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IZA – Institute of Labor Economics

The effects of depenalizing cannabis

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Policy makers in many countries are thinking about legalizing the possession of small amounts of marihuana. For example, people in Colorado can now buy up to one ounce of cannabis in licensed coffeeshops. This is the first time that a U.S. state has legalized the sale of marihuana. Politicians and researchers are eagerly watching this policy to understand the implications of legalizing small amounts of cannabis.

In a new IZA discussion paper Jérôme Adda, Brendon McConnell and Imran Rasul contribute new evidence to the discussion of depenalizing the possession of cannabis. They investigate a policy experiment in the London Borough of Lambeth. From July 2001 to July 2002, people did not get arrested for the possession of small quantities of cannabis, while the possession was still recorded as an offense.

The authors show that the policy experiment had a large effect: there was a huge increase in cannabis demand in Lambeth. In the long run, the number of cannabis possession offenses remained nearly 70 percent higher in the borough than in the rest of London. Also the demand for hard drugs like heroin or crystal meth in Lambeth increased by 12 percent. In contrast, there were nearly 10 percent fewer non-drug related crimes like burglary, theft or criminal damage. The police arrested much more people and the clear-up rate rose significantly. The researchers explained that the police reallocated their forces from pursuing drug offenses to these types of crime and thus worked more effectively.

Since housing prices in Lambeth fell by five percent, the economists conclude that the overall effect on welfare was negative. This decrease was driven by houses in so-called “hotspots” where the drug scene is very active. But the authors also suggest that if cannabis were to be legalized citywide, drug tourism to Lambeth would disappear and housing prices would rise again.

Unborn babies respond to grandparents’ death

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There is ample evidence that fetuses are negatively affected by diseases and other health issues of the mother. But little is known about babies’ reaction to psychological problems of the mother during pregnancy.

In a new IZA Discussion Paper, Sandra E. Black, Paul J. Devereux and Kjell G. Salvanes show that the death of a grandparent during gestation is associated with worse health outcomes for the fetus. The researchers focus on Norwegian mothers with at least two children and compare siblings to avoid selection problems. Women experiencing their parents’ death during pregnancy are not a random sample because poorer families have a lower life expectancy, suggesting that parents are more likely to die relatively young.

The negative health effects are small but significant: On average, newborns that recently lost one of their grandparents are one millimeter shorter and weigh 23 grams less. The differences are larger for boys than for girls. However, the authors do not find any negative long-run effects, for example on future earnings or the probability that the baby will obtain a high-school diploma later in life.

Interestingly, the negative findings are driven by grandparents’ deaths due to heart attacks. So unexpected losses seem to stress mothers much more than deaths because of cancer. Possible channels through which the babies’ health could be affected are a weakened immune system of the pregnant mother and her tendency to start smoking or drinking in order to deal with the grief.

Why Americans should be forced to take more vacation days

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Typically, U.S. citizens devote much more time to their jobs than Europeans. Summing up weekends, holidays and vacations, the average American worker has 141 days of leisure per year, whereas the average German enjoys 191 days. A new IZA discussion paper by Maurice Schiff tries to explain this difference with a coordination failure: In the U.S. there is no minimum vacation time like in Europe. Most workers only take two weeks off per year. Schiff believes that Americans would like to go on vacation more often, but they don’t want to be perceived as less committed than their co-workers.

Because of missing coordination, nobody dares to take more time off . The author sees U.S. workers in an “overworking trap”, where each individual works inefficiently much. Stepping back collectively would be beneficial for society as a whole: If Americans reduced their working time to the European level, U.S. welfare would increase by 4 percent, according to the study. As European legislators are apparently aware of the negative effects of too little leisure, they force workers to go on vacation. For example, in Germany every full-time worker has to take six weeks off from his job every year.

Capitalism and religion: Protestant work ethic fosters entrepreneurship in Switzerland

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As the German sociologist Max Weber said back in 1904, the rise of capitalism is closely linked to the emergence of Protestantism. Individualism and the Protestant work ethic fits well with the principles of the market economy. In a new IZA discussion paper, Luca Nunziata and Lorenzo Rocco provide evidence for this century-old hypothesis. Using Swiss census data they show that Protestants are more likely to be entrepreneurs than Catholics.

