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IZA – Institute of Labor Economics

Worker pay rose in U.S. chains that abandoned no-poaching clauses

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Many US chains formerly prohibited one location from hiring another’s workers using contractual “no-poaching” clauses. When they abandoned this practice under legal pressure, worker pay rose by 4 to 6.6 percent. A new IZA discussion paper by Brian Callaci, Matthew Gibson, Sergio Pinto, Marshall Steinbaum and Matt Walsh investigates the wage impact using nationwide data from a wide array of US industries, from tax preparation to plumbing.

The paper takes advantage of an antitrust enforcement campaign undertaken by the Attorney General (AG) of Washington State. From mid 2018 through early 2020, the AG signed 239 agreements with individual chains, committing them to abandon no-poaching clauses.

Examples include McDonald’s (fast food), Jackson Hewitt (tax preparation), Expedia CruiseShipCenters (travel), European Wax Center (personal care), Hertz (car rental), and Weichert Real Estate Affiliates. The agreements bound chains not only in Washington State, but nationwide.

The result was an increase in labor market competition, with different locations inside the same chain now free to pursue the same workers. The authors estimate the effects of this increased competition on worker pay by comparing chains that agreed to abandon no-poaching clauses to other employers, before and after the agreements with the AG.

Using job vacancy data from Burning Glass and worker pay reports from Glassdoor, they find that abandonment of franchise (chain) no-poaching clauses increased worker pay by 4 to 6.6 percent on average. Pay increases were larger for salaried than for hourly workers. In addition, the study documents spillover pay increases for chain employers that did not sign agreements with the AG, but that compete for labor with chains that did.

Fig. 1C: Event study estimates, inverse sample (Burning Glass data)
Fig. 1D: Event study estimates, inverse sample (Glassdoor data)

These results suggest that low-pay labor markets are not almost perfectly competitive, as is often assumed. More broadly, the paper points to the importance of antitrust policy and enforcement for worker welfare.

Despite the efforts of the Washington State AG, no US court has yet ruled that franchise no-poaching clauses are illegal, and they are still used by some chains. To date private litigation attempting to recover damages for past use of franchise no-poaching clauses has not succeeded.

Woke jobs after Dobbs?

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In an increasingly politically polarized social environment, companies are more frequently engaging in politically and socially controversial issues, including gun control, LGTBQ issues, climate change, and racial equality. Such engagement may serve as a meaningful signal of company culture for current or prospective workers who support such values, but could alienate those with differing viewpoints. This raises an important question: What are the consequences of employers making socio-political statements?

Following the June 24, 2022, Dobbs v. Jackson Supreme Court ruling, which overturned the federal right to abortion established in Roe v. Wade, hundreds of employers publicly announced policies covering out-of-state travel for abortions and related care. In a new IZA discussion paper, Pawel Adrjan, Svenja Gudell, Emily Nix, Allison Shrivastava, Jason Sockin and Evan Starr examine the labor market implications of these announcements.

After developing a comprehensive list of the companies that made these public declarations, the authors asked how employees and job seekers reacted by studying the evolution of reviews on Glassdoor, focusing on 6.5 million reviews submitted from 2019 through the first half of 2023, as well as 3 billion job seeker clicks on Indeed during this period.

To estimate the impact these announcements had on employees, the researchers compared changes in job satisfaction within companies that made these announcements versus companies that did not. To ensure the non-announcing companies are as comparable as possible, they took each announcing company and identified the top 20 other companies that workers most commonly click on during a search session on Indeed. As an example, for the company Starbucks, the set of similar employers contained a number of fast-food service chains, but also retail stores.

More clicks on job postings

According to the analysis of the Indeed data, firms that announced supportive reproductive care policies saw an 8% increase in clicks on their job postings compared to similar jobs at similar employers that made no announcement. Because trends were similar for both groups of employers prior to the Dobbs decision, but diverged immediately afterwards, findings are attributable to these public announcements of support themselves. Higher job seeker interest was concentrated in Democratic-leaning states and in typically female-dominated jobs in states where abortion became illegal after Dobbs.

