IZA Newsroom

IZA – Institute of Labor Economics

admin

Women’s chances in STEM fields better than often thought

by

One of the most common explanations why women are underrepresented in many areas of science, technology, engineering, and mathematics (STEM) is that a hiring bias against women exists in those fields. A new study by Thomas Breda and Mélina Hillion, published as IZA DP No. 10079 and in Science, challenges this view. The authors show that in France the minority gender in a given field in academia is, on a very large scale, systematically favored during recruiting for high-level teaching positions in that field.

The analysis draws on rich administrative data on the three national exams used in France to recruit virtually all primary-school teachers (CRPE), middle- and high-school teachers (CAPES and Agrégation), as well as a large share of graduate school and university teachers (Agrégation).

Favored minority genders

Using the specific design of these exams, the authors are able to compare the outcomes of two separate sections of the exam: an oral test in which the gender of the student is known and a written gender-blind test. The results of these exams, which cover about 100,000 individuals observed in 11 different fields (from Math and Physics to Modern Literature and Foreign Languages) over the period 2006-2013, reveal a bias in favor of women that is strongly increasing with the extent of a field’s male-domination (see figure below).

This bias turns from 3 to 5 percentile ranks for men in literature and foreign languages to about 10 percentile ranks for women in math, physics or philosophy.

Female evaluation advantage/disadvantage and fields’ extent of male-domination

y-axis: gap between females’ average percentile rank on non-blind oral tests and blind written tests, minus the same gap for men. It is computed for each field-specific exam at the high- and medium-level. The size of each point indicates the extent to which it is different from 0 (p-value from tests of Student).

x-axis: Fields’ extent of (non) male-domination measured by the share of women among academics in the fields (see (22) for alternative measures).

The authors point out, however, that the focus on STEM versus non STEM fields can be misleading to understand female underrepresentation in academia, as some STEM fields are not dominated by men (e.g., 54% of U.S. Ph.Ds. in molecular biology are women) while some non-STEM fields, including humanities, are male-dominated (e.g., only 31% of U.S. PhDs in philosophy are women).

Thus, by exploiting an oral test that is similar across all field-specific exams and using the fact that some candidates take several exams, Breda and Hillion are able to confirm that these findings reflect evaluation biases rather than a selection process of candidates across fields and/or gender differences in abilities between oral and written tests.

Preferences for women disappear in lower level positions

These results confirm evidence from a recent correspondence study that puts forward that women who have already specialized and heavily invested in their field can actually be favored in male-dominated fields when the recruiting is for positions at high levels (from secondary school teaching to professorial hiring).

In contrast, an analysis of the recruiting process for primary school teachers suggests that pro-women biases in male-dominated fields may disappear in less prestigious and less selective hiring exams, where candidates are not necessarily specialized. The bias in favor of women in male-dominated fields might even reverse at lower levels, as was found in two experiments done with medium-skilled applicants.

Discrimination may then still impair women’s chances to pursue a career in quantitative science (or philosophy), but only at early stages of the curriculum, before or just when they enter the pipeline that leads to a PhD or a professorial position.

Counteracting stereotypes should focus on early ages

In summary, Breda and Hillion suggest that there is no compelling evidence of hiring discrimination against individuals who have already decided against social norms to pursue an academic or a teaching career in a field where their own gender is in the minority.

The authors conclude that active policies aimed at counteracting stereotypes and discrimination should probably focus on early ages, before educational choices are made. By advertising that women have at least as good—or even better—opportunities as their male counterparts in higher positions could encourage more young women to study in those fields.

Finally, non-blind evaluation and hiring should be favored over blind-evaluation in order to reduce gender imbalances across academic fields. In particular, policies imposing anonymous CVs in the first stages of academic hiring are likely to reach opposite effects to those expected. This confirms the findings of a previous IZA study on the hiring process for fresh Ph.D. economists.

Image source: pixabay

Thematic series: Reforming minimum wage and labor regulation policies in developing economies

by

Minimum wages are a not just a hot policy issue in the United States and other highly developed nations. They are also a central aspect of the policy discourse in developing and transition economies, with diametrically opposite perspectives dominating the debate. Theory is ambiguous, and at its core this is an empirical question, not least because enforcement can vary across countries.

