IZA Newsroom

IZA – Institute of Labor Economics

The perfect moment to score a goal? A football myth debunked

by

It is often thought that a goal just before half-time serves as a morale-booster and will increase a team’s chances of winning. However, a new IZA Discussion Paper by Ghent University researchers Stijn Baert and Simon Amez suggests that the effect may actually work in the opposite direction: If a home team scores just before half-time, it often scores less after half-time and ends up, on average, with a lower goal difference.

Analyzing 1,179 games played in the UEFA Champions League and the UEFA Europe League between September 2008 and May 2014, the authors show that this football myth does not stand up to the data. For a given score at half-time, a goal just before half-time does not have any statistically significant effect on the chances of winning.

“Furthermore, when a home team scores a last goal between the beginning of minute 45 and the end of the first half, instead of any different moment, they see the final goal difference at the end of the game drop, on average, by half a goal”, says Stijn Baert. For an away team the effect of a goal just before half-time on the final goal difference is statistically insignificant.

Decompression, overestimation and wrong decisions

In the search for clarification of these surprising findings, the results were evaluated by national and international sport psychologists. They seemed less surprised. A first possible explanation is that a goal just before half-time leads to what is known as “decompression.” The healthy pressure of the game ebbs away, consciously or unconsciously, and causes a loss of concentration, resulting in less tension, and thus less effort put forward by the players.

This first explanation is corroborated by further findings in the paper. Simon Amez notes, “A home team that scores a goal just before half-time—all other elements kept equal, including the score at half-time—has less chance of scoring another goal after half-time and, specifically, less chance on being the first team to score one.”

A second explanation has to do with a growing confidence and self-awareness that a (home) team can experience when, applauded by the (home) audience, it can go to the dressing rooms with a goal that was just scored. This can lead to overestimation. Furthermore, this higher level of self-awareness can result in more (negative) pressure.

A final explanation is linked to tactical changes that the coach suggests during half-time. The positive emotions after a goal possibly obscure his evaluation of the level of competition between the teams.

A different and less common football myth is that another ideal moment to score is just after half-time. This would hypothetically give a boost to the scoring team, and provide a great confirmation of the strategy made during half-time. Likewise, this myth cannot be backed up by the data. For a given score after 50 minutes in the game, the scoring or not scoring of a goal within five minutes after half-time has no effect on the victory and the goal difference of a team.

Football and economics

Football is big business. In 2015, the English Premier League sold the television rights to its games for the period 2016–2019 for 1.712 billion pounds per year, or 10.190 million pounds per game to be shown live.

But economists are not only interested in financial matters. Researchers also benefit from the excellent development in the availability of data on individual and team performance, which allows them to analyze the factors that actually make the difference between winning and losing. This has important implications for personnel economics, particularly with regard to motivation, teamwork and performance incentives.

Previous IZA papers have shown, for instance, that a red card does not have any effect on the chances of victory and that the replacement of a coach does not necessarily lead to improvement of the team’s performance. Others looked at goal-scoring in the “dying seconds” of international football matches, or the influence of social pressure on football referees. More recently, IZA research found that air pollution has a significant effect on player performance.

How to promote entrepreneurship

by

Entrepreneurship has been shown to account for a large share of job creation and to promote innovation and growth. Hence it is no surprise that governments seek to encourage the formation of new businesses and to create favorable circumstances for them to flourish. In doing so, policies must strike the right balance between supporting the newly founded enterprises and keeping them competitive enough to survive in the long term. Several recent IZA articles deal with conditions and strategies that policymakers should bear in mind when promoting the creation of new businesses.

Young firms and creative destruction

In his IZA World of Labor article, Ramana Nanda (Harvard Business School) points out that a sizable proportion of net job creation and productivity growth comes from the continuous process of firm entry and exit, as new, more efficient firms replace existing ones. In this process of “creative destruction,” young firms play an exceptional role. On the one hand, they are responsible for a large share of newly created jobs, but they also account for a substantial portion of job destruction as the result of being more likely to fail. Thus, when governments provide loan subsidies and grants to small businesses, it becomes almost impossible for governments to predict which firms will succeed.