Given that employee sentiment is a strong predictor of turnover, job satisfaction is another key outcome for companies to care about. If sentiment improves following these public statements, then retention within the company might be expected to improve as well. If, however, workers respond adversely to their companies taking a strong socio-political stance, then this could be a precursor to existing employees leaving the company.

Lower employee satisfaction

The analysis of the Glassdoor data focuses on the 1-5 star ratings workers provide about senior management and culture. Directly after the announcements, there is a sharp and statistically significant decline of about 0.2 stars in employee satisfaction with management and culture for these companies that persists well into the post-announcement period.

This translates to an 8% decline. Since satisfaction falls, the authors anticipate some employees may leave the company. Indeed, they observe that reviews for announcing employers are 4% more likely to be written by former employees after these announcements.

The increase in dissatisfaction is concentrated among reviews for male-dominated jobs, suggesting that men dislike these announcements more than women. The free-response text workers write in their reviews provide suggestive evidence that this decline might be driven by misalignment of political views: The word “woke” shows up about 325% more often in the ‘Cons’ section of reviews (where workers detail the negative aspects of their workplaces) for announcing companies compared with those for non-announcing companies.

Higher wages offered

Using wage data from Indeed job postings, the authors also found that pay at firms that did make post-Dobbs announcements increased 4% relative to similar jobs at non-announcing firms, even on top of the potential costs of offering additional healthcare benefits. This wage increase is separate from, and cannot explain, the increased job seeker interest in postings from announcing firms.

The study also revealed that the increase in posted wages among announcing firms was larger at firms that experienced deeper declines in senior management ratings. This suggests, although it does not prove, that at least some companies that made post-Dobbs announcements and received negative feedback from existing employees may have offered bigger raises to offset deteriorating satisfaction with the firm’s political stance.

These findings highlight the challenges employers face when navigating politically polarizing issues. While the announcements caused current employees, especially those in male-dominated jobs, to give their companies lower evaluations, job seekers expressed more interest in working for them, especially those in more Democratic-leaning states. This suggests that even when companies wade into divisive issues, this can help them hire workers whose political views align with those of the company.

For a more detailed summary, see also the Indeed Hiring Lab.

What we associate with first names and how it helps explain discrimination

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Names are often one of the first things we learn about people. They can influence our first impression and how we process subsequent information about them. Names can also serve as the basis for discriminatory behavior. For example, research shows that resumes with distinctively Black names receive 50% fewer callbacks from employers compared to identical resumes with distinctly white names. In a new IZA discussion paper, Martin Abel and Rulof Burger aim to unpack underlying reasons contributing to name-based discrimination.

Figure 1: “Out of 10 people.., how many are… ?“

What do people associate with names?

Figure 1 shows race associations for 30 first names from a nationally representative sample comprising 1,500 participants from all 50 U.S. states. To accurately elicit beliefs about race, the researchers asked people how many out of 10 people belong to different groups and offered monetary incentives for correct responses. It turned out that when people perceive a name as Black, they also expect this worker to have lower levels of education, productivity, and non-cognitive skills. For example, perceiving a name to be Black (compared to white) is associated with a 47% decrease in the predicted likelihood of holding a master’s degree and a 46% decrease in perceived trustworthiness. Most of this racial bias persists when only looking at the effect of variation in race association between employers for the same name.

What’s in a name? Less than people think!

In a next step the authors compared the perceived racial gap with actual data obtained from 2,400 workers who performed the same task. The perceived gap in productivity of 25.2% is nearly three times larger than the actual gap of 9%. This finding aligns with recent studies that demonstrate people’s tendency to form beliefs about minorities that exaggerate between-race differences.

Name associations contribute to hiring discrimination.

