IZA Newsroom

IZA – Institute of Labor Economics

God knows everything: Religious people are less likely to lie for the money

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 Honesty plays a very important role in economic life. It affects the productivity of employees who are not constantly monitored by their bosses as well as the willingness to pay taxes. Sometimes people face situations in which being honest is not the best possible way of acting and they may even get rewarded for lying. But their decision whether to remain honest or to lie is not only driven by monetary incentives.

A new IZA discussion paper by Yuval Arbel, Ronen Bar-El, Erez Siniver and Yossef Tobol provides evidence that the degree of honesty is strongly determined by religiosity, gender and behavioral codes. The economists compared the behavior of students from the secular College of Management in Israel and the Jerusalem College of Technology, which is only attended by (ultra-)orthodox Jews. They asked the students to throw dice and report the outcome, which no one else got to see. The higher the reported number, the higher the monetary reward.

The paper shows that the average number reported by non-religious females was significantly higher than for orthodox or ultra-orthodox women. This suggests that the group of secular women cheated more often to achieve higher payments. Likewise, the group of religious men tended to be more honest than the secular men, but only to a small extent.

Looking at gender differences, the authors found a surprising result: In contrast to many other studies, where men were said to be less honest then women, the female groups in this experiment reported more fives or sixes than the males. The lowest degree of honesty was found among secular females. When the monetary incentive was removed, the non-religious men and women started to behave honestly. So it is evident that they had lied for the money.

The predictive power of reservation wages: Workers tend to overestimate their prospects

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Reservation wages represent the lowest wage for which an individual is willing to work. They are an important economic variable because they determine, among other things, whether or not an unemployed person will pick up a certain job. However, reservation wages are quite difficult to measure as they are usually not directly observable in the real world.

A new IZA discussion paper by Andreas Müller and Alan B. Krueger provides fresh evidence on the behavior of reservation wages over the unemployment spell using high-frequency longitudinal data from a survey of unemployed workers in New Jersey. The workers were interviewed on a weekly basis for up to 24 weeks.

The authors find that self-reported reservation wages decline at a modest rate over the spell of unemployment: per week of unemployment wages decline between 0.05 to 0.14 percent. This decline is driven primarily by older individuals and those with personal savings at the start of the survey.

The longitudinal nature of the data also allows to test the relationship between job acceptance and the reservation wage and offered wage. Job offers are more likely to be accepted if the offered wage exceeds the reservation wage, and the reservation wage has more predictive power in this regard than the pre-displacement wage, suggesting the reservation wage contains useful information about workers’ future decisions.

In addition, there is a discrete rise in job acceptance when the offered wage exceeds the reservation wage. In comparison to a calibrated job search model, the reservation wage starts out too high and declines too slowly, on average, suggesting that many workers persistently misjudge their prospects or anchor their reservation wage on their previous wage.

Read abstract or download discussion paper [PDF].

Counseling services help to find the right school track

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In tracked educational systems the choice of school track is one of the most crucial decisions in students’ lives. It has been shown that those who choose academic (or more selective) tracks tend to have a higher probability of continuing and succeeding in tertiary education, better employment opportunities and higher earnings. But do students and their families have all the relevant information they need to make a conscious choice? A new IZA discussion paper by Massimiliano Bratti, Martino Bernardi and Gianfranco De Simone tries to provide an answer to this question.

The starting point is data collected by an independent school track counseling service called Arianna, created by the municipality of Turin, the second largest city in Northern Italy. Arianna consists of a battery of tests able to measure cognitive and non-cognitive abilities of students in the final year of lower secondary school. Test scores along with other information collected from students and schools are used to give advice to students on the upper secondary school track that best matches their ability profile.

The paper demonstrates that the information and the recommendations provided by Arianna are indeed useful to students and parents. In fact, very often students tend to misperceive their actual ability, overestimating or underestimating their potential. As a result, students often choose tracks that stress their weaknesses instead of promoting their strengths. However, students and their families show an inclination to revise their initial enrollment intentions once new credible information is made available to them. When the Arianna program gives an indication of enrollment intentions not in line with the actual potential of the individual, the student and her family tend to change their initial choice accordingly and opt for a different track.

Furthermore, the findings suggest that those who make choices in line with the suggestions of the counseling services face a lower risk of retaining grades in the upper secondary education. Hence, the authors conclude that providing better information through counseling services may help to prevent failure and drop out in upper secondary education.

Ethnic segregation: boon or bane for cultural integration?