Nanda advises governments not to pick “winners” themselves, but instead to create an enabling environment for entrepreneurs, banks, and investors. High legal protection for investors and entrepreneurs increases the willingness of financial intermediaries to finance upcoming enterprises. Flexible labor markets and uncomplicated business entry regulations have also proven to increase the success rate of start-ups. Moreover, a growing body of research has found that small or decentralized banks have a comparative advantage in evaluating businesses by using so-called “soft” information such as regular personal interaction.

Since most entrepreneurial start-ups have a high risk of failing, providing a strong social safety net can also encourage entrepreneurship and experimentation by buffering the consequences of failure. In addition to measures that facilitate the most efficient allocation of resources, governments can also accelerate the growth of technological firms by playing the important role as a customer of new technologies.

Corporate income taxation as an entry barrier

Using an analysis of worldwide cross-sectional data, the IZA World of Labor article by Jörn Block (Trier University) explores the relationship between corporate income taxes and entrepreneurship and finds that higher corporate income tax rates reduce business density and entrepreneurship entry rates. However, higher corporate tax rates are not only associated with negative effects on entrepreneurship activity. Raising corporate income taxes can also cause an “entry barrier effect,” meaning that only “healthier” firms with more capital will be able to successfully establish themselves in the market. Research findings also suggest that a progressive tax system encourages entry into entrepreneurship, whereas highly complex tax codes have been shown to reduce entry rates.

From a government’s perspective, it is therefore important to understand these effects and the underlying mechanisms when designing legislation on corporate income taxation. For example, with regard to countries that have low-quality accounting standards, Block suggests that lowering taxes to increase entrepreneurship rates should be accompanied by an effort to improve the quality of accounting standards.

High-potential female entrepreneurship

The IZA World of Labor article by Siri Terjesen (Norwegian School of Economics) looks at female entrepreneurs and outlines the conditions for facilitating high-potential female entrepreneurship. While one-third of the world’s entrepreneurs are women, regional participation rates vary substantially. Hence, Terjesen recommends tailoring strategies aimed at promoting female entrepreneurship to each national and regional context. While in Latin America policies should seek to improve the focus on exports, East Asian countries are advised to target the improvement of women’s start-up knowledge and confidence in their start-up skills. Sub-Saharan African countries should aim to improve women’s access to banking and offer more training in financial components.

Access to finance is a general problem for female entrepreneurs, as most businesswomen have lower levels of initial financial capital than their male counterparts. Because capital for female start-ups is more likely to come from informal sources, such as their own savings or loans and gifts from family and friends, governments should improve women’s access to financing through banks, business angels, and venture capital firms. Another policy recommendation is to expand social capital to give women more direct access to entrepreneurial mentors and start-up networks and ensure that women have the same rights as men to work and travel freely.

By creating favorable conditions for high potential female entrepreneurship, governments can boost local and national economic development. Female-led ventures are market-expanding, export oriented and innovative and can also serve as models that encourage other high-potential female entrepreneurs.

Who is born to be an entrepreneur?

The role of personality in entrepreneurship is explored in a recent IZA Discussion Paper by Jutta Viinikainen (University of Jyväskylä) and co-authors. Their paper analyzes whether the so-called Type A behavior traits (aggression, leadership, responsibility, and eagerness-energy) measured among adolescents are predictive for becoming and succeeding as an entrepreneur in adulthood. The results indicate that among the four Type A behavior traits, only the adolescents’ leadership characteristics are relevant for their adult entrepreneurial propensity.

The researchers also reinforce prior evidence finding that having self-employed parents increases the likelihood of becoming an entrepreneur oneself. In addition to providing financial assets or an opportunity to take over the family business, successful self-employed parents may transfer entrepreneurial-specific skills to their children.

Image Source: pixabay

Against xenophobia and national barriers – in light of the refugee crisis in Europe

by

European leaders have failed to devise any short-term solutions to address the underlying drivers forcing refugees to flee Africa and the Middle East, pushing some policy makers and sections of the public to press for closing borders and raising fences and walls. Based on evidence presented in a number of IZA World of Labor Articles, managing editor Olga Nottmeyer argues that not only is it a human responsibility to fight this type of xenophobia, but such nationalist/protectionist policies have also been proven impractical and ineffective from an economic point of view.