A collection of papers published in the IZA Journal of Labor & Development conduct detailed and country specific analyses of the consequences of minimum wage policies for China, Indonesia, Thailand, Russia, Honduras and South Africa. They provide the empirical foundations for a reasoned debate on this contentious policy question.

  • View the Thematic Series (Guest Editors: Haroon Bhorat, Ravi Kanbur and Shi Li)

Peer effects! Peer effects everywhere! Whether you are shopping, working, leaving the nest…

by

Does the social environment influence what individuals buy? Are mothers more likely to work when other women in the neighborhood have a job? Do young people choose to continue living with their parents because their friends also do? If so, how does this mechanism work? From an economic point of view, understanding the influence of peers on individual decision-making is important in several ways.

Social networks can have considerable impact on social programs like welfare, for example, when households live beyond their means or save less in order to keep up with the consumption of peers. From a policy perspective, understanding these network effects is relevant not only because of the particular effects of specific policies on the intended group, but also because often these effects span beyond the group that was originally targeted.

Peer effects on consumption

To advance the understanding of the social influence of peers on consumption, Giacomo De Giorgi (NY Fed), Anders Frederiksen (Aarhus University & IZA) and Luigi Pistaferri (Stanford University & IZA) analyze data on the consumption behavior of the entire Danish population, organized into various social network categories and at the household and firm level.

Their paper, published as IZA DP No. 9983, uses administrative data on income and assets and constructs reference groups made of co-workers sharing similar characteristics such as occupation or education. They then match this dataset with the results from a large Danish consumption survey covering three years from 1994 until 1996. Consumption is also divided into three categories: visible goods (cars, luxury goods, clothing, etc.), neutral goods (e.g., food at home) and non-visible goods (insurance, rent, etc.).

Keeping up with the Joneses

The researchers find statistically significant evidence for “intertemporal” effects of social influence on individual consumption, showing that many households “follow” the consumption choices of either the wife’s or the husband’s colleagues over time. The results are in line with the “Keeping up with the Joneses” model, in which individual utility depends on the current average consumption of one’s peers.

Interestingly, the social influence on consumption did not change significantly with regard to the type of goods that were consumed. Therefore, De Giorgi and his colleagues were able to reject the “conspicuous consumption” model, which argues that the peer effects on consumption are tilted towards very visible goods, such as jewelry, luxury cars, and restaurants.

From a policy perspective, these results highlight the importance of taking into account the degree of connectedness of the policy’s target group. Depending on how much these buying habits actually pressure others to do the same, the overall effects of specific policies might reach beyond the intended group, for example, when a tax increase for the rich also affects less wealthy households that “follow” the consumption of their richer peers.

Peer effects on female labor supply

Network effects also affect behavior in the labor market. In another recent paper, published as IZA DP No. 9985, Nuno Mota (Fannie Mae), Eleonora Patacchini (Cornell University & IZA) and Stuart S. Rosenthal (Syracuse University) examine the influence of neighbors on the decision of women to work.

Their results reinforce the importance of neighborhood peer effects and the significance of cultural norms as drivers of economic decisions: Women appear to emulate the work behavior of nearby women with similar-age children. Adding one additional working peer to a woman’s adjacent neighbors increases her tendency to work by 4.5 percentage points, while adding a non-working peer reduces her tendency to work by 9 percentage points. For men, similar peer effects are mostly absent.

Read more about this topic in a previous IZA Newsroom Post.

Peer effects on nest-leaving behavior

A third new paper, IZA DP No. 10070 by Efi Adamopoulou (Bank of Italy & IZA) and Ezgi Kaya (Cardiff University), finds that the behavior of peers also explains, to some extent, why young adults nowadays tend to continue living with their parents longer. The researchers show that young adults with friends who have already made the choice to leave their parents’ home are also more likely to do the same.

The study analyzes data from the National Longitudinal Study of Adolescent Health (Add Health) on a representative sample of adolescents in the U.S. who were followed until young adulthood. The analysis accounts for various demographic and socioeconomic characteristics of young adults as well as the local labor and housing market conditions. Using the differences in the timing of leaving parental home, the paper investigates the causal effect of “leaving the nest” on friends in the same peer group.

