All in the Extended Family: Effects of Grandparents, Aunts, and Uncles on Educational Attainment by Linda Datcher Loury. Published in volume 96, issue 2, pages 275-278 of American Economic Review, May 2006
We develop a model in which firms set impersonal salary levels before matching with workers. Wages fall relative to any competitive equilibrium while profits rise almost as much, implying little inefficiency. Furthermore, the best firms gain the most from the system while wages become compressed. In light of our results, we discuss the performance of alternative institutions and the recent antitrust case against the National Resident Matching Program.
Using large samples of estate tax returns, we construct new series on wealth concentration in Paris and France from 1807 to 1994. Inequality increased until 1914 because industrial and financial estates grew dramatically. Then, adverse shocks, rather than a Kuznets-type process, led to a massive decline in inequality. The very high wealth concentration prior to 1914 benefited retired individuals living off capital income (rentiers) rather than entrepreneurs. The very rich were in their seventies and eighties, whereas they had been in their fifties a half century earlier and would be so again after World War II. Our results shed new light on ongoing debates about wealth inequality and growth.
This paper investigates how noisy evaluation of worker skills affects human capital investments and hiring. Individuals distort investments toward skills that most managers can evaluate. Dynamically, when workers become managers, managerial expertise can become increasingly skewed over time, raising investment distortions and reducing output. If firms select managerial expertise strategically, efficient investments can be retrieved when (a) identifying whether workers' skills matter more than distinguishing among skilled workers, and (b) initial investment distortions are small. Otherwise, such strategic design worsens long-run outcomes. Finally, we determine when short-run affirmative action policies are effective.
We examine the role of banks in the transmission of monetary policy. In economies where banks use real demand deposits to finance their lending, fluctuations in the timing of production can force banks to scramble for real liquidity, or even fail, which can greatly affect lending and aggregate output. The adverse effect on output can be reduced if banks finance with nominal deposits. Nominal deposits also open a “financial liquidity” channel for monetary policy to affect real activity. The banking system may be better off, however, issuing real deposits (e.g., foreign exchange denominated) under some circumstances.
Studies of the impact of migration on sending households (e.g., Dean Yang, 2004; Alejandra C. Edwards and Manuelita Ureta, 2003) have largely neglected the fact that certain allocations can only be imperfectly monitored when household members are not coresident (see Ralph Chami et al., 2003, for an exception). In this case, allocations can be coordinated only to the extent that they can be verified, and household decision making may not be fully cooperative. The existence of such behavior among household members would suggest that expanding opportunities for migration will have different effects on expenditure patterns than simply increasing the amount of income received by the household. Changes in earned income and the potential to earn income will affect bargaining among spouses, but noncooperative behavior will have an additional effect on the final distribution of household resources. With the
Dividend Taxes and Firm Valuation: New Evidence By Alan J. Auerbach and Kevin A. Hassett * The Jobs and Growth Tax Relief Act of 2003 (JGTRA03) reduced the tax rates on dividends, with the highest statutory tax rate of 35 percent falling to 15 percent. An interesting twist on the dividend tax cut was its temporary nature; the provision as passed was effective only through 2008, and (as recent Congressional deliberations have illustrated), the extension its supporters envisioned was by no means certain. This large dividend tax reduction, along with its sunset provision, offers an unusual natural research experiment on the effects of dividend taxation. The theory of dividend taxation suggests three possible scenarios for the effects of the dividend tax reduction. Under the “tax irrelevance” view, the marginal shareholder is a tax-free entity (or a taxable investor who ignores or can offset incremental taxes), and the dividend tax reduction has no effect on equity values or firm behavior. Under the “traditional” view the marginal source of equity finance is new share issuance, and the tax reduction feeds through to the firm’s user cost and stimulates extra capital formation. Share values rise in the short run but, after full adjustment, the higher capital level reduces the marginal revenue product of capital enough to offset the dividend tax reduction, leaving equity prices the same. Under the “new” view, the marginal source of finance is retained earnings and the dividend tax cut is capitalized into the share price of the firm but has no investment effect. Understanding the economic consequences of the dividend tax reduction requires knowledge of the empirical relevance of these competing views. Our previous paper (Auerbach and Hassett 2005) performed an event-study analysis of a large panel of firms to determine how firm attributes affected the valuation response over eight key event dates leading up to the 2003 legislation. Our results, taken together, rejected outright
Technology Improves Learning in Large Principles of Economics Classes: Using Our WITS by Sheryl B. Ball, Catherine Eckel and Christian Rojas. Published in volume 96, issue 2, pages 442-446 of American Economic Review, May 2006
During the World War II and Korean War era, the U.S. military freely distributed cigarettes to overseas personnel and provided low-cost tobacco products on domestic military bases. In fact, even today the military continues to sell subsidized tobacco products on its bases. Using a variety of instrumental variables approaches to deal with nonrandom selection into the military and into smoking, we provide substantial evidence that cohorts with higher military participation rates subsequently suffered more premature mortality. More importantly, we show that a large fraction, 35 to 79 percent, of the excess veteran deaths due to heart disease and lung cancer are attributable to military-induced smoking.