Participants were then presented with pairs of workers and tasked with making hiring decisions. Each time they chose the more productive worker, they received a small payment. The results indicate that workers whose names are perceived as Black face a 30 percentage points hiring disadvantage. Notably, Figure 2 illustrates substantial variation in discrimination across different employer groups, with higher levels of discrimination observed among male, older, white, and conservative employers. In contrast, the study found no correlation between discrimination and employers’ educational attainment, the level of racial diversity in their zip code, or their prior experience with hiring.

Figure 2: Race discrimination across employer groups

 Employers use race as a decision heuristic

Hiring managers allocate very limited time to review each application, raising concerns that they may resort to heuristics or mental shortcuts based on race. Indeed, the researchers observe that greater differences in race perceptions among candidates lead to shorter decision times and increase confidence in their hiring decisions, even after accounting for variations in perceived productivity. Requiring employers to make decisions within a 2-second timeframe, which prompts instinctive decision-making, increases the racial gap in hiring by an additional 25%. Estimates from a neuro-psychological model of decision-making (DDM) show that under time pressure, people lower the information threshold and base their decision more on race perceptions, which are salient and thus easier to retrieve.

Who is most affected by time pressure?

Support for race-based affirmative action (AA) is the single biggest predictor of hiring discrimination (see Figure 2, top right). It also affects the responses to time pressure. Among white participants who oppose AA, the substantial hiring race gap of over 40% remains unaffected by time pressure. In contrast, those in favor of AA reduce discrimination from 34% to below 20% when provided with sufficient time. Results show this group overrides their instinctive, race-based assessments of workers and replaces them with more relevant productivity beliefs.

Name associations can hinder learning from new information and own memory

How much names affect people’s long-term economic outcomes remains an open question. Recent research suggests that names become less influential once people have access to more information about a person. However, other studies also indicate that (racial) biases can prevent people from collecting new information about others, leading them to refrain from interviewing a candidate, renting to certain individuals, or extending credits. The new study finds that biased beliefs can also impede individuals’ ability to learn from their own memory. Instead of seeking more nuanced information, many individuals overly rely on race associations when making decisions.

What does job applicants’ body art signal to employers?

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Scientific research confirms the influence of attractiveness on job prospects. While previous studies mainly examined factors beyond personal control, such as physical beauty and obesity, a new IZA discussion paper focuses on the importance of another external characteristic: body art, namely piercings and tattoos. How does visible body art affect job opportunities, and what perceptions do employers hold regarding candidates with body art?

To address these questions, Stijn Baert, Philippe Sterkens and Jolien Herregods conducted a large-scale experiment involving U.S. recruiters. They asked the recruiters to evaluate fictitious job candidates whose AI-generated photos varied in whether they had visible small or large tattoos or piercings. Additionally, the photos (see examples below) were manipulated to compare the effect of body art with another aspect of physical appearance – obesity.

Recruiters were not only tasked with advising colleagues on whether to invite the candidates for job interviews but also to identify any potential stigmas associated with body art, including eagerness to work with such candidates, personality traits, and productivity drivers.

Differences in perceived personality traits and productivity

The findings revealed that recruiters perceive job candidates with body art as less pleasant to collaborate with, both in terms of recruiters’ personal preferences for collaboration and their perceptions of other employees’ and clients’ preferences for collaboration. Regarding personality, candidates with body art are seen as less honest, less emotionally stable, less agreeable, and less conscientious overall. Notably, the stigma of lower emotional stability only applies to men with body art. On the other hand, job candidates with body art are also seen as more extroverted and open to new experiences. However, in terms of direct productivity drivers, they are perceived as less manageable.

These perceptions ultimately result in lower hireability for men with body art but not for women. Compared to candidates who are obese, those with body art score better overall in terms of hireability and rated personality, and similarly in terms of rated taste for collaboration, but worse in terms of rated direct productivity drivers.

Considering these findings, body art wearers (and overweight individuals) and those assisting them in the labor market, such as public employment agency officers, should be mindful of the stigmas they may encounter when applying for jobs and the contexts in which they might face higher thresholds for success.