The authors find significant effects on the decision of young adults to remain or leave their parents’ home depending on the respective choices made by their friends. They also show that the similarity in the choices of adolescents and their friends to leave the nest is neither simply due to the fact that people select friends with similar behavior to their own, nor to shared common factors that might affect the living arrangements of the entire peer group.

Imitation and reduced stigma

Furthermore, other possible mechanisms, such as the complementarities between friends that move out at the same time or the desire to maintain friendship ties, also fail to explain the main reason driving this peer influence. Rather, the authors conclude that the reduced stigma of living with parents during young adulthood, or simply imitation among friends, may lie behind these peers’ similar behavior.

This is relevant for debates over evaluating policies that are intended to boost youth independence or mobility. Almost five years after the end of the Great Recession in the U.S., even though labor market conditions have greatly recovered, the proportion of young adults living with their parents remains high. Moreover, in the “millennial” age group aged 20-24, who experienced the recession right at the beginning of their careers, it continues to increase. The new findings by Adamopoulou and Kaya suggest that in the presence of positive peer effects, the increasing trend may persist regardless of the labor and housing market conditions.

Image sources: pixabay 1 | 2 | 3

On the costs and benefits of international labor mobility: Interview with George Borjas

by

The drastic and unexpected increase in the number of people seeking asylum in Germany in 2015 has overshadowed the long ongoing discussion about amending the German immigration law. The current refugee situation has caused some to argue that such a reform is now obsolete. But, on the other hand, with refugee numbers beginning to decline, it could provide the opportunity to take up the discussion again and not yield the floor to right-wing populists.

Despite being one of the most popular destination countries of worldwide immigration since the early 1960s, Germany only introduced a half-hearted attempt at reform in 2004. The current law still falls short of well-defined qualitative and quantitative selection criteria.

George Borjas at IZA

We took the opportunity to ask George Borjas (Harvard University), one of the world’s leading migration economists and program director of IZA’s “Labor Mobility” research area, to comment on his perceptions and views in the debate.

IZA: Mirroring the polarized public debate, migration economists also have diverging views on the expected costs and benefits of increased international labor mobility. What is your take on this discussion in general?

George Borjas: This is a very interesting question that’s actually hard to answer. Whenever I think about international labor mobility, I tend to think of it in terms of economic models. So that means I have a particular methodological approach that sets up the question in my mind and that guides me to an answer. I do a lot of empirical analysis as well, but I usually look at the data through the lens of an economic framework.

Other social scientists, and even some economists, often look at immigration as a policy issue—which it obviously is—but that lens also determines how one frames questions and how one looks at data. The problem with this policy-based lens is that it is very easy for your own policy preferences to filter into the work and contaminate the conclusions.

Germany is in the midst of a public debate about how to reform its migration law. How can migration policy make a difference in extracting potential benefits from migration?

If the economic literature on immigration has taught us anything, it has taught us that from the receiving country’s point of view, high-skill migration is economically more beneficial than low-skill migration. High-skill immigrants tend to complement the resources that industrialized economies have far more than low-skill immigrants.

High-skill immigrants could potentially introduce knowledge and information that would spill over into other sectors of the economy, making everyone more productive. And high-skill immigrants would contribute more in taxes and require many fewer social services.

The question, therefore, is not whether high-skill immigration is economically preferable to low-skill immigration. The question instead is whether the receiving country’s immigration policy should be guided by economic gains alone.

You have an upcoming release of a new book this October titled, “We Wanted Workers: Unraveling the Immigration Narrative.” How would you describe the key message for German readers?

The title of the book comes from a quote by Swiss writer Max Frisch. Looking at the guest worker migration into Germany and other Western European countries in the 1950s and 1960s, he quipped that: “We wanted workers, but we got people instead.”

I think a key lesson from this insight, which I develop in my new book, is that the “economistic perspective” on international migration—one that views immigrants as an army of worker-robots—is very misguided. Immigrants are people who have many other consequences on the receiving country, and the economic impact of those consequences could be far greater than the benefits that accrue from immigrant participation in the labor market.

