn Europe into a transfer union? A recent IZA Discussion Paper by Mathias Dolls, Clemens Fuest, Dirk Neumann, Andreas Peichl shows that a European Unemployment Insurance would have cushioned the impact of the recent crisis in the most embattled euro area member states. Germany would have been a net contributor in the period between 2000 and 2013 despite the rather weak economic situation at the turn of the millennium. In future crises, however, burden-sharing might take a different turn.

Does the euro area need an unemployment insurance that completely or partially replaces national systems? Opinions on that matter are divided in the areas of politics and academia. Proponents stress that a joint unemployment insurance would stabilize total demand in the participating countries in times of crisis. Objectors argue that a European insurance system would transform the eurozone into a transfer union. The new study examines how different models of a European unemployment insurance would have affected households in the 18 countries of the euro area between 2000 and 2013. This is the first micro-data simulation to address this research question.

The authors found evidence that an unemployment insurance scheme for the euro area that pays a rate of 50 percent of the recipient’s last income level for a duration of 12 months could have been implemented with a relatively small annual budget. Over the period from 2000 to 2013, the benefits paid “by Europe” would have amounted to about 49 billion euros per year. In the simulation, the budget of the scheme was financed by the eurozone members with a standard contribution rate of 1.57 per cent of income per employee.

Five out of 18 euro area countries considered in the study would have been net contributors or net recipients in each year of the simulation period. The largest net contributors would be Austria, Germany and the Netherlands with average annual net contributions of 0.2–0.42 per cent of gross domestic product (GDP). Spain and Latvia would be the largest net recipients with average annual net benefits of 0.53 and 0.33 per cent of GDP. Cross-country redistribution effects are limited, however, if benefits are strictly directed towards member states where the labor market situation is worsening. In such a scenario, not a single eurozone member state would have been a permanent net contributor. All in all, household incomes would have been stabilized, in particular at the beginning of the financial and economic crisis.

Read abstract or download complete paper [PDF].

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Stealing to survive: Crime rates rise in response to poor harvest

wineBetween 1863 and 1890, phylloxera (an insect which attacks grapevine roots) destroyed about 40% of the French vineyards. The crisis could only be stopped when vineyards were replanted with hybrid American vines which were resistant to the insect.

This poor harvest induced a large productivity shock in the 19th century French economy that was still largely dependent on agricultural production (accounting for 30 percent of GDP at the time). Local credit markets, which could have alleviated the crisis, collapsed and the modern welfare state was not yet established. For a large share of the population, this meant a huge negative income shock.

The fact that phylloxera affected the different départements in different years offer a natural experiment to explore the effects of this negative income shock on property and violent crime rates, as done by Vincent Bignon, Eve Caroli and Roberto Galbiati in their new IZA Discussion Paper.

The results: Full contagion by phylloxera in a département on average increased property crime rates by 18 percent whereas violent crime rates dropped by about 12 percent. The authors show that the latter decrease really is driven by the drop in wine supply. The crisis lowered the consumption levels of alcohol, making the people less receptive for violence.

Read the abstract or download the complete discussion paper [PDF].

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The coach matters: Evidence from the Bundesliga

football-stadiumWhat difference does the quality of the single person at the top make for the overall performance of the organization? How dependent are large companies on their CEOs? Are they really the ones leading the firm or just mascots with very limited powers?

These questions are very hard to answer since CEOs work only for a very small number of different firms in their lifetime. This limits the scope to measure their contribution to organizational success, because observing the same manager in different organizations thus using different sets of resources and working with different people is crucial to measure a manager’s contribution to overall success.

In a new IZA Discussion Paper, Sandra Hentschel, Gerd Mühlheußer and Dirk Sliwka study the impact of managers on the success of professional soccer teams using data from the German “Bundesliga”. The authors exploit the high turnover of managers between teams to disentangle the managers’ contributions. Furthermore, team performance is publicly observable on a weekly basis.

The researchers find that teams employing a manager at the 75% ability percentile gain on average 0.25 points per game more than those employing a manager at the 25% ability percentile, which corresponds to a sizeable difference of 18% of the average number of points awarded per game.

As an example: In comparison to a moderately able manager, a team coached by Jürgen Klopp (the current coach of Borussia Dortmund) would have achieved 0.46 points more per game, leading to 15.64 more points per season. On the other hand, a team coached by Benno Möhlmann (the current manager of FSV Frankfurt) would have acquired 0.33 points less per game or 11.22 points per season.

Read the abstract or download the complete paper [PDF].

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Is formal care as good as the support of loving grandparents?

childSince early childcare plays an important role in the development of cognitive skills, it partially determines success later in life. What improves cognitive ability and behavioral development at a young age is therefore of crucial policy importance.

While early psychological theories have stressed the need for maternal care, more recent studies in psychology as well as in sociology and economics show that other childcare arrangements do not necessarily produce negative outcomes. Two of the most common alternatives to parental care are support by the grandparents and formal care centers.

