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How an Italian pension reform reduced fertility

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In Southern European countries family ties are traditionally very strong. In Italy, three out of four individuals who already have children themselves meet with one of their parents at least once a week. And 42 percent of all grandparents see their grandchildren every day. They often look after the kids while the parents are working.

In a new IZA discussion paper Erich Battistin, Michele De Nadai and Mario Padula examine what happens when the elderly no longer have time to take care of their grandchildren. During the 1990s, Italy introduced a major pension reform, forcing individuals to work about five years longer. So for many Italians in their twenties, their parents were no longer available to take care of their offspring.

The researchers demonstrate that this pension reform had an effect on fertility. More precisely, they show that one more grandparent available to provide childcare makes young couples have on average five percent more kids. In other words, taking five families, and assigning each of them a grandparent to provide childcare, leads to one additional kid in one of the five families. For parents aged 30 and older, having a grandparent available also increases the likelihood of having kids by three percent. Especially in the South, where family ties are said to be stronger, these results are only weakly affected by the availability of childcare in kindergartens.

Since the results are not influenced by the wealth of the family either, the researchers conclude that preferences and social norms are the driving forces behind the fertility effect. They raise concerns that the pension reform had unintended intergenerational effects, reducing the fertility of young Italians.

Do immigrants improve the health of native workers?

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In the public debate, immigration is often blamed for increased healthcare costs and taxpayer burden. However, empirical evidence shows that immigrants are typically young and relatively healthy and, therefore, less likely to use health care than natives. Indeed, a voluminous set of studies provides evidence of a “healthy immigrant effect”. Immigrants are healthier than their population of origin and than natives upon their arrival, but their health deteriorates with time spent in the host country. Shedding light on these health patterns is crucial to evaluate the costs and benefits of migration, and, in particular, its impact on health care costs.

Yet, the mechanisms underlying immigrant health trajectories are not fully understood. Despite the evidence that immigrants are more likely to work in occupations that involve higher physical burden and are associated with higher risk of negative health outcomes, the relationship between working conditions and the health trajectories of immigrants has been largely ignored by previous studies.

In a new IZA discussion paper, Fabrizio Mazzonna and Osea Giuntella show that one of the mechanisms underlying the immigrant health deterioration is the self-selection of immigrants in more strenuous occupations. As immigrants arrive relatively healthy but with less human and financial capital than natives, they have stronger incentives to trade off health for higher lifetime earnings, accepting worse working conditions for higher wages. Using data from Germany (1996-2010), the authors show that the health deterioration of immigrants is larger among immigrants working in more physically demanding jobs. In light of these facts, the researchers investigate whether changes in the spatial concentration of immigrants affect natives’ health, by leading natives towards jobs involving less physical burden. Their findings show that a higher immigration rate decreases natives’ likelihood of doctor-assessed disability. Effects are concentrated among low skilled men in blue-collars jobs and larger for previous cohorts of immigrants.

The researchers show that immigration reduces the degree of physical intensity, the number of hours worked, and the likelihood of working at night among natives in blue-collar occupations. They conclude that the overall improvement on the observed working conditions can account for at least 25% of the positive effect of immigration on natives’ health.

In the army now: forced military service reduces future earnings

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In most countries of the world it is still a duty of young men to serve for the army for a couple of months or even years. For many of the recruits this not only means leaving home, but also an interruption of their educational or professional career.

In a new IZA Discussion Paper Paul Bingley, Petter Lundborg and Stéphanie Vincent Lyk-Jensen show that especially young men with high cognitive abilities get hit hard by this break. Using data of the Danish Military, they discover that future earnings of this group are diminished by 7 percent. This effect is nearly of the size of one additional year of schooling. There is no such wage-penalty for low-skilled conscripts.

In Denmark, all men turning 18 have to complete several examinations and an IQ Test. All males declared fit for military service participate in a lottery, in which about 40 percent are randomly chosen and have to serve in the army or navy for eight months. This special way of assignment helps the researchers to compare recruits between 25 and 35 who are very similar but only differ in being selected via the lottery or not.