The overeducated Italian doctors

by

By Giuseppe Lucio Gaeta, Giuseppe Lubrano Lavadera, and Francesco Pastore

Gaining a Ph.D. possibly determines positive outcomes from both an individual and a societal perspective. For candidates, doctoral education is an investment aimed at acquiring skills and competences to be used in future career. For the society as a whole those who achieve a Ph.D. are likely promoters of innovation. In order to achieve these outcomes, Ph.D. holders must be able to get job positions that allow them to fully exploit their educational background. How frequently does this occur?

A crucial question in Europe and in Italy

This question is particularly important in Europe nowadays. Starting from the Bologna Process, doctoral studies are interpreted as the third cycle of education and therefore public as well as private entities, alongside the academia, are considered as possible destinations for Ph.D. holders. This makes it very important to investigate whether the job-education matching is frequent among Ph.D. holders.

Italy is an appropriate context to investigate this issue for two main reasons. First, a remarkable growth of doctoral education has been reported in this country over recent years. Data reveals that at the beginning of the 2000s the annual number of new Ph.D. holders was approximately 3,000 while few years later, in 2006 it was higher than 10,000. Nevertheless, in 2011, the Italian graduation rate at a doctoral level was still lower than the OECD average.

Second, in Italy the size of personnel devoted to research and development (R&D) is lower than the EU28 average. Personnel working in Italian universities has been declining from 2008 (-17%, data provided by the Italian Ministry of Education, Universities and Research), while over recent years (2007-2013) an opposite increasing trend (+33%) is reported for the R&D personnel working in private firms.

Unemployment and overeducation

In 2009, ISTAT carried out a survey of Ph.D. holders who completed their studies three and five years earlier, in 2006 and in 2004, respectively. The data reveals that unemployment among Ph.D. holders is lower than what is reported for university graduates. A share as high as 92.5% of doctors who completed their studies in 2006 was working at the time of the survey and the figure is even higher in the case of those who graduated in 2004 (93.7%).

Figure 1 confirms this, while also showing that there is high heterogeneity of unemployment rates across fields of study, since Human Sciences and some of the Social Sciences perform worse than other fields. The share of Ph.D. holders working in the academia after the completion of their studies is approximately 36% with a remarkable variability among fields of study; it is higher in Mathematics and Physics and lower in Law and Life Sciences (see figure below).

Figure 1: Unemployment and university employment of Ph.D. holders.
Source: IZA DP No. 10051 based on ISTAT data.

What about the job to education matching among those who work outside of the academia? Approximately 31.28% of them report that their Ph.D. title was not useful to get the job they were carrying out when interviewed. Nevertheless this figure does not tell us anything about skills utilization.

In order to provide a more in depth analysis, we used the ISTAT self-reported data to observe for each of the respondents which of the following alternative situation applies: 1) genuine overeducation (GO) defined as holding a job for which the Ph.D. title and the skills acquired during doctoral studies are useless; 2) apparent overeducation (AO) that arises when the Ph.D. title was not useful to get the current job while doctoral competences are valuable in carrying it out; 3) apparent matching (AM), that arises when doctoral education was useful to get the current job but Ph.D. skills are not; 4) genuine matching (GM) defined as holding a job for which both the Ph.D. title and skills acquired during doctoral studies are useful.

Figure 2 shows the incidence of these conditions among the surveyed doctorate holders who work in the extra-academic by field of doctoral studies. Data suggests that GO is particularly frequent among those who studied Philosophy, Law, Political Sciences and Human Sciences. Particularly worrying is that the sum of GO and AM results to be higher than 50% in most of the fields of study, which suggests that the application of skills acquired during Ph.D. studies is critical.

Figure 2: Genuine overeducation (GO), apparent matching (AM) , apparent overeducation (AO) and genuine matching (GM) among Ph.D. holders working outside the academia.
Source: IZA DP No. 10051 based on ISTAT data.

The detrimental effect of overeducation on wages

This mismatch presumably affects in a negative way the Ph.D. holders’ capacity to generate positive outcomes for the society but also individual private returns to education might be harmed by it.

To check whether the latter claim is true, our recent IZA Discussion Paper relies on the cross-sectional data presented so far. We account for the possible endogeneity of GO by proposing an instrumental variable analysis in which the instrument is represented by the incidence of GO among those who share the same profile of respondents in terms of field of study, area of residence and year of graduation.