+++

Whether—and how—to integrate asylum seekers features prominently on the political agenda in so many European countries. And yet, there is no sign of the crisis abating. The situation in Syria, Afghanistan, Iraq and other countries facing conflict, civil war, and terrorism make it impossible to ignore the challenges associated with the mass migration of people from these areas, and their call to Europe for help. Ignoring the crisis is no solution; neither is xenophobic rhetoric or building more fences and tightening border controls.

There is, however, a sensible approach that would certainly help with integrating refugees in the destination countries‘ labor markets. As Kathryn H. Anderson discusses in detail in her IZA World of Labor (WOL) piece, ‘[labor] migrants earn [considerably] less at entry and it takes many years for them to achieve parity of income’. But ‘policies to increase skills, such as language and local training and work experience, seem to be most effective in promoting assimilation’.

Whether minimum wages are a useful tool in this context as well is empirically unclear. As shown by Madeline Zavodny ‘the scarcity of research on the minimum wage and immigrants combined with the contradictory findings of some research limit the conclusions that policymakers can draw about whether […] immigrants benefit (or lose) from the minimum wage’. However, wage subsidy programs seem to be quite promising. As Anderson writes ‘[they give] the employer an incentive to hire workers who do not have local work experience but are bound by high contracted wages at the start of the job.’ Anderson mentions a three step model in which ‘immigrants are enrolled in language courses based on their education. [Then, they] participate in ALMP [active labor market policies] designed to place them in jobs. [And finally,] employers can receive wage subsidies to hire immigrants for a maximum of one year’.

So while refugees’ economic success will crucially depend on their own efforts and ambitions, in the same way it is for immigrants, it also depends to a great extent on the ability and willingness of the society in the destination country to offer support.

Why does fence building not work? As Pia Orrenius demonstrates impressively in her contribution to IZA World of Labor, ‘intensifying border enforcement leads to […] higher demand for smugglers, riskier crossings and more migrant deaths.’ It will not stop desperate people from coming, but forces them to alter their routes. This happened in the 1990s in the US when border crossings in El Paso and San Diego were impeded and people from Mexico shifted to a different route, via Tucson, to enter the US.

And we see this now when refugees desperately look for legal (or illegal) ways to enter the EU. Increasing the hurdles to gain entry and asylum is not a deterrent in this situation but will merely increase the risks associated with crossing borders, as well as the profits of human traffickers. At the same time, Orrenius writes, ‘[tightening border] enforcement is costly and can divert resources from other law enforcement.’ So in the end stricter border controls and immigration policies will come at high costs, both to the economy and to people’s lives.

So what is the alternative? In his very insightful WOL contribution Jesus Fernandez-Huertas Moraga introduces a combined model of tradable quotas (similar to emission quotas) and matching mechanisms (similar to those used to assign students to their preferred universities) to provide an ’efficient solution which addresses the concerns of the destination countries and protects refugees’ rights.’

This solution takes into account the needs of the refugees and asylum seekers, while addressing the security concerns of the society in the destination country at the same time. Thus, quotas would need to depend on the capacity of destination countries to absorb refugees, e.g. based on ‘GDP, population, unemployment rate, and the number of refugees resettled and asylum applications received during the previous five years’.

Of course, this does not mean treating refugees like widgets. On the contrary, as Alvin Roth says: ‘Refugees are not widgets to be distributed or warehoused. They are people trying to make choices in their best interest.’
In 2014, the high-income OECD countries gave shelter to less than 10% of the world’s 17.5 million refugees, while the rest of the world (with only 32% of global GDP) took care of 91% of the world’s refugees. This unbalanced distribution simply cannot be the best and only solution. Instead, better coordination is imperative to guarantee ‘greater responsibility sharing and a fairer distribution of refugees across the globe.’

It is thus long overdue for the harmonization of asylum policies to be at the forefront of the European agenda. As explained by Tim Hatton in his impartial analysis of the current European asylum system, international cooperation can be beneficial to both refugees and the population in the destination country if the policies are appropriate. Again, this includes a fair allocation of refugees, skills training tailored to the needs of refugees and of potential employers, sufficient supply of language courses to increase chances to find employment and refugees’ commitment and effort to integrate.