The authors suggest that individuals with body art would benefit from signaling qualities like honesty, stability, and conscientiousness during job applications. For instance, examples of conscientiousness, a personality trait found to be highly valued by employers, could be highlighted in the cover letter.

What drives high self-employment in poor countries?

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Labor markets in poor countries differ fundamentally from those in richer ones. A central distinguishing feature consists in their very low levels of wage employment, and high self-employment. For instance, in countries with GDP per capita below $5,000 (in 2017 int. $), the average urban self-employment rate is 45%, which exceeds the average wage employment rate of only 43%. The discrepancy is even larger in rural areas. In the United States, in contrast, wage and salary workers account for about 85% of the labor force, and own-account workers make up only about 5% of employment.

Because of these stark differences, the creation of wage jobs has been identified as a key development challenge, and the wage employment rate is part of the United Nations Millennium Development Goals. But why is wage employment so low, and self-employment so high, in developing countries?

Most existing work on the topic has focused on factors related to self-employment, like the ease of entry or lack of regulation. In a new IZA discussion paper, Markus Poschke proposes a different channel: the study links the high self-employment rate in poor countries to the functioning of labor markets. This connection is motivated by two new facts shown in the study: (1) Although the unemployment rate is not higher in poor countries, this is entirely due to their high levels of self-employment. Relative to wage employment, unemployment is significantly higher in poor countries, implying that wage jobs are either harder to find or likely to last less long. (2) On top of this, self-employment is generally higher in countries with high unemployment relative to wage employment.

Self-employment as the lesser evil?

These patterns suggest a simple mechanism: when wage employment jobs are less attractive or harder to find, the unemployed may opt for self-employment instead – even if self-employment per se is not very attractive either.

Because a direct empirical investigation of this mechanism is elusive, the study evaluates its  importance by developing a new model and combining it with new data on labor market flows across countries. This new data set, which has just recently been assembled by Kevin Donovan, Will Lu and Todd Schoellman, comprehensively reports how many individuals move between wage employment, unemployment and self-employment every quarter in 37 countries spanning a wide range of income per capita. The countries covered include Brazil, Mexico, France, South Africa and the United States.

The new model builds on canonical models of “search” in the labor market, which analyze individual choices about labor market states, like job search, job to job moves etc., in response to fundamental characteristics of the economy, like the volatility of jobs and the difficulty of finding them. It extends existing models by also considering self-employment. As a result, the new model can account for all movements among wage employment, unemployment and self-employment in the 37 countries in the data set. Integrating self-employment into the model is essential for understanding labor markets in poor countries, where self-employment is much more prevalent than unemployment.

Frequent labor market shocks

The unemployed in the model face a choice: should they opt for job search or become self-employed? How many of them enter self-employment naturally depends on the characteristics of each economy. Once the model has been estimated for 37 countries, it turns out that a particularly important such characteristic are shocks to firms. Where shocks are more frequent, there is a greater risk that a job will end. This is why such shocks are an important determinant of the unemployment rate, as is well known from the existing literature.

The new study finds an important additional effect: on average, greater shocks raise the self-employment rate just as much as the unemployment rate, since they make job search less attractive compared to self-employment. This effect is particularly strong in countries where self-employment is already high for other reasons, like lower costs of entry, or lower regulation or taxation of the self-employed compared to employers.

In a comparative analysis, the study also sheds light on factors contributing to differences in unemployment and self-employment rates across countries. Countries with high self-employment and high unemployment relative to wage employment (like many poor countries) mostly exhibit cheap self-employment entry, frequent shocks to jobs, and greater difficulty in determining whether a worker and a job are a good fit (screening).

Negative effect on output

This analysis thus shows that the forces governing job creation and destruction, like the difficulty of hiring and shocks to jobs, also affect self-employment – and may even affect it more strongly than the unemployment rate. In addition, they affect overall income in an economy: where jobs are less attractive, individuals are willing to pursue self-employment opportunities that would not be worthwhile elsewhere. As a consequence, output declines by much more than indicated by the change in unemployment alone.