The researchers focus on religious minorities in Switzerland: minorities tend to adhere more strongly to the rules and traditions of their religion because religion is an important component of their identity that is worth defending against the influence of the majority. The economists exploit the fact that Protestants represent the minority in Lucerne, Uri, Schwyz and Zug, whereas only in the canton of Berne there is a Protestant majority coupled with a Catholic minority.

The analysis of Swiss Census data from 1970 to 2000 shows that religious ethics significantly affect economic behavior and outcomes: on average Protestants are 2.9 percent more likely to be entrepreneurs than Catholics. This effect is driven by high-skilled and prime-aged entrepreneurs but not by gender differences. Moreover, the effect is weaker among German-speakers and especially high in the Swiss Plateau.

In the gym and on the job: creatine makes successful

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It is widely used among tennis players, ski jumpers and bodybuilders as a dietary supplement: Creatine, an organic acid that supplies muscles and the brain with energy very effectively. But maybe it does not only enhance the performance in the gym or on the tennis court, but also on the labor market.

This is what a new IZA discussion paper by Petri Böckermann, Alex Bryson, Jutta Viinikainen, Christian Hakulinen, Laura Pulkki-Raback and Olli Raitakari suggests. They investigated the influence of the quantity of creatinine in the urine of over 3500 Finnish children on their success on the labor market later in life. The measurements were conducted in 1980, when the performance-improving effect of creatine was not yet known.

The researchers show that a higher level of creatinine is correlated with a higher income and more working years. Ten percent more creatinine in the urine of the Finnish boys and girls made them earn 1.5 percent more on average as grown-ups. This amounts to roughly 240 extra euros per year. However, since educational outcomes remain unaffected, creatine obviously influences labor market performance through other channels.

According to the authors, the positive effect may be related to particular personality traits. People with high levels of creatine often fulfill their tasks with more perseverance and commitment. They are also said to be more conscientious and extrovert, which might improve their performance on the job.

Since the researchers only looked at endogenous creatine levels, it remains an open question whether taking creatine supplements would also improve one’s career prospects.

More schooling makes women less likely to vote for Islamic parties

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Many countries in the Middle East and North Africa are characterized by low levels of per capita income, democracy and education, but a high level of religiosity. Excluding Cyprus and Israel, the predominant religion in these countries is Islam.

In a new IZA discussion paper, Resul Cesur and Naci Mocan show that religious beliefs and political views of Muslim women change when they attain a higher education. In 1997 the compulsory attendance of secular schooling was extended from five to eight years in Turkey. Consequently, the share of women who obtained at least a middle school diploma increased from 54 to 83 percent.

Among the better educated females the proportion of those identifying themselves as religious decreased by 30 percent. The share of those who stated to have a modern lifestyle increased by the same magnitude. These additional three years of education made Muslim women 40 percent less likely to wear a head scarf or even a burqa. They also voted only half as often for Islamic parties in general elections.

Surprisingly, there are no such effects for men, neither concerning their religious views nor their voting behavior. A possible explanation given by the authors is that women are now necessarily more often away from home. In the extra years of secular schooling they can make more friends and experiences that might alter their beliefs and preferences.

Shared joy is double joy: Girls are more generous than boys

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Classic economic theory has long pursued the concept of homo economicus, which sees human beings as rational actors who are exclusively motivated by self-interest. More recently, this has been complemented by homo reciprocans, a concept describing cooperatively acting individuals who aim to improve their environment. Indeed, altruism has become one of the hottest topics in behavioral economics.

In a new IZA discussion paper, Silvia Angerer, Daniela Glätzle-Rützler, Philipp Lergetporer and Matthias Sutter shed light on the altruistic behavior of children. The researchers conducted an experiment with school-children from the bilingual (German-Italian) town of Meran, South Tyrol. Over 1,000 boys and girls received six tokens each, which they could either exchange for fruits and candy – or donate to a well-known charity for children in need. The 7 to 11-year-olds were not monitored or influenced when they made their decision.

The experiment generated a number of interesting findings:

  • The older the children, the more they donate. While 30% of the youngest children decided to donate nothing, only 13% of the oldest kept all their tokens for themselves. Remarkably, at age 10 and 11, the children acted almost like adults in comparable experiments.
  • Girls are more charitable than boys.
  • A higher IQ makes children more altruistic.
  • Having older brothers decreases children’s propensity to share.
  • There is no difference in altruism between German-speaking and Italian-speaking children.
  • Parents’ socioeconomic status (in terms of unemployment) has no effect on their children’s generosity.