The bottom line is that closing borders and intensifying enforcement does not and cannot solve the problem. Only the combined efforts of all parties —countries of origin, destination countries, the refugees themselves—and international collaboration can pave the way towards a long-term solution and successful economic integration. It is our human responsibility to fight against xenophobia and national barriers, and to create a more inclusive, welcoming society for all.

+++

Olga Nottmeyer is Managing Editor of IZA World of Labor. This article first appeared on the World Bank blog “Jobs and development”.

Image source: pixabay

High times for students

by

When a U.S. state passes a medical marijuana law (MML), effectively lowering the costs of obtaining marijuana for both patients and non-patients, part-time college students in the state spend significantly less time attending and studying for class. Moreover, this reduction in educationally productive time is approximately offset by an increase in time spent watching television.

These results, reported in an IZA discussion paper by researchers Yu-Wei Luke Chu (Victoria University of Wellington) and Seth Gershenson (American University & IZA), enhance our understanding of how marijuana usage affects the accumulation of human capital in two main ways. First, it suggests that there is a negative, causal relationship between marijuana use and educational outcomes, since increased marijuana use is the main mechanism through which MMLs are likely to affect students’ time use.

Second, these results provide evidence on the mechanisms through which access to marijuana might affect college students’ educational achievement and attainment. These results are broadly consistent with those of a previous IZA paper, which demonstrates that increased access to marijuana decreased the academic performance of students at Maastricht University, particularly among relatively low-performing students.

Unintended consequences of medical marijuana laws

More generally, these results contribute to a growing literature on the impacts of MMLs on individuals’ behaviors and health outcomes, some of which are arguably unintended consequences of the laws. For example, past research documents positive effects of MMLs on illicit marijuana use and negative effects on the suicide rates of young men, alcohol-related traffic fatalities, and the prevalence of obesity.

Like in past studies, the authors identify the effect of MMLs on time use using a difference-in-differences strategy that compares student time use between MML and non-MML states, after controlling for pre-existing (i.e., pre-MML implementation) differences between the two types of states. Individuals’ daily time use is measured using data from 24-hour retrospective time diaries collected by the American Time Use Survey (ATUS), which is a nationally representative survey that has been administered annually since 2003 by the Bureau of Labor Statistics. Retrospective time diaries are the ideal instruments with which to measure time spent in school-related activities, as they likely yield more accurate measures of students’ non-school time use and are less prone to over-reporting of socially desirable activities than are other types of survey instruments.

MMLs did not affect secondary (high school) students’ time use, which is consistent with extant evidence that MMLs did not affect teenagers’ marijuana use, nor did MMLs affect full-time college students. Because full-time college-goers tend to be stronger academically than part-time college-goers, the latter null result is also consistent with evidence that access to marijuana disproportionately harms the achievement of relatively low-performing students. Another interesting source of heterogeneity is demographic background: the impact of MMLs on part-time students’ time use is slightly larger in magnitude among black students and male students, two demographic groups who attend and complete college at lower rates than their white and female counterparts.

These results remind of the potential for unintended consequences of public policy, which should be accounted for in both the design and evaluation of MMLs.

Image source: pixabay

The market for paid sick leave

by

In most OECD countries, general practitioners (GPs) play several fundamentally different roles. Clearly, on the one hand, they are responsible for their patients’ health and physical well-being. On the other hand, they also play an often unforeseen, but economically important role: acting as the arbiters of sick leave. This latter capacity is of great fiscal relevance because doctors act as “gatekeepers,” deciding which types of social insurance expenditures and medical treatments are ultimately necessary for their patients.

While the GP is probably the person best placed to objectively assess the true health condition of the patient, in a market this position is ripe with skewed incentives and moral dilemmas. For example, if some patients exaggerate or even ‘invent’ health problems to justify paid absence from work, might they, as customers, choose those doctors that are more generous in giving out sick notes?

In order to find out how this particular situation affects doctors’ behavior, Knut Røed and Simen Markussen empirically analyzed Norwegian doctors’ standards when it comes to doling out sick leave and the patients’ choices of GPs. In their new IZA Discussion Paper, the experts from the Ragnar Frisch Centre for Economic Research first identified each doctor’s degree of leniency, i.e., the physician’s readiness to give out a sick note to a patient.