According to the empirical investigation, GO leads to a wage penalty of approximately -9%. This effect is remarkably higher (approximately -25%) when the GO status of respondents is defined in a slightly different way, i.e. when we consider as genuinely overeducated those who hold a job for which the Ph.D. title is useless and who are totally dissatisfied with the current use of the skills acquired during their doctoral studies.

Conclusion

While most of research focuses on the career outcomes of university graduates, our essay suggests that there is also need of investigating those of doctors. Since Ph.D. holders are considered to be crucial actors in knowledge economies, incentives should be designed in order to ease the application of doctoral knowledge in non-academic jobs and support the dialogue between the academic and non-academic world in defining some specific topics for Ph.D. training.

Keeping in mind these aims, it is very important to carry out a careful assessment of projects such as the recently released Italian Ph.D.ITalents, which is specifically aimed at easing matching between supply and demand of doctors.

Image Source: Pixabay

+++

On a related note, see also Hilmar Schneider’s recent op-ed (in German) published in Wirtschaftswoche:

How female labor supply is influenced by working neighbors and retired grandmothers

by

Over the last century, female labor participation has increased in almost all developed countries. The availability of child care and increased contraceptive access along with other institutional, cultural and policy changes have made it easier for women to reconcile family and career.

But while the employment gender gap is still substantial in many European countries, more recent decades have seen a flattening of this trend. In a time when progressive population aging makes an increase in female labor force participation more relevant than ever, economists are increasingly studying the factors affecting women’s labor market decisions.

Three recent IZA discussion papers investigate causal mechanisms that affect female labor supply in both Europe and the US by analyzing the influence of peer effects on women (US, Norway) or the availability of grandparents as care takers (Italy).

Neighbors affect women’s decision to work

The IZA paper by Nuno Mota (Fannie Mae), Eleonora Patacchini (Cornell University & IZA) and Stuart S. Rosenthal (Syracuse University) examines how neighborhood peers affect American women’s decision to work. The researchers use panel data from the American Housing Survey (AHS) from the years 1985 to 1993 and classify individuals into peer groups. In contrast to earlier studies that based groups on race, gender, or some other trait, the authors assume that peers can influence each other through role model effects or information spillovers and look at individual behavioral choices which align with those in the same peer group.

Their findings show that women appear to emulate the work behavior of nearby women with similar age children. Their results suggest that adding one additional working peer to a women’s adjacent neighbors increases her tendency to work by 4.5 percentage points. Adding a non-working peer reduces her tendency to work by 9 percentage points, while adding non-peers to a women’s adjacent neighbors has little influence on her decision to work.

Socio-cultural norms and the family peer effect

Addressing the same phenomenon from a different angle, the IZA paper by University of York researchers Cheti Nicoletti and Emma Tominey with Kjell G. Salvanes (NHH & IZA) uses a comparable approach but focuses on mothers only. Since the rise in female labor participation has been largely driven by women that returned to the labor market after childbirth, they analyze how the choices of peers with similar family structures affect that decision. Using the Norwegian administrative data covering the full population of
mothers giving birth between 1997 and 2002, they show that mothers too tend to emulate the work behavior of nearby women with similar age children.

Their results show that an increase of one hour worked in a family-peer group raises the mothers’ working hours by about half an hour in the first six years after birth. Such family peer effects would imply a social multiplier of about two, meaning that a policy change which causes a direct effect on mothers’ labor supply of one working hour would be amplified by a factor of two through the indirect effect of the influence of family peers.

The study also finds a similar peer effect for mothers’ labor supply after the second childbirth, indicating that the family peer effect is not primarily driven by the mere information about potential consequences of a mother’s decisions to work. Rather, after their second childbirth, mothers can be expected to be well informed about the benefits and consequences of their decision to enter the labor market.

Thus, the researchers point instead to the importance of social and cultural norms. Furthermore, they find that the family peer effect is smaller for mothers with a university degree, leading the authors to the conclusion that the role of information transmission via peer groups is larger for less educated women.

Available grandparents increase mothers’ labor supply

Next to social norms, another more practical, but no less relevant factor affecting women’s decision to work is the availability of grandparents as babysitters. Especially in countries that spend little on public child care, parents often rely on their own parents to look after their children when they go to work. The IZA paper by University of Milan scholars Massimiliano Bratti, Tommaso Frattini and Francesco Scervini (HDCP-IRC) seeks to find out how changes in the availability of grandparents affects female labor supply.