According to the researchers, the earnings loss of the high-skilled is best explained by the forced break in their educational career. The duty of military service is a disruption in a period of life, when important decisions on investments in human capital are being taken. Many men have to postpone going to the university when they are picked by the military: A Dane who had to serve is 2,3 percent more likely to be still enrolled at university at age 30, which implies a delayed labor market entrance and reduced wages.

Roma face blatant discrimination in Europe – IZA Director calls for better integration

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Klaus F. Zimmermann (2nd from left) with EU Commissioner Vladimir Spidla and the High Level Advisory Group on Ethnic Minority Integration (2007)

The German government is planning to pass new legal provisions for asylum seekers. This would also facilitate the deportation of Roma people to their Eastern European countries of origin even though they face severe discrimination and persecution in these countries, as human rights organizations have shown. IZA Director Klaus F. Zimmermann therefore demands greater efforts to improve the social and economic integration of Roma in Europe.

IZA research provides evidence that working and living conditions are particularly dire for the Roma in countries like Serbia, Macedonia and Bosnia-Herzegovina which Germany intends to include in the “safe countries of origin” list. An article published in the IZA World of Labor examines the causes of the discrimination of Europe’s largest ethnic minority, particularly with regard to their labor market prospects and upward mobility. The findings illustrate that the Roma have faced enormous economic and social disadvantages in these countries for many years. They lack equal opportunity, for instance, in education, hiring, and pay.

Therefore, IZA Director Zimmermann calls on the German government to take this deplorable situation into account: “Rather than passing legislation that worsens the situation of Roma living in our country, Germany should promote an improved economic and social integration of this ethnic minority all across Europe.”

In early 2014, Zimmermann had discussed problems and possible solutions with Roma people and various stakeholders in Duisburg, one of the hot spots of Roma immigration to Germany. Over the past years IZA has also done substantial work for the European Commission including analyses and concepts aimed at improving the integration of ethnic minorities, especially the Roma, in Europe. “Greater integration efforts are not just a matter of moral and ethical concerns – they are also a must from a socio-economic perspective,” said Zimmermann.

Kahanec and Zimmermann have also edited the book “Ethnic Diversity In European Labor Markets: Challenges and Solutions” (Edward Elgar, 2011) with additional studies on the topic, including three IZA papers:

Why British men were ten centimeters shorter a century ago

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Smaller families, improved knowledge about nutrition and hygiene, and a cleaner environment with better housing, less overcrowding and a reduction in toxic heavy industry – all of these things have contributed to the spectacular increase in the height of the average young man in Britain over the past one hundred years.

An new IZA Discussion Paper by Roy Bailey (University of Essex), Tim Hatton (University of Essex and IZA) and Kris Inwood (University of Guelph) finds that a century ago the average height of British men was 168cm (5 feet 6 inches) compared with 178cm (5 feet 10 inches) today. In order to understand this we need to know why earlier generations were so short.

The two key ingredients of growth during childhood are nutrition, which builds bone and tissue, and disease, which impedes that process. These in turn depend on socio-economic conditions during childhood, which include household circumstances and conditions in the local area.

This study finds that household size mattered: men with six siblings were half an inch shorter than those with just one. But the locality mattered even more; men from districts where disease was rife were an inch shorter than those from the healthiest districts.

The researchers study the heights of men who were born in the 1890s and who enlisted in the British army in the First World War. Because of the pressures for ever more soldiers, recruitment was not very selective. Indeed, nearly one in every ten men in the sample were shorter than the official minimum height of five feet three inches. So they are fairly representative of their generation.

To capture their childhood circumstances, the study locates them as children in the 1901 census. By contrast with other historical studies of height (which typically capture only birthplace characteristics), the researchers are able to observe conditions in the individual’s childhood household as well as in the wider locality.