The study highlights the interdependence of different labor market states for understanding any of them. In particular, it is impossible to understand high rates of self-employment in poor countries in isolation, since they are an outcome of the broader situation in the labor market.

Why upward mobility from poverty is particularly low in the United States

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Poor children are more likely to become poor adults, but less so in some countries compared to others. A new IZA discussion paper by Zachary Parolin, Rafael Pintro Schmitt, Gøsta Esping-Andersen and Peter Fallesen investigates cross-national differences in how experiencing poverty as a child leads to higher likelihood of poverty in adulthood.

Comparing the U.S., UK, Australia, Germany, and Denmark, the authors find that intergenerational poverty in the U.S. is four times stronger than in Denmark and Germany, and twice as strong as in Australia and the UK. Specifically, spending one’s entire childhood in poverty in the U.S. is associated with a 42 percentage point increase in the mean poverty rate in early adulthood (ages 25 to 35).

Note: The black, labeled bar plots the intergenerational persistence of poverty (IGPov). The subsequent bars plot the contributions of the four sub-components. See the paper for more details.

The comparatively high poverty persistence in the U.S. is not channeled through characteristics of the families in which poor children grew up, differential access to higher education, neighborhood effects, or racial/ethnic discrimination. Instead, the American welfare state does less than peer countries to reduce the disadvantages of having lower education or being jobless in adulthood.

The study’s authors emphasize the significant implications for promoting upward mobility from poverty. They contend that if the U.S. were to adopt a more generous welfare state approach akin to that of the United Kingdom, the persistence of intergenerational poverty could decrease by over one-third.

How wildfires affect labor income

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Recent media coverage of air pollution in New York City resulting from wildfires in Canada has heightened awareness of the detrimental impact that drifting wildfire smoke can have on populations located far from the actual fires. In a 2022 IZA discussion paper (forthcoming in the Review of Economics and Statistics), researchers have quantified this effect, estimating the associated welfare cost of income losses attributable to exposure to air pollution.

Approximately 20 percent of the fine particulate matter emitted in the United States is caused by wildfires. The impact of ambient air pollution on human well-being has been well-documented, particularly in terms of health, such as increased hospital visits and premature mortality among children and the elderly. But air pollution exposure can also reduce adult labor supply and productivity. This can occur through health-related impacts or by causing individuals to undertake costly avoidance or defensive actions. Survey research on wildfire smoke specifically has revealed various behavioral responses, including spending more time indoors and missing work.

Challenges in measuring the causal effect

Measuring the causal effect of air pollution on nationwide labor market outcomes presents a key challenge. It requires identifying geographically widespread pollution fluctuations that are not driven by factors directly affecting economic activity. For example, the establishment of a new factory may create jobs but also worsen air quality. Simply comparing employment and air pollution before and after the factory’s construction would likely underestimate the negative effects of air pollution on labor market outcomes.

The study by Mark Borgschulte, David Molitor and Eric Zou argues that wildfire smoke traveling thousands of miles serves as exogenous variation in local air pollution, meaning it is unconnected to local economic factors such as industry and regulations. This allows them to estimate the causal effect of wildfire smoke and air pollution on income and employment.

The analysis relies on three primary data sources from 2007 to 2019: high-resolution remote sensing data from satellites showing the locations of wildfire smoke plumes in the United States, air quality data from ground-level pollution monitors, and labor market data for all counties in the continental United States.

Decrease by nearly 2 percent of annual labor income

The study demonstrates that exposure to wildfire smoke leads to statistically and economically significant losses in labor income and employment. The authors estimate that each day of smoke reduces quarterly per capita earnings by $5.2, or approximately 0.10 percent. Multiplying this effect by the average number of smoke days each year, they calculate that wildfire smoke decreases earnings by nearly 2 percent of the annual U.S. labor income (equivalent to $125 billion in 2018 dollars) on average between 2007 and 2019.