To do this, they designed an indicator based on the overall certification of sick pay days for each doctor’s patients, taking into account the different characteristics of patients (age, employment, etc.) and the fact that many patients often switch doctors. In a second step, the authors were then able to use this leniency indicator to examine the extent to which workers chose family doctors which were more generous in giving out sick notes.

Lenient doctors attract more patients

The researchers show that not only do patients choose the more “free handed” doctors, but doctors actually anticipate the “leniency preference” of their customers when choosing their own level of leniency. Moreover, when the local competitive environment changes—for example, when another doctor moves to town, increasing competitive pressure—GPs tend to become more lenient to attract or keep patients.

But how much does this actually account for social welfare losses? The authors propose that if all the GPs in Norway received fixed salary contracts instead of letting them run their own businesses, the level of illness-induced absence from work would decrease by roughly 3-4%. Given that the Norwegian physician market has relatively little competition, the authors expect this effect to be much larger in more competitive markets.

The study concludes that by combining the incompatible roles of business owner and health provider, GPs are faced with highly contradictory incentives. In such a situation, GPs are forced to decide between performing their “gatekeeping” function in the most ethical manner possible or furthering their financial interests by attracting and keeping more patients as customers.

Gender discrimination at work: What if your boss is a woman?

by

Despite the remarkable increase of female participation in education, the labor market and political life that has taken place over the past several decades, women are on average still paid less than men and are largely underrepresented in supervisory, managerial and executive positions. As research has shown, firms profit from establishing gender balance throughout their workforce for several reasons, for example, through promoting a more cooperative work environment.

Another positive effect of having women in leadership positions was highlighted in a new IZA Discussion Paper by Claudio Lucifora (Università Cattolica del Sacro Cuore and IZA) and Daria Vigani (Università Cattolica del Sacro Cuore), which investigates the association between female leadership, work organization practices and perceived gender discrimination within firms.

The female boss effect

The authors use data for 30 European countries for the period 1995-2010 and find that having a female boss is associated with lower overall gender discrimination at work. When investigating the underlying mechanisms that shape gender imbalances within firms, Lucifora and Vigani find evidence of a “women helping women” pattern, along with its associated spill-over effects, which leads to a reduction in discrimination toward women.

A better balance between work and life, a supportive work environment, and flexible working time, particularly for women in high-skilled jobs, are shown to be effective in reducing gender discrimination. There are several implications of the above findings for gender equity at work:

First, promoting a higher presence of women in leadership positions all along the occupational spectrum is an effective way of reducing gender bias and discrimination toward women in workplaces. This has a direct (causal) effect as well as an indirect (spill-over) effect on female subordinates in predominantly female jobs. While there is evidence of an adverse effect on male employees in predominantly female jobs, it is difficult to say whether this is the result of a reversal of (taste or statistical) discrimination against women or a genuine behavioral effect of women discrimination toward men.

Second, the results show that when there is a gender bias in the way work is organized (long working hours, rigid working-time schedules and low work-life balance), women are more likely to be penalized. Thus, promoting family-friendly work practices such as part-time work, flexible working time and parental leave arrangements is another effective way to better balance work and life across gender, particularly for women (and men) with caring responsibilities.

Changing work culture

Whether these changes should be implemented through company provided benefit schemes, through public subsidies for part-time work and child care facilities, or both is yet to be assessed. Conversely, any company or public policy that disproportionately rewards long and inflexible working time schedules, either through company bonuses or tax-breaks on overtime work, will make it more difficult for women to gain higher management positions.

The same is true for career concerns that are centered on high work intensity and rank-ordered tournaments, which are likely to reduce opportunities for women in organizations as well. While affirmative action and mandatory quotas for women in executive boards may reverse the general pattern in top positions, the results suggest that female leadership itself can have a welfare improving effect on gender discrimination all along the occupational hierarchy.

Image Source: pixabay

Are you clever enough to tell the truth?

by

 People have different propensities to tell the truth, particularly when there is an incentive to lie. According to an experiment conducted with soldiers and civilians in Israel, researchers found that it’s not the differences in religious, economic or social background that determines who is more willing to lie or tell the truth. Instead, the analysis by Yossi Tobol (Jerusalem College of Technology) and Bradley J. Ruffle (Wilfrid Laurier University) revealed a striking correlation between honesty and cognitive ability.

