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IZA – Institute of Labor Economics

Girls benefit most from attending an elite school

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Parents have strong preferences for sending their children to the best schools available. There seems to be a general perception that graduating from a elite school equals winning a lottery in life chances. Empirical evidence though tells a different story, suggesting at best marginal effects on test scores and college outcomes. However, the impact on outcomes later in life is largely unexplored.

In a new IZA Discussion Paper Damon Clark and Emilia Del Bono analyze the effect of elite school attendance on tertiary education, income and fertility. In Aberdeen, Scotland, students in the 1960s were sorted into elite/non-elite schools strictly by a threshold in standardized test scores, giving no room for potential parental influence on the school choice. Comparing students just below and above this threshold provides a natural experiment to assess the effect of attending the elite school.

The authors find strong effects of elite school attendance on completed education for both men and women. However, the results suggest positive income effects of at least eight percent and negative effects on fertility only for women, whereas male later-life outcomes seem to be unaffected.

The researchers conclude that placing girls in an elite school environment with other high-achieving girls may change their perceptions of women’s role in society and their decisions regarding career, marriage and family. These results highlight the important effects of tracking school systems in the long run, a so far under-analyzed but highly important topic.

Should you come out in the workplace and would your employer care?

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According to a report by Nick Drydakis published by IZA World of Labor today, half of gay and lesbian employees do not reveal their sexual orientation in the workplace for fear of discrimination and harassment.

The report goes on to say that while out gay and lesbian employees are happier or more satisfied in their jobs they are less likely to be promoted than their heterosexual counterparts. The findings indicate that gay men often gravitate to more female dominated professions while lesbians frequently thrive in male-dominated work places. In either scenario, out gay and lesbian employees are more likely to be bullied than their heterosexual colleagues.

  • In the UK gay men earn 5% less than heterosexual men with the same skillset
  • In the UK lesbians earn 8% more than heterosexual women with the same skillset
  • Fewer than 20% of countries have adopted sexual orientation anti-discrimination laws in employment

Workplace harassment can have serious mental health consequences for the individuals who are bullied or harassed and detrimental effects on the firm’s smooth operation. Gay and lesbian employees who can be open about their sexual orientation in a safe and diverse workplace are more productive, creative, and loyal because they feel more comfortable and safe.

The report suggests that government intervention to introduce employment policies that are clear and that apply uniformly to all employees, regardless of sexual orientation, would reduce workplace dissatisfaction and boost job satisfaction. Prejudice, stigma and discrimination are minimized in workplaces that have written equality policies and gay and lesbian unions.

These findings imply that legislative protection constitutes only a small step toward improving the employment circumstances and general well-being of people who are gay or lesbian and highlights the need for other policy intervention.

Read coverage e.g. in Daily Mail, The Mirror, The Telegraph and Management Today.

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More women in leadership positions don’t make firms more successful

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Many European countries are contemplating (or have already introduced) mandatory quotas for the share of women on the executive level of firms. The idea is to help women break the glass ceiling and create more equality of opportunity also in the lower ranks. Quota advocates also argue that more gender diversity at the top increases firms’ productivity and performance.

In a new IZA Discussion Paper, Daniele Paserman and Stefano Gagliarducci explored whether this is indeed the case. They looked at the outcomes of Germans firms whose share of women in leadership positions increased substantially between 1993 and 2012. Surprisingly, firms with more women at the top perform worse in terms of business volume, investment, total wage bill per worker, total employment, and turnover. On the other hand, they are more likely to implement female-friendly policies, such as providing childcare facilities or promoting and mentoring female junior staff.

But it is important to note that there is no causal effect. It is rather a matter of sorting: Women are more likely to seek leadership positions in small and less productive establishments that invest less, pay their employees lower wages, but are more female-friendly.

American women respond to immigration inflows by having more children

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The hot debate about President Obama’s immigration reform shows that many Americans still view immigrants as taking jobs away from natives – while in fact quite the opposite can be true: In a recent IZA Discussion Paper, Delia Furtado shows that better childcare availability due to immigrant inflows allows U.S. women to work more despite having more children.

Using U.S. Census data from 1980 and 2000, Furtado provides evidence that immigrant inflows are indeed associated with increased likelihoods of having a baby, and responses are strongest among women who are most likely to consider childcare costs when making fertility decisions – married women with a graduate degree.

More precisely, the distinctive migration-induced decrease in the median wage of childcare workers seems to be transmitted into higher fertility rates: A ten percentage point increase in the share of low-skilled immigrants in a metropolitan area is associated with a 0.67 percentage point increase in the probability that high skilled women in that region give birth.

The responsiveness to decreased costs of childcare seems to be increasing with the educational level. Women with a graduate degree have stronger reactions in their childbearing behavior than women with a college degree, while this relation between graduate and college degree is less pronounced for the effect on the subsequent reentry into the labor market.

This difference in the responsiveness by skill group might explain the inefficiency of many introduced family-friendly policy measures: If high-skilled women react to price changes with disproportional changes in fertility compared to changes in their reentry decision, these fertility increases could offset some of the desired effects on female labor supply.