The impact of smoke is more pronounced among older workers, suggesting that age and related poor health may amplify the negative labor market effects of air pollution. An additional day of smoke exposure reduces employment by 80 employees per million residents aged 16 and older, which explains 13% of the total earnings effect of smoke exposure.

The study’s examination of plausibly exogenous variation in wildfire smoke exposure provides one of the first national estimates of the causal effect of ambient air pollution exposure on labor market outcomes. The baseline estimates suggest that a 1 µg/m3 increase in quarterly ground-level fine particulate matter concentrations reduces per capita earnings in the quarter by $103 and employment by 1,750 workers per million residents aged 16 and older.

Regulation should also take labor market costs into account

Notably, the pollution variation studied in this paper primarily falls below the regulatory standards set by the Environmental Protection Agency. However, the findings indicate that such pollution may significantly reduce labor market earnings. Failure to consider labor market costs may result in inefficient pollution standards and regulations, the authors argue.

Their paper contributes to the growing body of evidence on the effects of climate change, particularly increasing heat exposure, on labor market outcomes. For instance, an earlier IZA dscussion paper demonstrated that rising temperatures in California have increased the occurrence of workplace injuries.

Did the minimum wage in Germany improve allocative efficiency?

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Accompanied by intense public and academic debates, Germany introduced a national minimum wage 2015. Initially set at EUR 8.50 per hour, the minimum wage had a substantial impact on the wage distribution. As it was implemented during a period of sustained economic growth, the minimum wage did not result in significant job losses but rather led to a redistribution of employment towards higher-paying firms.

Is the burden of the minimum wage then borne by employers or consumers? Or do productivity gains offset the costs associated with the minimum wage? If employers cannot pass on the costs to their customers, their profits may decline, and economic rents may be lost. However, if the minimum wage stimulates productivity improvements within affected firms, any negative effects on workers, employers, or consumers can be mitigated or even turned into positive outcomes. A new IZA discussion paper by IWH researchers Mirja Hälbig, Matthias Mertens and Steffen Müller examines these questions of productivity and price adjustments.

Beyond the firm level, little is known about the overall impact of the minimum wage on market-level productivity. Aggregate productivity changes may arise from employment reallocation between firms with varying levels of productivity, potentially coupled with asymmetric productivity changes based on initial size or productivity level. Despite extensive minimum-wage research, no studies have analyzed the aggregate productivity effects of the minimum wage using microdata on firm productivity. A prominent previous study reports that employment reallocation occurred towards firms with higher predicted initial productivity, leading to improved allocative efficiency. However, direct observation of productivity remains elusive.

Productivity responses to the minimum wage are often overlooked

The new study reveals robust positive effects on wages per full-time equivalent (FTE) worker in both the manufacturing and service sectors. Accompanied by minor negative effects on employment in these industries, the total wage bill has increased. Notably, the impact on labor productivity (measured as value added per FTE) is even more substantial, with labor productivity effects of 5.6% and 10.6% observed in the manufacturing and service sectors, respectively.

These significant productivity improvements in affected firms have likely mitigated any adjustments in employment and output prices. Thus, understanding why the introduction of the German minimum wage has had minimal employment effects at the macro level relies heavily on comprehending these productivity enhancements.

It is worth noting that economists who anticipated substantial negative effects of the German minimum wage largely overlooked the potential productivity responses. Importantly, half of the strong difference-in-difference effect observed in the service sector can be attributed to a sudden reduction in labor productivity within the control group, suggesting that the labor inflow induced by the minimum wage resulted in a decline in average productivity for those firms.

Labor productivity can be boosted by gains in total factor productivity (TFP) or increased reliance on non-labor inputs. The authors do not find any effects of the minimum wage on investments per FTE. However, they observed that affected firms, compared to those in the control group, became more reliant on intermediate inputs. This increased outsourcing may partly explain the rise in productivity.