In order to measure the effect, they investigate how three pension reforms in Italy that gradually elevated the retirement age to 65 affected the employment of women who have children under 15 years of age. They classify grandparents as ‘available’ if they are eligible for meeting the pension requirements. Italy presents an ideal case for this study, with its low rates of female employment, little formal child care provision, and the several pension reforms implemented in a relatively short time span.

The Italian researchers find that among the women studied those whose own mothers are eligible for retirement have a 13 percent higher probability of being employed than those whose mothers are ineligible. The pension eligibility of maternal grandfathers and both grandparents on the father’s side, however, has no significant effect on women’s employment probability.

The study demonstrates that the eligibility of maternal grandmothers for retirement greatly affects their availability as child care providers. Therefore, raising the retirement age without at the same time sufficiently investing in public child care may further widen the already large intergenerational and gender gaps in employment by reducing the labor force participation of young women.

Image Source: pixabay

Pocket money and part-time job: Do parents tax their children?

by

Young adults who are still living with their parents and still in compulsory education finance their independent consumption using either parental transfers (pocket money), or by working part-time. Parents care about their own and their children’s consumption, but also about the effect that part-time work might have on their children’s study time and academic achievement, so are prepared to sacrifice some of their income to subsidize their children’s expenses.

A new IZA Discussion Paper by Angus Holford (ISER, University of Essex) investigates how parents and their teenage children interact to set the amounts of (i) pocket money and (ii) part-time work. The analysis uses data on part-time working hours, and pocket money from parents, reported by around 5,000 girls and 5,000 boys in compulsory education in England, interviewed annually between 2004 (when they were 14) and 2006 (when they were 16).

Teenage gender pay gap

At age 14, 25% of boys but only 19% of girls had a part-time job. By age 16, girls had overtaken (32% against 29%) but were earning slightly lower wages for similar hours (£4.06 against £4.34 per hour, both for about 6.5 hours a week). The propensity to offer regular allowances from parents was very similar for boys and girls, at around 80% over this period.

Children take into account the money they get from parents when deciding whether to work or not. At age 14 they are 10-15 percentage points less likely to work if they are receiving an allowance, and this gap increases to 20 percentage points by age 16. Similarly, parents are around 15 percentage points less likely to give an allowance if their child is in paid work.

Parental safety net

The empirical analysis of parents’ and children’s behavior reveals two key findings. The first is that, other things equal, parents are more likely to give regular pocket money to teenagers who will have a harder time finding a job. This includes teenagers who are younger within their academic year at school so at a disadvantage when vacancies arise in the autumn, both before the run-up to Christmas and when older cohorts leave for university; those living in areas with higher rates of adult unemployment; and those living in areas from which the nearest shops are less accessible.

This tells us that rather than being opportunistic (“these parents don’t need to pay their children not to work, so they don’t”), parents effectively ‘insure’ their child’s independent consumption against labor market difficulties outside their control. They would like them to finance their own personal spending money, but will not penalize them if this proves difficult.

More work, less pocket money

The second is that parents are less likely give regular pocket money to teenagers, the longer the teenager’s hours of part-time work. In other words, parents effectively tax their children’s earnings from part-time work, by taking away cash they would otherwise be handing over. This effect is larger for girls than boys and strongest when they are 16 years old.

The findings suggest that close to the high-stakes GCSE exams, which determine these children’s future educational and labor market opportunities, parents become more inclined to use their financial resources to reduce their child’s incentive to work, hoping they will spend more time studying instead.

Image source: pixabay

Is your government a big spender?

by

In 2014, the OECD average in public social spending was about 22% of GDP, with upward trends being observed in almost every country. The question about the role and extent of state interventions is at the core of the economics profession, and most economists have been traditionally skeptic about the steady growth in the magnitude of public spending.

Public social expenditure as a percent of GDP, 2007, peak-level after 2007, and 2014.
Source: OECD Social Expenditure Database.