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Immigrants are not evenly distributed within countries: they tend to agglomerate in mainly urban areas. In the public eye – not least since the recent riots in the UK, France and even Sweden – such ethnic neighborhoods and the formation of so-called ‘parallel societies’ are perceived as a threat to social cohesion. Yet, theoretically it is far from clear whether ethnic clustering actually limits the prospects of cultural integration or whether instead it helps easing the immigrants’ way into a new country while holding on to aspects of their country of origin.

The recent IZA Discussion paper by Amelie F. Constant, Simone Schüller and Klaus F. Zimmermann analyzes whether and how geographical ethnic concentration affects immigrants’ ethnic identity, that is, their feelings of belonging to both the host society as well as their culture of origin. The demand-driven geographical allocation of guestworker immigrants during the German recruitment phase in the 1960s and early 1970s serves as a quasi-experimental setting for the study. The authors link county-level information from the 1971 and 1987 German Census to individual-level survey data from the nationally representative German Socio-Economic Panel (SOEP).

Providing rare evidence of immigrants’ spatial dispersion in Germany, they find the distinct pattern of immigrants agglomerating in actually very few counties. The vast majority resides in counties where individuals of their own ethnicity are overrepresented. One specific ethnic group, however, does never make up more than 8% of local residents, not even in the most intensely concentrated counties.

Comparing individuals of diverse ethnic origin living in the same county but facing different levels of local co-ethnic concentration, the authors find significant differences in terms of ethnic identification. Living in an area where fellow co-ethnic immigrants tend to cluster appears to reduce the likelihood of an immigrant ‘feeling German’. Very high levels of residential ethnic clustering strengthens immigrants retaining strong ties to their respective country of origin. Interestingly, the authors find these effects to be nonlinear. Overall, the results suggest that ethnic clusters in urban centers should either be avoided or better used to provide incentives for joint ethnic integration activities – if it is desired to strengthen immigrants’ emotional attachment to the host society.

More labor mobility would alleviate asymmetric shocks in Europe

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Free mobility of labor, one of the pillars of the European Union, has experienced a decrease in popularity in several European countries. Indeed, Swiss citizens in a very recent referendum voted to impose quotas on immigrants from EU countries. Especially migration from recent Central and Eastern European accession countries has raised concerns in many European countries about increasing pressure in labor markets and social security systems.

In their IZA Discussion Paper “Migration as an Adjustment Mechanism in the Crisis? A Comparison of Europe and the United States” Julia Jauer, Thomas Liebig, John P. Martin, and Patrick A. Puhani show that free labor mobility contributed to alleviating asymmetric labor market shocks in Europe, especially during the financial crisis since 2008. The data for almost 300 European and more than 500 American regions are drawn from the European Labor Force Survey and the American Community Survey.

The authors find that recent migration flows have reacted quite significantly to the EU enlargements in 2004 and 2007 and to changes in labor market conditions. Indeed, in contrast to the pre-crisis situation and the findings of previous empirical studies, there is tentative evidence that the migration response to the crisis has been considerable in Europe. This contrasts with the experience of the United States, where the crisis and subsequent sluggish recovery were not accompanied by greater interregional labor mobility in reaction to labor market shocks.

The estimates suggest that, if all measured population changes in Europe’s regions were due to migration for employment purposes – i.e. an upper-bound estimate – up to about a quarter of the asymmetric labor market shock would be absorbed by migration within a year.

In Europe’s free mobility area, it is often overlooked that migrants exhibit higher employment rates than non-mobile Europeans. This is especially true for migrants with EU-10 (central European recent EU accession countries) citizenship. Citizens from southern Europe moving to another Eurozone country, however, have relatively low employment rates. For the Eurozone to function well as a common currency area, raising the contribution of Eurozone citizens to labor market adjustment requires a continued move towards freer movement of labor within Europe.

Money makes people more right-wing

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Voting is the foundation of modern democracy. The causes of people’s political attitudes, however, are largely unknown. Are people’s party preferences motivated by deeply ethical views, or are voting choices made out of pure self-interest? Testing between these two alternative theories is very difficult.

A new IZA Discussion Paper by Nattavudh Powdthavee and Andrew J. Oswald provides new evidence on the formation of political preferences by analyzing lottery winners. The authors compare people before and after a lottery windfall and show that winners tend to switch towards support for a right-wing political party and to become less egalitarian. The larger the win, the more people tilt to the right. The relationship is strongest for males. The findings are consistent with the view that voting is driven partly by human self-interest since right-wing parties tend to redistribute less money from the rich to the poor. Hence, the results of the paper show that money makes people more right-wing.