The truth-telling experiment was conducted with a group of 427 Israeli soldiers and repeated with 156 random passersby in an Israeli shopping mall. After a survey about individual characteristics, the participants were asked to roll a six-sided die in private and then state the rolled number. Higher reported numbers were rewarded with spare time for the soldiers and small monetary incentives for the civilians.

Common sense about rolling a fair die tells us that each side should show up with about equal frequency. Here is what the soldiers’ results look like (the civilian results are similar):

Higher numbers were disproportionately reported by both the soldiers and civilians. Interestingly, the authors found that one specific characteristic was related to differences in reporting. Soldiers who scored higher on cognitive ability in their military entrance test (kaba) were less likely to over-report by lying about their die roll.

This result is somewhat surprising in that rewards for lying in this experiment are clear and straight-forward (rewards in spare time/money). Still, however, there are costs associated with lying, for example, through later detection and/or an eroded self-image of honesty. The authors suggest that higher cognitive-ability subjects are able to think through these costs and, as a result, resist the temptation to inflate their die reports.

  • Read coverage in the Washington Post’s Wonkblog (April 14, 2016):

The importance of such internal costs of lying via an eroded self-image have also been shown in a phone call experiment conducted in Germany by Johannes Abeler (University of Oxford and IZA), Anke Becker (University of Bonn) and Armin Falk (briq and IZA), published as IZA DP No. 6919. These authors find almost no pattern of lying in their experiment despite the fact that detection was virtually impossible and thus the reputation costs were almost negligible.

Image Sources: pixabay,

How to close the disability employment gap

by

Anti-discrimination legislation has been largely ineffective at improving the employment prospects of the disabled. A new report, just published by IZA World of Labor, finds that despite the introduction of a range of legislative and policy initiatives designed to eliminate discrimination and facilitate work, disability is still associated with substantial and enduring employment disadvantages.

Author of the report Melanie Jones (Cardiff University) states:

“There is no consistent evidence that anti-discrimination legislation has improved the labor market outcomes of disabled individuals.”

Key points of the report:

  • Across European countries, one in eight working-age individuals (aged 15–64) report disability as defined by a long-term health problem.
  • There is evidence of a substantial and enduring disability employment gap (average of 20 percentage point difference between disabled and non-disabled persons).
  • There is little evidence that legislation prohibiting disability discrimination has led to a narrowing of the disability employment gap.
  • Employers are crucial in supporting flexibility and adjustments to work to enable employees with a disability to retain or recommence employment.
  • Government policies and welfare systems should support reentry/entry into the workforce for people with disabilities.

Understanding the work-related well-being of disabled workers is not only important in its own right, but also because of its likely contribution to the employment and earnings gaps via the impact on the recruitment, retention and productivity of disabled individuals. It is also important to note that differences in the type, severity and chronicity of disability are fundamental to the pattern of disadvantage experienced, and are therefore also critical to the design of effective support mechanisms.

Jones advises that the importance of the employer (and effective occupational health) is recognized in supporting flexibility and adjustments to work in order to enable employees to keep their jobs, or recommence employment. The government also plays an important role in this regard, by providing incentives for employers to retain disabled workers and by designing welfare systems that support working disabled individuals rather than schemes which provide permanent support conditional on not working. The broadening of permitted employment and/or the provision of temporary financial support to facilitate work-related adjustments would provide greater incentives for disabled individuals to remain in work, or return to work, when they are able.

Can market mechanisms solve the refugee crisis?

by

As the flow of asylum seekers reaching Europe’s shores is rising again with the onset of spring, the European Union is increasingly forced to address a number of challenges. Disagreements over the unequal distribution of refugees across the EU have hindered a common policy response, placing strain on existing support structures, and potentially threaten to unravel the entire international refugee protection system.

A new IZA World of Labor article outlines a new innovative way to organize the distribution of refugees efficiently while at the same time respecting their rights. The plan combines two market mechanisms: a market for tradable refugee admission quotas that allows refugees to be established wherever it is least costly, and a matching system that takes into account the preferences of both refugees and host countries.

The use of market mechanisms, such as tradable quotas, to coordinate a cost-effective international common response to different kinds of policy problems has a long-established tradition in economics. Jesús Fernández-Huertas Moraga (Universidad Carlos III de Madrid and IZA) makes use of this concept in his proposed solution to the refugee crisis facing Europe.