While political scientists interpret this rising importance of the state as the outcome of the collective desires of voters, it remains unclear in how much the public debate might be based on false beliefs and expectations about the current size of government spending. If citizens are imperfectly informed about the actual extent of public expenditures, the size of government may not be well aligned with their preferences.

With these questions in mind, researchers Philipp Lergetporer, Guido Schwerdt, Katharina Werner, and Ludger Woessmann analyze in their new IZA Discussion Paper how information about actual levels of public spending affects German citizens’ support for increased public spending.

The authors devised a series of experiments in a survey with over 4,000 respondents who were randomly classified into a control and a treatment group and asked about their preferences for increased spending in Germany. Prior to the survey, the treatment group was provided with information on current levels of public spending: €227 billion on social security, €95 billion on education, €38 billion on public safety, €27 billion on defense, and €10 billion on culture. The control group, on the other hand, was not provided this information before the questions were asked.

The results summarized in Figure 1 highlight a strong correlation between the provided (or withheld) spending information and the level of support for increased spending levels. Across all domains, the informed individuals showed less support for more spending compared to individuals who did not receive the information, with the strongest differences found for education.

The observed differences depending on access to information indicate that a sizable share of respondents hold incorrect beliefs about current spending levels. To delve deeper, in a follow-up experiment the authors confirm that the results are primarily driven by those who underestimated actual spending levels before receiving the true information, while well-informed individuals did not react to the additional information.

Taken together, the results imply that high levels of public support for growing public spending levels are actually based on a lack of information, and providing accurate spending information may be expected to lower public support for increased government expenditure.

What politicos get wrong in Germany’s retirement debate

by

Werner Eichhorst

A crucial reality check for all Germany’s politicians eager to hand out even more retirement benefits: They need to ensure that the – already staggering – financial burden carried by the younger members of the workforce will not rise even more.

Keeping young people motivated and willing to carry their load is of paramount importance and will be difficult enough. Any further increase may be the straw that breaks the proverbial “camel’s” back.

That’s the gist of an op-ed by Werner Eichhorst, IZA Director of Labor Policy Europe, published in Fortune [read entire article].

Has Uber made it easier to get a ride in the rain?

by

Standing or walking in the rain is an activity best avoided. In New York City (NYC), when faced with such inclement weather, the demand for personal transportation naturally increases. During such scenarios, taxi drivers spend less time searching for customers and could thus earn a higher wage. Nonetheless, it has been a common complaint that it is difficult to find a taxi in the rain.

As an alternative to taxis, Uber entered the NYC market in May 2011 with surge pricing and mobile driver-passenger matching technology. Surge pricing means passengers pay a higher rate for the Uber service during times of high demand, which gives incentives to Uber drivers to provide rides in inclement conditions. Uber could thus be a logical response to unmet demand during poor weather.

Is it easier to find a taxi or an Uber driver in the rain?

In a new IZA DP, Abel Brodeur (University of Ottawa & IZA) and Kerry Nield (Carleton University) examine whether the number of Uber and taxi rides increases in inclement weather conditions. Based on all Uber and taxi rides in NYC in 2014-2015, they find evidence that the number of Uber rides per hour is about 25 percent higher when it is raining, which suggests that surge pricing encourages an increase in supply. On the other hand, the number of taxi rides per hour rises by only 4 percent during this time period.

Is Uber depressing taxi demand?

The study also examines to what extent the increasing popularity of Uber in NYC is harming taxi drivers. The researchers found that the number of taxi rides per hour decreased by 8 percent after Uber entered the market. This result is consistent with a substitution from taxis to Uber cars.

Has Uber made it easier to get a ride in the rain?

The researchers then test whether it has become easier to find a ride in the rain since May 2011. They first compare the total (Uber plus taxi) number of rides in a post-Uber period to the number of taxi rides in a pre-Uber period and find that the total number of rides increased by approximately 9 percent in post-Uber years. Then, they test whether it has been relatively easier to get a ride in rainy than in non-rainy hours after May 2011. The results indicate that the total number of rides has increased proportionally more in rainy hours.

The results have important implications for the ongoing debate on whether Uber is depressing taxi demand and whether Uber increases consumers’ welfare. In particular, they highlight that Uber is substituting taxi drivers and that surge pricing seems effective in increasing labor supply.

Image Source: Pixabay