The detailed firm-product-level data for the manufacturing sector reveals that the direct effect of the minimum wage on firms’ revenue TFP (TFPR) amounts to 3.1%, while quantity TFP (TFPQ) increased by an additional 2.2% in the treated group compared to the control group. Consequently, output prices rose approximately 1% more in the treatment group. Taking price effects into account, the researchers conclude that firm-level labor productivity gains are primarily driven by improvements in true efficiency (TFPQ).

No evidence of increased allocative efficiency

With these firm-level findings established, the authors further investigate how reallocation affects aggregate productivity within industry-region cells. The notion that factor reallocation serves as a key driver of growth is prominent in various growth and trade models. Reallocation can be beneficial when production factors shift from less productive to more productive firms, ultimately raising aggregate productivity.

Consistent with previous research, the new study finds no employment effects at the level of aggregate industry-region cells. While the aggregate effects on wages and productivity are close to zero in the service sector, they are positive in German manufacturing. For every percentage point increase in wages needed to meet the minimum wage requirement, there is a 1.4% increase in manufacturing labor productivity. These aggregate productivity gains are entirely driven by within-firm productivity improvements. The study finds no evidence indicating that the minimum wage induces productivity-enhancing reallocation or increased allocative efficiency.

Does winning an ERC grant improve scientific productivity in the long run?

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Governments allocate a considerable portion of their budget to support basic research in various disciplines. Several European countries, following the US tradition, assign research funds through competitive grants like ANR grants in France and SNSF in Switzerland. Despite these significant investments in research, the evidence on their impact on scientific output or researchers’ careers is generally limited. This limitation could be due to the lack of data or assignment mechanisms that are suitable to pin down causal effects.

In a recent IZA Discussion Paper, Corinna Ghirelli, Enkelejda Havari, Elena Meroni, and Stefano Verzillo provide novel empirical evidence on the long-term effects of winning a European Research Council (ERC) grant. The main goal of the ERC, founded in 2007, is to stimulate scientific excellence by funding the very best creative researchers of any nationality and age to run projects in any EU country or associated member countries. ERC grantees have won prestigious international awards, including seven Nobel Prizes, four Fields Medals, and five Wolf Prizes. Furthermore, they have published 6,100 articles in top journals.

To find out whether obtaining an ERC grant has an impact on winners’ productivity, the authors used data on all ERC applicants from 2007 to 2013 and combined it with data from the Scopus database to track their publication records up to nine years after obtaining the grant. They also leveraged the fact that each year, applicants are evaluated and ranked by a panel of experts, depending on the type of grant (Starting or Advanced). A cut-off applies to the ranking list based on the budget available, and only the highest-ranked proposals are offered the grant until the call’s budget has been exhausted. This approach allowed the authors to firstly use a regression discontinuity design (RDD) to estimate the impact of an ERC grant by comparing the outcomes of winning and non-winning applicants around the cut-off.

Productivity effects of ERC grants vary by field

Using RDD, the authors find that overall, obtaining an ERC grant does not significantly improve researcher productivity, except for Physics in the Starting grants scheme, but it increases the probability of receiving other EU grants. This phenomenon is known as the “Matthew effect” in the literature.

Given that RDDs help identify a local effect (only observations around the cut-off point are used), the authors conducted a difference-in-differences (DID) analysis using the time series of bibliometric indicators available and widened the population of reference in this way. Using DID, they found that Advanced and Starting Grants increase research productivity and help applicants receive other EU grants in the nine years after grant assignment. These positive long-term effects on productivity and excellence hold for the fields of Chemistry, Universe and Earth Sciences, Institutions and Behaviors, Human Mind Studies, and Medicine.

Regarding the ability to obtain other EU funds, strong evidence in favor of the Matthew effect is found for winners in all disciplines and types of grants.

Finally, the authors split the ERC winners’ group into bottom-rank and top-rank and compared them with the non-winners to find that the results are positive and significant only for the second group. This result means that top-ranked winners are the ones driving the positive outcomes.