Debates over how to structure the distribution of refugees across the EU have usually focused around two themes: the economic cost of hosting this influx of asylum seekers and the social and humanitarian duties and responsibilities of Member States to refugees. Fernández-Huertas Moraga’s concept allows the economic component, the tradable quotas market to be combined with humanitarian “matching,” making the solution both politically and economically feasible.

Three-stage refugee acceptance system

The IZA World of Labor article proposes a fully coordinated refugee acceptance system that includes three stages. First, responsibilities should be shared among Member States by applying a distribution rule that determines how many asylum seekers each Member State should accommodate. This distribution key should reflect the countries’ overall capacities by taking into account a number factors, such as GDP, population, unemployment rate, the number of refugees resettled, and asylum applications received during the previous five years.

In the second stage, countries that wish to accommodate less asylum seekers than assigned in the first stage could trade these obligations and pay other countries to host them instead. Thirdly, a matching mechanism would combine refugee preferences with receiving countries’ preferences to ensure that refugees are not forced to relocate to an undesired destination, thus ensuring that the human rights of the refugees are protected.

While this concept seeks to solve challenges faced within the European context, this mix of accounting for both economic efficiency and human rights could also be used to address some of the main deficiencies of the international system of refugee protection.

Currently, as the above figure shows, most of the responsibility for protecting refugees falls on countries with fewer resources, typically those with close geographical proximity to conflicts. This not only threatens to politically and economically destabilize these host countries, creating broader global consequences, but the duty and also benefits of ensuring the right of asylum, a basic human right, extends to the whole world.

Image source: pixabay

China’s new two-child policy not enough to cope with aging population

by

In January 2016, China formally changed its one-child policy, now allowing all couples to have two children. Fei Wang, Liqiu Zhao and Zhong Zhao systematically examine the labor market consequences of China’s family planning policies in their recent IZA Discussion Paper. Their simulation results indicate that the new two-child policy may be too little, too late to alleviate the aging problem in China.

China’s family planning policies are one of the most fundamental social policies in China. This assemblage of policies is much more complex than the simplified notion of a one-child policy. While the Chinese government initiated family planning policies in 1962, the well-known one-child policy had only been implemented since 1980.

Even after 1980, there were considerable regional and ethnic variations as well as many changes, notably the exemption of ethnic minorities and the relaxation of the strict one-child policy in rural China in the mid-1980s. As of January 1, 2016, all Chinese couples are now allowed to have two children. These policies have a far-reaching impact on many aspects of society, including the Chinese labor market.

Effects on age and gender composition of the working-age population

The dramatic drop in the total fertility rate during the 1970s has resulted in reduced numbers of people newly entering the workforce from the 1990s and beyond. Figure 1 presents factual and counterfactual population pyramids for the male and female populations in 1990 and 2010. The unfilled bars with black lines refer to the factual population pyramids. The gray bars denote the pyramids under the counterfactual regime in which no family planning policies take place, i.e., no “Later-Long-Fewer” family planning campaign and one-child policy. As can be seen, the factual pyramids show a low number of births between the mid-1970s and mid-1980s.

The working-age population (15 to 64 years) was 973.3 million in 2010, which accounted for 74.5% of the total population. The share of the working-age population peaked in 2010 and started to decline afterwards. This declining labor force growth has caused labor shortages and thus has increased wages. On the contrary, the counterfactual age structure is pyramid-shaped with a broad base of young generations, indicating that China’s working-age population would not have shrunk without family planning policies.

Figure 1: Population Pyramid 1990-2010

Another key feature of the evolution of the working-age population is the skewed sex ratio of the working-age population as people born after the enactment of the one-child policy in 1979 enter the workforce in the late 1990s. The male-biased sex ratio may lower female labor force participation as a high sex ratio increases the shadow wage for home production.

Interaction of family planning policy and internal migration

The age structure of a region is shaped not only by the processes of fertility and mortality, but is also importantly impacted by migration. With respect to the first two, the family planning policy has been implemented more rigorously in urban areas and areas with a high proportion of Han ethnicity, which would be expected to result in a more rapid aging process in these areas.