Better high school, better university performance

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In recent years, many states in the U.S., including California, Texas, and Oregon, have changed admissions policies to increase access to public universities for students from lower socioeconomic backgrounds. However, it is not clear how these students will perform, which is an important concern. A new IZA Discussion Paper by Sandra Black, Jane Arnold Lincove, Jenna Cullinane, and Rachel Veron examines the relationship between high school quality and student success at college. Using newly available administrative data from the University of Texas at Austin, the authors take advantage of a unique law introduced in 1997, which grants automatic admission to UT Austin to all students who graduate from a Texas public high school ranked in the top 10% of their class. The law implies that, regardless of school quality, the best students from each high school in Texas can enroll at the state’s flagship university, which increased the diversity of high schools in the state that send students to the university.

Exploiting this law, the authors find that high school characteristics positively affect student performance: high school variables measuring campus socioeconomic status, academic preparation for college, and school resources have a positive effect on college performance, as measured by freshman year GPA. Importantly, the authors show that these effects persist over time spent in college, with continued significant effects of high school characteristics on student GPAs in sophomore and junior years. Moreover, they show that the effect of high school quality on college performance seems more pronounced for women and low-income students.

Business visits increase productivity

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According to the International Air Transport Association, each year several hundred million workers carry out an international business trip, that is, a work-related visit in another country lasting only a few days. One intriguing feature of this labor flow is the almost exact correspondence between the characteristics of those who depart and those who arrive. In fact, for any pair of cities connected by air travel the volume, industry, occupational and demographic structure of out-going business visitors are almost indistinguishable from those of the corresponding incoming flow.

A recent paper by Roselyne Joyeux and Massimiliano Tani indicates that business visits cause productivity improvements, especially in industries considered as strategic for technological and communication advancements. In the study, the authors analyze data on business expenditures and productivity covering 30 sectors and 17 countries from 1998 to 2007. The authors find the highest productivity effect of business visits in research and development industries like optical equipment, chemicals, finance , primary industries, post and telecommunication services, and machinery.

Based on their results, Joyeux and Tani argue that international business visits should not be seen as a mere expenditure but as a channel for enhancing knowledge and productivity. The results of the study point to higher labor mobility as a potential effective source of economic growth. This has important implications for policymakers, as visits may enable a country to gain useful knowledge for its economic growth without either having to reproduce the conditions that led to such knowledge elsewhere, or having to physically ‘import’ people via temporary or permanent migration.

How important are your professors for your career?

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Everybody who went to university remembers inspiring and motivated professors, but also really dull ones. A new IZA Discussion Paper by Michela Braga, Marco Paccagnella and Michele Pellizzari investigates whether these boring lectures were not only a waste of time, but also bad for the career. The authors estimate the impact of college teaching on students’ academic achievement and labor market outcomes using administrative data from Bocconi University (Italy) matched with Italian tax records. The researchers make use of the random allocation of students to teachers for certain compulsory courses.

The paper shows that good teaching matters, especially for later labor market outcomes. In contrast, the effect on academic performance is smaller. Moreover, the authors show that for high-ability students the professors who are best at improving their students’ grades at university are also the ones who boost their earnings the most. On the contrary, for low ability students the academic and labor market returns of teachers are largely uncorrelated. Another finding of the study is that professors who are good at teaching high-ability students are often not the best teachers for the least able.

The findings have important implication for the hiring decisions of universities: According to the authors some universities may see themselves as elite institutions and consequently aim at recruiting the very best students and the teachers who are best at maximizing the performance of such students. Other institutions may aim at transmitting the body of knowledge of one or several disciplines, regardless of the market value of such knowledge. A third group of institutions may take a more pragmatic approach and decide to provide their students with the competencies with the highest market returns at a specific point in time and space. The authors regard the differences between community colleges and universities in the U.S. or the dual systems of academic and vocational education that are common in countries like Germany and Switzerland as good examples of teaching institutions with different objective functions.

Some children stabilize marriage, others don’t

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 From an economic perspective, children can be seen as an investment of the parents to increase the value of the marriage. In turn, children make a divorce more costly. A new IZA discussion paper by Héctor Bellido, José Alberto Molina, Anne Solaz and
Elena G. F. Stancanelli tests this theoretical argument on U.S. data. The authors confirm that children can have a stabilizing effect, but this is not always the case. The results indicate that children conceived during marriage significantly reduce the probability of marital disruption. The authors show: the younger the children, the greater the deterrent effect, and the higher the parents’ level of education, the larger the positive effect of fertility on marital stability. In contrast, children conceived before marriage are found to increase the risk of marital disruption.