Selection mechanism may not be optimal for applicants at the margin

The findings of the study confirm that receiving ERC funds significantly improves standard bibliometric outcomes, such as scientific productivity, impact, and research funding, for top-ranked winners. However, the authors only found suggestive evidence of such an effect for winners who score near the funding threshold, with positive but not statistically significant coefficients, if any.

These results have practical implications for improving the management of ERC funds to increase their effectiveness as policy instruments. One possible solution could be to improve the selection process of the ERC project, which can be expensive. While this approach may be justified for top-ranked winners, it may not be necessary for those close to the threshold score since the authors found no evidence of a positive and significant effect of obtaining ERC funds for these applicants.

As a result, the standard selection mechanism based on peer-review may not be optimal for applicants with scores slightly above and below the funding threshold. The results of recently launched and ongoing projects that focus on partial-randomization of research funding may provide insights into the potential benefits and disadvantages of these new selection practices. This could help us better understand if this approach could be a way forward, at least for those applicants at the margin.

Generous unconditional cash transfers may reduce short-term labor force participation

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Governments worldwide use financial transfers to address poverty and social exclusion. In developing countries, unconditional support programs have become increasingly popular. Removing any conditions on beneficiaries’ actions is often motivated by arguments such as lower program costs and the psychological benefits of self-determined spending. Evaluations have shown that such programs improve health, education outcomes, and psychological well-being, but their labor supply effects are small or absent.

While the impacts of unconditional transfer programs in developing countries are well documented, little is known about their effectiveness in higher-income countries. This could be due to differences in labor markets and economic institutions and the existence of extensive safety nets.

In a recent IZA discussion paper, Timo Verlaat, Federico Todeschini, and Xavier Ramos studied the employment effects of a generous and unconditional cash support program called B-MINCOME, targeting economically vulnerable households in disadvantaged neighborhoods of Barcelona. The cash transfer, which depended on household income, size, and composition, averaged roughly €500 ($792 PPP) per month, which is about half the monthly statutory minimum wage and approximately 90 percent of households’ monthly income before the start of the program. Beneficiaries were assigned to different activation plans and benefit withdrawal rates. This antipoverty program was implemented using a two-year randomized controlled trial.

The researchers found that the program has significant and adverse employment effects on average. Two years after the start of the program, main recipients in treatment households are 20 percent less likely to work compared to their counterparts in control households. Likewise, treatment households are 14 percent less likely to have at least one member working compared to households assigned to the control group. Notably, adverse employment effects persist six months after the last payment.

Since the program randomly assigns different withdrawal rates to beneficiaries, the researchers examined whether the rate at which earned income reduces cash benefits affects their employment decisions. They found that a more lenient benefit reduction rate attenuates but does not eliminate the negative employment effects of the unconditional cash transfer. This result conforms with the predictions provided by standard labor supply models, where a more severe withdrawal regime provides stronger work disincentives.

These results differ from the negligible employment effects found for similar programs in Finland and Italy. A possible reason could be the large income effect brought about by comparatively generous transfers. B-MINCOME transfers range from 70 percent (€564 ($894 PPP)) per month for single-person households to 130% of the statutory minimum wage (€1,062 ($1,683 PPP)) per month for households with five or more members. In contrast, the Finnish basic income experiment simply replaced minimum unemployment benefits with an unconditional transfer of equal size while cash transfers in the Turin program ranged from €2,500 to €3,500 per year. Moreover, B-MINCOME effects were possibly amplified by substitution effects, as transfers were subject to a withdrawal scheme.

These adverse effects seem to be driven by households with care responsibilities. While employment effects are largely absent among households without children, they are significant and negative among households with children living at home. Hence, a potential mechanism explaining the results is that recipients substitute labor for care tasks. If this is so, improvements in children’s outcomes, such as education, health, or risky behaviors, may be expected. Follow-up research is needed to examine program effects in such domains and to come to conclusions about broader welfare effects. Further research should also examine employment effects longer than six months after the last payment.