Analyzing the influence of household conditions, they find that recruits were shorter the more siblings they had, and surprisingly, the more earners there were in the family. The recruits were also shorter the more crowded the household and the lower the socioeconomic status of the household head. Thus, children growing up in larger, poorer and more crowded households had worse nutrition and were more exposed to infection.

But the strongest influence is the local disease environment, as measured by the infant mortality rate in the district. At the turn of the century, 15% of children died before their first birthday and so this is a sensitive indicator of the healthiness of different districts. Unhealthy districts were typically those where overcrowding was widespread, where heavy industry was prominent and where illiteracy was high (especially among mothers).

The results provide some clues as to what changed over the twentieth century. Public investment in water supply and sewage disposal was important in producing a cleaner environment. So was improvement in housing, as the slums were cleared and overcrowding was reduced. Heavy industry withered and became much less toxic.

And although access to better medical treatments expanded only modestly until after the Second World War, basic knowledge about nutrition and hygiene spread more and more widely. Advances in the education of parents (particularly mothers) combined with smaller families brought significant improvements in the nurturing of children.

How to make your employees creative – evidence from a field experiment

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As globalization increases the need to continuously improve and adapt to new technology and changing competition, many companies are seeking ways to engage employees more effectively in innovation. Existing studies of employee creativity are mostly based on field studies, survey data, or use lab experiments. In a new IZA discussion paper, Michael Gibbs, Susanne Neckermann and Christoph Siemroth study employee creativity using a unique dataset from a large technology company’s online suggestion system. This allows them to statistically study creativity in a real employment setting.

The paper’s primary analysis focuses on a controlled experiment the company used to test whether a new reward scheme could improve employee use of the suggestion system. The company randomly assigned client teams to treatment and control groups. Treatment teams received a new incentive that provided rewards for ideas that were implemented, and further rewards based on client rating of the success of the idea. Control teams did not receive the reward.

The experimental reward substantially increased the quality of ideas submitted. The reward also increased participation in the suggestion system, which was one of the firm’s objectives. However, it decreased the number of ideas per participating employee, with zero net effect on the total quantity of ideas. Finally, broader participation in the suggestion system persisted even after the reward was discontinued, suggesting habituation.

These findings suggest that there may be a tradeoff between the quantity and quality of ideas when employees “ideate” (try to come up with new ideas), as has been suggested by the psychology literature. The incentive rewarded ideas of sufficient quality to be implemented, rather than just rewarding any idea submitted. The second reward based on client rating further increased the incentive to focus on quality of ideas. It appears that employees focused on trying to develop fewer ideas with greater potential for contribution to the firm or its clients.

The authors also tested the claim that rewards “crowd out” intrinsic motivation, undermining creativity. The experimental reward affected more intrinsically motivated employees (those who suggested ideas before the reward was implemented) in the same way as other employees, which is inconsistent with crowding-out.

These findings have important implications for the design of incentive systems. First, incentive plans should recognize the distinction and possible tradeoff between the quantity and quality of ideas. Second, incentives do not necessarily undermine creativity. To motivate creativity, the performance measure should reflect quality, rather than quantity.

Finally, the paper illustrates two current trends in how firms manage employees, workforce analytics and experimentation – both of which have been used in research by personnel economists for many years. The use of an online suggestion system allowed the firm to collect data to quantify and analyze innovation. Firms increasingly track and statistically analyze the effects of personnel policies, including recruitment, evaluation, training, supervision, and incentives.

The use of experiments to test personnel policies before widespread implementation is also increasing. In this case the firm compared overall averages of the quantity of ideas suggested by employees in control and treatment teams, and concluded that the reward had not improved innovation. However, the authors of this paper used more advanced statistical methods to control for other factors, and came to the opposite conclusion. After seeing the findings from this research, the firm reversed its conclusion. It is now implementing the reward scheme throughout the organization. This illustrates that firm experiments should be analyzed carefully in order to reach the correct conclusions.

IZA interview: Pierre Cahuc on youth unemployment in Europe

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In the latest IZA interview, Pierre Cahuc, IZA Program Director for “Labor Markets and Institutions”, talks about youth unemployment in Europe. Pierre Cahuc is also one of the experts presenting the report on youth unemployment to French Prime Minister Jean-Marc Ayrault.