The Crimea Crisis: Consequences of the Russian-Ukrainian Divide

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The recent serious developments in the Ukraine expose growing tensions between ethnic Russians and Ukrainians in the country, evident since the Orange Revolution. Recent IZA research shows that these tensions reflect deeper divides in political preferences but also economic disparities between the two ethnic groups.

Two recently published studies co-authored by Amelie F. Constant (IZA and George Washington University), Martin Kahanec (IZA and Central European University) and Klaus F. Zimmermann (IZA and Bonn University) shed light on the sources of the deep economic and political divide between the two largest ethnic groups in Ukraine, Russian and Ukrainian.

The first study published in Eastern European Economics shows that voting preferences for the pro-European, pro-Orange, political parties were strongly driven by preferences for western-type market economy and democracy. Independently of preferences for market economy and democracy, however, voting preferences of ethnic Ukrainians and ethnic Russians were markedly different.

As the Russian-Ukrainian differences in voting preferences could not be explained by differences in age, education, region or other socio-demographic characteristics, they rather reflected a deeper ethnic divide in the Ukrainian society.

Specifically, Ukrainian speakers reporting Ukrainian ethnicity (natsionalnost) were shown to be 44 percent less likely to vote pro-European parties, and almost 40 percent (17 percentage points) of this gap was due to ethnicity, the rest being explained by other socio-demographic factors. Interestingly, even those ethnic Ukrainians whose primary language was Russian differed from Russian speakers of Russian ethnicity by 10.5 percent in favor of pro-European parties, of which 34 percent (3.6 percentage points) was due to Ukrainian ethnicity. The gaps were even larger between ethnic Ukrainians who spoke Ukrainian and those who spoke Russian.
[Read more…] about The Crimea Crisis: Consequences of the Russian-Ukrainian Divide

Parents manipulate birth timing to receive child benefits

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In light of the recent recession, the Spanish government eliminated a generous child benefit in 2011. Until December 31, 2010, all mothers had received 2,500 euros for every newborn baby right after birth. The abolition of the payment was announced seven months in advance.

In a new IZA discussion paper, Christina Borra, Libertad González and Almudena Sevilla-Sanz show that parents who were expecting a baby towards the end of the year responded to this announcement. In the last week of December 2010, around 2,000 more babies were born than in the first week of January 2011. Normally, birth rates in the weeks before and after New Year’s are similar, with around 9,000 children born each week.

The authors conclude that many parents were willing to anticipate their children’s date of birth to receive the expiring child benefit. Native and older mothers were more likely to shift the date of birth, while there is no direct link to low socioeconomic status. Furthermore, the researchers show that the parents put the health of their children at risk by anticipating birth. The earlier born babies weighed ten percent less than the average newborn. In December and January, there were also 78 more deaths of babies within the first day after birth than usual. In addition, the economists discovered that there were 5% more caesarean sections compared to previous years.

The consequences of Chernobyl on children’s later labor market career

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Austria is one of the countries that received most radioactive fallout as a result of the nuclear catastrophe in Chernobyl in 1986. Especially in Salzburg and Upper Austria there are areas still heavily contaminated with Caesium-137. While the direct impact on health is a topic in ongoing scientific research, there is now evidence on the negative influence of radioactive pollution on the later labor market outcome of unborn children.

In a new IZA discussion paper Martin Halla and Martina Zweimüller discovered that children from families with a low socioeconomic background who are from regions with high radioactive fallout performed significantly worse in the labor market than comparable children from regions with very little radioactive fallout. However, there is no such effect for children raised in rich families.

The authors also investigated the parents’ response to this shock in the early life of their children. Regardless of their socioeconomic background, all parents showed compensating behavior to devote more time to their potentially health-damaged children. While relatively poor families reduced the family size, mothers in wealthy families worked less. The results imply that the preventive measures of wealthy families were much more successful in preventing negative long-term effects. As a consequence, the economists recommend targeting assistance programs at poor families whenever there are events that may affect the well-being of unborn and very young children.