People looking to buy and sell homes in areas with large concentrations of Asian immigrants may benefit from a crash course in Chinese numerology. In many Chinese dialects, the word for “four” is a homonym for death, and “eight” sounds like wealth and prosperity, these differences may seem like interesting quirks or cultural cues. But if you’re holding real estate in a neighborhood that has experienced a Chinese influx in recent decades, they are no laughing matter: the last digit of your address could literally cost you or earn you extra thousands of dollars. A new IZA Discussion Paper by Nicole Fortin, Andrew Hill and Jeff Huang looks at five years’ worth of single-family dwelling sales—nearly 117,000 transactions—in the Greater Vancouver area of British Columbia, and isolates the interaction between the fateful addresses and local ethnic Chinese concentration using data from the Canadian Censuses. The authors find that homes addresses ending with lucky eights sold at a 2.5 per cent premium, while unlucky fours sold at a 2.2 per cent discount in neighborhoods with a higher than the 18 percent average Chinese concentration. Consistent with speculative behavior, the paper shows similar effects in repeated sales outside of Chinese neighborhoods. Wanting to exploit these quirks further, you are not alone; so many homeowners with ill-fated addresses have had their addresses changed so that unlucky fours have almost disappeared in some Chinese areas and city-councils are reviewing their address change policies.
Why start-up subsidies even help in labor market slumps
Subsidizing unemployed workers to start their own business has been proven an effective policy tool to improve long-term employment and income prospects of unemployed. One open question is whether these labor market programs also work in regions with bad labor market conditions: on the one hand, subsidies might be highly effective given few vacancies; on the other hand, adverse labor market conditions might jeopardize the long-term economic success of the start-up. A new IZA discussion paper by Marco Caliendo and Steffen Künn investigates this trade-off using data on participants in German start-up subsidy programs. The authors show that even in regions with bad labor market conditions unemployed individuals in start-up programs do – mostly – better than people in privileged labor markets. This effect is mainly driven by the bad labor market prospects of the non-participants, rather than by differences in firm performance of the newly founded enterprise under different circumstances. The authors conclude that policy makers should continue to provide start-up subsidies to unemployed individuals in the future — especially in regions with unfavorable labor market conditions.
Getting stuck in the blues – on the persistence of depression and anxiety
With 10% of the population in the Western world affected, depression and anxiety are two major health disorders. While the social and economic costs of mental health problems, e.g. less successful labor market careers and high health care costs, are widely recognized, much less is known about their persistence. A new IZA discussion paper by John Roy and Stefanie Schurer examines why symptoms of depression and anxiety are so chronic in nature. The authors hypothesize that a first-time experience of an episode of depression or anxiety will alter an individual’s way of thinking and behavior which causes the individual to get trapped in a vicious cycle of continuously experiencing such symptoms in the future. Using Australian data, the study indeed finds that experiencing an episode of depression or anxiety doubles the probability of experiencing such an episode again in the next year. Low household income is a major risk factor in this “state dependence”, as it increases this probability by almost 500%. It immediately follows that treating first episodes of depression and anxiety is crucial in averting the excessive long-term economic and social costs associated with chronic mental health problems. Hence, the authors suggest that public policy makers in Australia should increase the hours of free counseling services provided to individuals suffering from depression or anxiety (currently 10 per year), and should target in particular low-income individuals.
How being a victim of school bullying affects your labor market career
Do victims of bullying at school still suffer later in their working lives? A new IZA Discussion Paper by Nick Drydakis answers this question by examining the long-term correlations between bullying in school and adult employment outcomes. Bullying experiences might decrease a victim’s productivity through lower academic achievement and mental health problems later in life. The empirical findings confirm this hypothesis: Labor force participation, employment probability, and hourly wages are negatively affected for bullying victims. Men are more likely to suffer from long-term consequences of bullying than women. Most vulnerable to the effects are homosexuals, immigrants, unmarried people, and those with low human capital and poor mental health.
Explaining the impact of the crisis on young and old workers in the EU
A new research project coordinated by IZA experts Werner Eichhorst and Michael Kendzia and commissioned by the EP Committee on Employment and Social Affairs analyzes the impact of the economic crisis on European labor markets, with special attention to the situation of young and old workers. The study shows that while young people in many EU countries have faced severe difficulties in finding jobs, employment rates of prime-aged and older workers have remained remarkably stable (see Figure 1).
On average, youth unemployment rates have increased twice as strongly as the rates of older workers between 2008 and 2011. The study further shows that youth unemployment sky-rocketed in countries (1) where unemployment for older workers also increased strongly, (2) with large construction sectors, (3) that have implemented two-tier reforms of employment protection. In contrast, pension reforms in many EU countries since the 1990s do not seem to have lowered the employment prospects of young people.
In general, there is little evidence of a close substitutability between young and elderly workers. The reason is that young and old workers cannot readily substitute each other in most sectors of the economy, given their different experience levels and skill profiles. Additional empirical evidence from regional labor markets suggests that early exit of elderly workers from the labor market tends to aggravate the labor market outcomes of young individuals. The study concludes that the employment rates for older and younger workers are positively related, tending to converge rather than diverge (see Figure 2). Accordingly, the retention of older workers neither impedes the employment of young workers nor does it increase their unemployment, indicating that there is no competition on the labor market between young and older workers.