 

Exposure to Ramadan in utero affects labor market outcomes

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Nutritional disruptions experienced during the stage of fetal development impair an individual’s labor market productivity later in life. This is shown in a new IZA paper by Marie Louise Schultz-Nielsen, Erdal Tekin and Jane Greve, who analyze intrauterine exposure to the month of Ramadan as a natural experiment that might cause shocks to the inflow of nutrients essential for fetal development.

The authors use administrative data from Denmark to investigate the impact of exposure to Ramadan in utero on labor market outcomes of adult Muslim males, including employment status, annual salary, hourly wage rate, and hours of work. They find scarring effects on the fetus expressed as poor labor market outcomes later in life. Specifically, exposure to Ramadan in the 7th month of gestation results in a lower likelihood of employment, a lower salary, and reduced labor supply, but not necessarily a lower wage rate.

These results may partially be driven by increased disability and to a lesser extent by poor educational attainment among those who were exposed to Ramadan during this particular period in utero. Since individuals with biological deficits due to their exposure to Ramadan in utero may have received more favorable resources from society or their parents in an effort to mitigate their disadvantages, the results of the study should be interpreted as the long-term biological and social effects of Ramadan exposure. The pure biological impact without remediation might be larger.

The findings have implications for societies in both Western and developing worlds, where millions of babies continue to be born malnourished due to problems such as poverty. Therefore, the study could be considered a basis for advocating interventions that provide benefits to pregnant mothers or families with young children (e.g., subsidized child care or kindergarten, parental leave policies, mentoring programs for children from low socio-economic backgrounds, etc.).

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Expensive development program did not improve living conditions in Northern Ireland

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The signing of the Belfast Agreement on Good Friday 1998 is widely seen as the final act in the long process to bring peace to Northern Ireland. Although an era of violence ended on that day, Northern Ireland’s economy afterwards still lagged behind that of mainland Great Britain and inter-community tensions remained easily visible. Protestant and Catholic children, for example, were educated separately and a snake of “peace walls” physically divided the two communities in Belfast and other urban centers.

To overcome these problems the European Union brought the PEACE II project into being. Starting in 2000, approximately one billion euros were spent over six years on community-instigated projects with the aim of bringing communities together and reconciling past differences. Despite the huge outlay, however, official monitoring of the program’s success is, at best, lacking in transparency.

In a recent IZA Discussion Paper, Tilman Brück and Neil T. N. Ferguson fill this gap by exploring data on perceptions of latent neighborhood quality from the British Household Panel Survey. They focus on two questions: The first asks individuals whether or not they like the neighborhood in which they live. The second asks whether or not they would like to move house. This data is matched to a database of all 12,000 applications for PEACE II funding. It includes information on whether or not the application was successful, how much funding was given to each project and the location in which the project was expected to have impacts.

The results show that individuals in areas that received more funds exhibit higher perceptions of neighborhood quality than others, but that this relationship is not causal. Thus, spending appears to have reached only those communities that exhibited already elevated perceptions of quality but it does not otherwise play a role in determining individuals’ feelings about the neighborhood in which they live. This suggests that PEACE II did not necessarily reach the neighborhoods most in need of support, and that it is not associated with any longer-term improvements in the areas in which projects were funded.

A cursory glance at recent developments in Northern Ireland may suggest that such a finding is not entirely unexpected. Almost fifteen years after the program began, inter-community tensions remain prevalent and, whilst improving, economic performance still lags behind mainland Britain. Schooling remains segregated along religious lines and the number of peace walls has actually increased since PEACE II began.

While the targeted spending of peace-building interventions is unlikely to be an inherently bad thing, the outcomes of PEACE II suggest that how spending is targeted must be more carefully considered. The success of targeted spending requires policymakers to accurately determine the areas that will benefit most from intervention, as well as evaluating the quality of the interventions.

Learning from the older brother? Sibling spillover effects in school achievement

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How much a younger sibling’s school achievement is affected by his/her older sibling’s achievement at school is an important question to answer as it helps us understand whether investments in children may have multiplier effects through their impact on younger children. Cheti Nicoletti and Birgitta Rabe are the first to investigate this “sibling spillover effect” in a new IZA paper.

The older sibling’s achievement may have a direct effect on the younger sibling’s school grades if 1) the older sibling teaches the younger sibling or helps with homework; 2) the younger sibling imitates the older sibling, for example in their work style, or conversely tries to be different, for example to avoid competition; 3) the older sibling passes on important information about educational choices or school and teachers to the younger sibling.

When trying to assess the extent of any sibling spillover effects, it is important to distinguish the direct influence of the older to the younger sibling from any similarities in their exam grades that are caused by the fact that they come from the same family and are likely to go to the same school. Nicoletti and Rabe do this by combining several techniques known to economists.

The study shows that there is a small direct effect from the older sibling’s test scores to the younger sibling’s exam marks. More precisely, for each GCSE exam grade improvement of the older sibling – for example from a B to an A – the younger sibling’s exam marks would go up by just 4% of a grade. This effect is about equivalent to the impact of increasing yearly spending per pupil in the younger sibling’s school by £670.