In a new IZA Discussion Paper, Daniela Del Boca, Daniela Piazzalunga and Chiara Pronzato analyze the influence of these arrangements on the development of the child. Using data on 10,000 babies born in the UK in 2000 and 2001, the researchers find that children cared for by grandparents are better at naming objects, but perform worse in tests concerning basic concepts development, problem-solving, mathematical concepts and constructing ability than children in formal care.

Concerning school readiness at age three, the authors observe a positive effect of formal care centers, while more hours spent with grandparents have a negative influence. Also the positive effect on grandparents’ support on vocabulary at age three vanishes when the children become five years old.

Nevertheless, these results hide strong heterogeneities: The positive association between grandparents’ care and child outcomes is stronger for children growing up in more advantaged households (higher income and education) while the negative association is significant only for children in more disadvantaged households (lower income and education).

Read the abstract or download the complete discussion paper [PDF].


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And the IZA Prize goes to… Gary Fields!

fieldsCornell professor Gary S. Fields is the winner of the 2014 IZA Prize in Labor Economics for his outstanding contributions on the importance of efficient labor markets to fight poverty and foster economic development in low- and middle-income countries. Worth 50,000 euros, the IZA Prize is regarded as the most prestigious science award in the field. The award ceremony will take place during the ASSA annual meeting in Boston on January 4, 2015.

According to the award statement from the IZA Prize Committee, Fields pioneered economic thinking about labor markets in developing countries by focusing on indicators such as poverty, inequality and income mobility. Fields’ policy recommendations aim at increasing the level and security of wages for employees and self-employed by incentivizing investments in the private sector, growth and international trade, and by providing the necessary skills and business know-how to stimulate labor demand. In this respect, Fields also shows the shortcomings of previous development aid, which had not sufficiently targeted labor market needs.

In his groundbreaking book “Working Hard, Working Poor: A Global Journey” (2012) Fields illustrates that global poverty is a problem of the quality of employment; not, as widely believed, a matter of high unemployment rates, which are often lower in low- and middle-income countries than in high-income countries. A key problem is the lack of social insurance systems. Given that many jobs in developing countries are unstable and earnings are extremely low, people are unable to overcome the status of “working poor” and thus remain in poverty even when employed.

IZAPrizeMedalIZA Director Klaus F. Zimmermann underscored the immediate policy relevance of Fields’ research: “Fighting global poverty is the core task of international development aid. Gary Fields has shown that we need to evaluate existing programs and focus on the creation of more and better jobs.”

See some of Gary’s recent work was published at IZA:

Read more:

IZA Newsroom interview — 3 questions for Gary Fields:

How would you describe the policy relevance of your research?

Gary Fields: Most people derive most if not all of their income from the work they and other family members do. It follows that to assure that economic development reaches the poor, development efforts must be targeted on improving employment and earnings of low-income households.

What should be the goal of development policy?

Fighting poverty must be the focus of development efforts. Helping the poor earn their way out of poverty is a laudable goal and can serve as a rallying cry for national and international action.

How can developing countries create more and better jobs?

Some interventions are direct labor market policies: enhancing wage and salaried employment and raising the returns to self-employment. Others impinge upon labor markets: stimulating economic growth, pursuing international trade opportunities, and channeling foreign aid toward improving employment opportunities.

View also the keynote speech by Gary Fields at the latest IZA/World Bank conference in Lima, Peru:

…and a recent contribution to the World Bank blog:
A Better Life for the Developing World’s Self-Employed

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Mobilizing employment potentials of the service sector in manufacturing-heavy economies

Modernizing developed economies in order to remain competitive in global markets is a pressing issue when manufacturing jobs can be automated or off-shored, with the threat of many of these jobs disappearing in the nearer future. This potentially affects all developed economies, but in particular manufacturing-heavy countries such as Germany or Korea.


Werner Eichhorst

The Korean Development Institute (KDI) recently organized an international expert forum in Seoul to discuss how to promote future employment potentials in different types of services. A major challenge is to take advantage of technical innovations such as digitalization to create new and more sophisticated manufacturing goods that can be complemented by services. In the future we will likely see more service-oriented types of employment around innovative manufacturing core activities. Here, skill formation, but also regional and sectoral clustering is important. And the better this works, the smaller is the risk of off-shoring and automation, as IZA Director of Labor Policy Europe Werner Eichhorst explained at this event, using the German experiences as a case in point.

Related to the issue of rapid structural change and observable job polarization between knowledge-intensive and personal service tasks in many developed economies is the important issue of creating employment opportunities for the most disadvantaged, in particular the low-skilled and the long-term unemployed. Here, different options are available: training investment, publicly supported employment and direct job creation or a more flexible labor market relying on non-standard types of employment and low pay.

An international workshop organized by the Korean Employment Information Service (KEIS) collected the international evidence and stimulated the exchange of national experiences with these policy approaches. Apart from questions around the design and evaluation of active labor market policies for the most vulnerable groups, Werner Eichhorst addressed the issue of low pay and increased labor market flexibility as an alternative option in order to foster job creation for low-skilled or long-term unemployed people.

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