The study also suggests ways to solve the European unemployment problem. In order to enhance the functioning of EU labor markets, vocational education and training policies, active labor market policies, and a smooth labor market regulation are of key importance. EU members states should therefore design and implement structural employment-friendly policies that help to stimulate job creation and economic growth. Moreover, a debate on the reforming European benefit systems turning them into re-employment payments should be initiated. In addition to this, EU countries should reform their employment protection legislation. Unbalanced employment protection legislation creates barriers to mobility and discourages the job-to-job or occupational mobility of prime-aged or older workers. Lastly, the experts stress that acquiring and adjusting job-related skills is essential in a dynamically changing economy. This is particularly the case for young people, where initial training and early work experience help to establish a solid employment record. The authors of the report therefore point out that it is necessary to disseminate information about initial vocational education among EU Member States, stressing the need for continuous skill updating and retraining.
Do people discriminate others or favor their ownkind?
Discrimination is omnipresent in today’s labor markets: women receive lower wages, foreigner are less likely to be hired. While the broad definition of discrimination is clear (‘the minority suffers compared to the majority’), there is no evidence on whether the differences arise because people really discriminate against others or because they favor their own kind.
This distinction can, however, affect wage gaps and other important labor market outcomes. A new IZA Discussion Paper by Jan Feld, Nicolas Salamanca, and Daniel S. Hamermesh investigates this question by conducting a field experiment at Maastricht University in The Netherlands. In the experiment, the authors have some exam
papers written without student names on the front page, others with. Graders were randomly assigned to students’ exams that did or did not contain the students’ names.
The paper shows that graders substantially favor students of their own nationality but do not discriminate against people of a different nationality. While there is neither favoritism nor discrimination by gender, the authors do show that more experienced graders and those who are worse teachers favor people like themselves the most. Thus, the methodology and results of the experiment suggest that favoritism and discrimination are not opposite sides of the same coin, but rather distinct concepts.
In the experiment, unequal treatment of students is caused by favoritism rather than discrimination. If this finding carries over to the labor and other markets, it might have an important policy implication: moral suasion stressing to members of the majority group that minority-group members are not “bad” might, for instance, be ineffective.
People react less to tax changes if tax rules are complex
How does a tax system’s complexity affect people’s reaction to tax changes? A new IZA Discussion Paper by Johannes Abeler and Simon Jäger answers this question by conducting a laboratory experiment. Participants are either faced with a simple or a highly complex tax system. Despite the differences in complexity, the work incentives of the two systems are identical. The authors then introduce the same sequence of tax changes in both groups. The experiment shows that people facing the complex tax system adjust their work effort less in response to a new tax compared to participants in the simple system. Many participants in the complex treatment even ignore the new tax rule entirely and do not change their behavior at all. The results suggest that the effect of tax increases in complex tax systems, which are common in many countries, might not lead to the strongly adverse effects critics of high tax rates expect.
Why brain drain can be good for your country
It can be quite costly for a country if the smartest brains move abroad. In the latest IZA interview, Visiting Research Fellow Peter J. Kuhn (University of California, Santa Barbara) explains why brain drain can also be beneficial for a country and gives advice to policy makers on how to react to the international migration of highly skilled workers.
How preschool helps to fight inequality
The widening wage gap between college educated and non-college educated workers in the US and around the world has raised the question of how education policy can effectively mitigate this trend is highly topical. A new IZA discussion paper by Nobel Prize Laureate James J. Heckman and Lakshmi K. Raut gives a clear answer: intervene early and send children to preschool. The authors show that attending preschool has long-term positive effects on school performance and labor market success — in particular for economically disadvantaged children. The paper finds that preschool strongly boosts cognitive and socialization skills, which themselves have positive effects on the level of schooling and the labor market earnings of individuals. Given these findings, the authors demonstrate the beneficial effects of a policy that could reduce the wage inequality between high and low-skilled workers in the long tun. Publicly providing preschool to economically disadvantaged children would (a) increases the probability of children with poor parents not to end up poor themselves, (b) increases the probability of children of non-college educated parents to attend college, (c) increases the college completion rate of the children of non-college educated parents, (d) reduces earnings inequality, and (e) would yield a net gain for society by increasing long-run per capita earnings even after taking into account the costs of such a reform.
The problems of being too skilled for your job
What if you are too skilled for your job? Previous research has shown that over-skilled workers receive lower wages. A current study by IZA Fellows, Kostas Mavromaras, Stéphane Mahuteau and Peter Sloane, together with Zhang Wei shows that over-skilling can even be a threat to growth potential of the economy. Economic growth is affected if workers remain in too easy jobs for too long and if wage penalties persist even after the over-skilled workers have changed to a more suitable job. Using Australian data, the authors find that between 15 and 30% of employees report themselves as over-skilled. The paper further shows that the nature and the consequences of over-skilling crucially depends on the level of education of workers. On the one hand, high-skilled graduates are less likely to remain in a too simple job for a long time. On the other hand, they suffer the biggest reduction in pay if the actually work in a job for which they are overqualified. In contrast, those workers with vocational qualifications below degree level are more likely to be over-skilled and remain in such jobs for a much longer time. Yet, they do not suffer any wage penalties for being over-skilled. The authors conclude that policy needs to consider both extent and persistence of skill mismatch as well as the size and persistence of the resulting wage effects if the problem is to be targeted efficiently.