The spillover effect is larger for siblings in families eligible for free school meals, living in deprived neighbourhoods and speaking a language other than English at home. This means that children from more deprived backgrounds benefit more from a high attaining older sibling than children from more affluent backgrounds.

It may be that the effect arises through information sharing about educational choices and schools/teachers. Information on this is likely harder to come by in poorer families, and the benefit to younger children therefore high. The findings of the study indicate that siblings can play an important role in conveying education-related information in families where parents have less access to such information. This suggests that investments into children from deprived families can have considerable multiplier effects on younger siblings.

Read abstract or download complete paper [PDF].

European unemployment insurance faces dilemma

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More substantial fiscal integration in Europe by way of a common unemployment insurance scheme for eurozone member states? This question is currently a subject of intense discussion. Would an automatic stabilizer like this necessarily turn Europe into a transfer union? A recent IZA Discussion Paper by Mathias Dolls, Clemens Fuest, Dirk Neumann, Andreas Peichl shows that a European Unemployment Insurance would have cushioned the impact of the recent crisis in the most embattled euro area member states. Germany would have been a net contributor in the period between 2000 and 2013 despite the rather weak economic situation at the turn of the millennium. In future crises, however, burden-sharing might take a different turn.

Does the euro area need an unemployment insurance that completely or partially replaces national systems? Opinions on that matter are divided in the areas of politics and academia. Proponents stress that a joint unemployment insurance would stabilize total demand in the participating countries in times of crisis. Objectors argue that a European insurance system would transform the eurozone into a transfer union. The new study examines how different models of a European unemployment insurance would have affected households in the 18 countries of the euro area between 2000 and 2013. This is the first micro-data simulation to address this research question.

The authors found evidence that an unemployment insurance scheme for the euro area that pays a rate of 50 percent of the recipient’s last income level for a duration of 12 months could have been implemented with a relatively small annual budget. Over the period from 2000 to 2013, the benefits paid “by Europe” would have amounted to about 49 billion euros per year. In the simulation, the budget of the scheme was financed by the eurozone members with a standard contribution rate of 1.57 per cent of income per employee.

Five out of 18 euro area countries considered in the study would have been net contributors or net recipients in each year of the simulation period. The largest net contributors would be Austria, Germany and the Netherlands with average annual net contributions of 0.2–0.42 per cent of gross domestic product (GDP). Spain and Latvia would be the largest net recipients with average annual net benefits of 0.53 and 0.33 per cent of GDP. Cross-country redistribution effects are limited, however, if benefits are strictly directed towards member states where the labor market situation is worsening. In such a scenario, not a single eurozone member state would have been a permanent net contributor. All in all, household incomes would have been stabilized, in particular at the beginning of the financial and economic crisis.

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Stealing to survive: Crime rates rise in response to poor harvest

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Between 1863 and 1890, phylloxera (an insect which attacks grapevine roots) destroyed about 40% of the French vineyards. The crisis could only be stopped when vineyards were replanted with hybrid American vines which were resistant to the insect.

This poor harvest induced a large productivity shock in the 19th century French economy that was still largely dependent on agricultural production (accounting for 30 percent of GDP at the time). Local credit markets, which could have alleviated the crisis, collapsed and the modern welfare state was not yet established. For a large share of the population, this meant a huge negative income shock.

The fact that phylloxera affected the different départements in different years offer a natural experiment to explore the effects of this negative income shock on property and violent crime rates, as done by Vincent Bignon, Eve Caroli and Roberto Galbiati in their new IZA Discussion Paper.

The results: Full contagion by phylloxera in a département on average increased property crime rates by 18 percent whereas violent crime rates dropped by about 12 percent. The authors show that the latter decrease really is driven by the drop in wine supply. The crisis lowered the consumption levels of alcohol, making the people less receptive for violence.

The coach matters: Evidence from the Bundesliga

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What difference does the quality of the single person at the top make for the overall performance of the organization? How dependent are large companies on their CEOs? Are they really the ones leading the firm or just mascots with very limited powers?

These questions are very hard to answer since CEOs work only for a very small number of different firms in their lifetime. This limits the scope to measure their contribution to organizational success, because observing the same manager in different organizations thus using different sets of resources and working with different people is crucial to measure a manager’s contribution to overall success.

In a new IZA Discussion Paper, Sandra Hentschel, Gerd Mühlheußer and Dirk Sliwka study the impact of managers on the success of professional soccer teams using data from the German “Bundesliga”. The authors exploit the high turnover of managers between teams to disentangle the managers’ contributions. Furthermore, team performance is publicly observable on a weekly basis.

The researchers find that teams employing a manager at the 75% ability percentile gain on average 0.25 points per game more than those employing a manager at the 25% ability percentile, which corresponds to a sizeable difference of 18% of the average number of points awarded per game.

As an example: In comparison to a moderately able manager, a team coached by Jürgen Klopp (the current coach of Borussia Dortmund) would have achieved 0.46 points more per game, leading to 15.64 more points per season. On the other hand, a team coached by Benno Möhlmann (the current manager of FSV Frankfurt) would have acquired 0.33 points less per game or 11.22 points per season.