The interaction of the family planning policies and migration in China, however, has reversed the trend of regional aging rates. Regions with more stringent enforcement of the family planning policy have lower fertility rates and thus a lower supply of local native workers. Other things being equal, these regions, therefore, have a higher demand for migrant workers.

Thus, the strict enforcement of family planning policies in urban areas has accelerated rural-to-urban migration. In addition, the types of migrants that have moved to cities for work are mostly young, as can especially be seen in eastern coastal China and the major urban centers, such as Guangdong and Zhejiang province. This internal migration has, in turn however, led to a more serious aging challenge in the typically more rural and inland provinces, such as Sichuan and Anhui province.

As shown in Figure 2, the proportion of the population aged 65 and over increased by more than 2.5 percentage points in Anhui, Gansu, Guizhou, Sichuan and Chongqing over the period 2000-2010, while this number actually decreased in Beijing, Shanghai, and Tianjin and only increased by less than 0.5 percentage points in Zhejiang and Guangdong.

Figure 2: Change in Aging Rate by Province (65 years and over)

The left panel of Figure 3 presents the population pyramids for the urban hukou population (excluding migrants) for the year 2000. The urban hukou pyramid is diamond-shaped, indicating a shrinking urban hukou population beginning at the time of the one-child policy. However, when migrants are included (right panel), the pyramid for the urban residents has a wider base ,indicating that the internal migration of young laborers has shifted the aging problem from urban to rural areas.

Figure 3: Population Pyramid in Urban Area, 2010

These results highlight the greater challenge faced by rural areas and inland provinces to overcome the aging problem because rural areas and inland provinces are usually less developed, have less resources for social security, including old-age support, and have been losing their prime-age population to the urban areas and coastal provinces.

The new two-child policy

Already beginning in 2014, almost all provinces allowed a couple to have a second birth if one spouse is an only child. Since people born in the 1980s and early 1990s under the one-child policy played a major part in childbearing, there were 11 million couples who qualified for a second birth. By September 30, 2015, approximately 1.85 million couples had applied for birth certificates for a second birth, comprising a proportion of only 16.8%. This implies that the two-child policies are unlikely to increase fertility sharply, at least when one partner is an only child, which will be more common in the future.

Through simulation, Fei Wang, Liqiu Zhao and Zhong Zhao investigate if the new two-child policy will be able to alleviate the aging problem in China. The left panel of Figure 4 shows how China’s population size would evolve under the two-child policy versus under the one-child policy. This panel assumes three different effects of the two-child policy on women’s lifetime number of births compared to the previous one-child policy: an increase of 0.3, 0.5, and 0.7 children; with 0.3 being around the estimates in the literature. This panel implies that the two-child policy could, to some extent, temporarily increase the population and labor force until it begins shrinking around 2030.

The right panel of Figure 4 shows the proportion of the population aged 65+ over time under the one- and two-child policies with the same levels of fertility effects. It is clear that the two-child policy is far from pulling China out of aging.

Figure 4: Simulated Results under the One- and Two-Child Policy

No birth control and pro-natal policies

Assuming that removing the birth quota would lead to a lifetime fertility increase by 1, which is a radical estimate given the experience of some East Asian countries, Figure 5 simulates how the percentage of the elderly population and the elderly dependency rates would change over time had the birth quota been absent since 2015, compared to the one-child policy. While abolishing the birth quota would better address the aging problem than the two-child policy, it still may not be enough.

Figure 5: Simulated Percentage of Elderly Population and Dependency Rates

Elderly dependency rates

Although it is impossible to predict China’s population and labor market effects under birth encouraging policies without knowing the specific policy forms, the authors discuss the possible implications based on knowledge from pro-natal policies in other East Asian countries/regions such as Japan, Singapore, South Korea and Taiwan. While Japan and Singapore’s policies have existed for more than 20 years, and more time may be needed for evaluating the more recent policies in South Korea and Taiwan, all of these policies thus far have not shown significant effects on fertility.

If pro-natal policies fail to increase fertility rates and other measures such as opening borders to international immigrants are not implemented in China, the population would inevitably continue to age, and labor markets may encounter a shortage in the workforce if the industrial structure simultaneously fails to transform properly.

The authors therefore call on China to learn the lessons from their other neighboring countries/regions and take action as soon as possible, or it could be too late since the fertility rates have already been at low levels for such a long time.

Image source: pixabay