A stitch in time saves nine: procrastination and academic success

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Every student knows how hard it can be to pull yourself together and study. From a short-run perspective, being lazy makes sense: studying is an investment in the distant future, while lying in the sun provides immediate utility. So procrastination is a natural behavior – but apparently quite detrimental.

In a new IZA discussion paper, Maria De Paolo and Vincenzo Scoppa show that procrastination and academic success are highly negatively correlated. The authors analyze how long it took Italian undergraduates to enroll in their studies after their admission. All admitted students received their letter of acceptance on the same day and had one week to fill out some forms and pay a small tuition fee.

The researchers show that each day of waiting is connected to five credit points less in the first two years of the degree. Heavy procrastinators, defined as students who needed five or more days to complete their enrollment, achieved even 13 credits less than the average student. There is also a strong negative relation between the high-school grade and the propensity to procrastinate. The authors checked that these effects are not driven by ability, motivation or family background.

Because of their performance in a placement test, some students below a certain threshold were assigned to a special remedial program. This program consists of 160 hours of extra training in math and language skills. The students with the strongest tendency to procrastinate gained most from this program. According to the authors, this training is highly recommendable as it makes these students aware that they have to work harder to overcome their educational gaps.

UN interventions: Is it all about geography?

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Twenty years after the Rwandan Genocide, many people discuss about the lessons to be drawn: Why have the United Nations refused to intervene militarily, although half a million people were killed? Why, in contrast, have the Yugoslavian Wars received much greater attention from the international community?

In a new IZA discussion paper Juan C. Duque, Michael Jetter and Santiago Sosa put forward a hypothetical answer to these questions: Rwanda was ignored because of its geographic location. Analyzing data from 1950-2012, the authors show that for every 1,000 kilometers of distance from the three western UN Security Council members (France, UK and USA), the probability of a military intervention by the UN decreases by four percent. So it is 42 percent more likely that the UN would intervene in a conflict taking place in Mexico or Spain than in Malaysia or Indonesia.

The researchers show that the probability of military intervention increases when the conflict is especially brutal (+14-16% when there are 1,000 or more deaths in a year) and when the country is poor and small. This has no effect if the conflict is located near one of the major oil suppliers like Saudi Arabia or Kuwait.

The authors conclude that France, the UK and the US decide whether to intervene in a war for very practical reasons. The closer a conflict to their homeland, the greater the chances of success and the lower the costs. Also, in remote places there is no danger of massive refugee waves to western countries. No such geographical bias exists for non-military operations.

Knowing that you matter, matters: the luck of having a meaningful job

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What if somebody told you that your job was completely irrelevant and useless? Would you still work with the same effort? Probably not. But what if you got more money or became “employee of the month”?

In a new IZA discussion paper Michael Kosfeld, Susanne Neckermann and Xiaolan Yang analyze these questions. In a field experiment, they recruited more than 400 students at a Chinese University to help them enter a dataset into the computer. They told half of the students that their work is very important for their research project. The rest of the helpers were told that the data has already been entered, but some weird professor is not satisfied and wants the process to be repeated. So basically their work is useless.

The researchers discovered that students who thought they do something very meaningful, performed much better. They entered about 15 percent more questionnaires into the computer. Both groups responded similarly to monetary incentives: when promised one Yuan extra to the 50 Yuan fixed pay, both “high-meaning”and “low-meaning” helpers entered about eight percent more questionnaires.

In contrast, the response of the students to a special form of recognition was quite different between the two groups of students. In both groups some participants were told that the one with the most completed questionnaires would be awarded a smiley button in front of all other helpers. The students who thought their work was irrelevant showed 19 percent more effort to get this prize. In contrast, assistants who believed their work was important did not care about this award at all. The authors conclude that meaning and recognition affect workers through the same channel, so that the influence on effort and performance is substitutive, not additive.