Knowledge that Transforms

This article considers optimal unemployment insurance (UI) in an equilibrium matching framework where wages are determined by strategic bargaining. It compares the outcome with the standard Nash bargaining approach, which can be interpreted as union wage bargaining with an insider/outsider distortion. It also shows that a coordinated policy approach, one that chooses job creation subsidies and UI optimally, generates a much greater welfare gain than a policy that simply varies UI payments by duration.

This article contrasts supporting partnerships through relational contracting and supporting partnerships through formal legal institutions. A large population of players interact in bilateral relationships. Efficiency requires cooperation, but cheating yields a higher short‐term payoff. There is a positive probability that the maximum feasible payoff available to a partnership decreases. Opportunistic behavior makes it impossible to realize the efficient outcome. A legal system can lead to efficient contracting. Without such a system, productive relationships arise in equilibrium if it is costly to initiate new relationships. This type of relational contracting tends to make partnerships last longer than is efficient.

Studies examining welfare‐to‐work program effectiveness present mixed and sometimes discrepant findings, partly due to research design, data, and methodological limitations. Using administrative data on Missouri and North Carolina welfare recipients, we substantially improve on past estimation approaches to identify the distinct effects of each state’s welfare‐to‐work subprograms—assessment, job search assistance and job readiness training, and more intensive programs designed to augment human capital. More intensive training is associated with greater initial earnings losses but also greater long‐run earnings gains. The negative program impacts we observe in quarters immediately following participation turn positive by the second year after participation.

The article analyzes conditions for implementing incentive schemes based on, respectively, joint, relative, and independent performance in a relational contract between a principal and a team of two interacting agents. A main result is that the optimal incentive regime depends crucially on the productivity of the agents. This occurs because agents’ productivities affect the principal’s temptation to renege on the relational contract. The analysis suggests that we will see a higher frequency of relative performance evaluation—and schemes that lie close to independent performance evaluation—as we move from low‐productive to high‐productive environments.

This article examines skill gaps between immigrants and native‐born Americans and generational progress achieved by different immigrant ethnic groups. Evidence of a widening skill gap is not strong. While wage data show a pronounced fall in relative wages of “recent” immigrants, significant independent contributors to that decline are a widening age gap and the increasing price of skill. When attention shifts to legal migrants, the evidence is that legal migrants are, at a minimum, keeping up with native‐born Americans. I find that the concern that educational generational progress among Latino immigrants has lagged behind other immigrant ethnic groups is unfounded.

Using 2000 Census data, we describe the relationship between women’s education and marriage outcomes. Women’s education is strongly related to husband's income and marital status. This relationship is highly nonlinear and varies across the distribution of husband's earnings. Roughly half of the correlation between women’s education and consumption operates through the marriage market. Using 1980 Census data and the quarter of birth instruments proposed by Angrist and Krueger, we find that women's education may have a positive causal effect on husband's earnings, though not on probability of marriage.

Military deployments and job assignments provide an opportunity to estimate the impact of parental absences and household relocations on children’s academic achievement. Combining U.S. Army personnel data with children’s standardized test scores from Texas, I find that parental absences adversely affect children’s test scores by a tenth of a standard deviation. Likewise, household relocations have modest negative effects on children’s test scores. Both parental absences and household relocations have the greatest detrimental effect on test scores of children with single parents, children with mothers in the army, children with lower‐ability parents, and younger children.

We show how data from an evaluation in which subjects are randomly assigned to some treatment versus a control group can be combined with nonexperimental methods to estimate the differential effects of alternative treatments. We propose tests for the validity of these methods. We use these methods and tests to analyze the differential effects of labor force attachment (LFA) versus human capital development (HCD) training components with data from California’s Greater Avenues to Independence (GAIN) program. While LFA is more effective than HCD training in the short term, we find that HCD is relatively more effective in the longer term.

Using three sources of data, this article examines the direct economic return to General Educational Development (GED) certification for both native and immigrant high school dropouts. One data source—the Current Population Survey (CPS)—is plagued by nonresponse and allocation bias from the hot deck procedure that biases the estimated return to the GED upward. Correcting for allocation bias and ability bias, there is no direct economic return to GED certification. An apparent return to GED certification with age found in the raw CPS data is due to dropouts becoming more skilled over time. These results apply to both native‐born and immigrant populations.

This article examines match bias arising from earnings imputation. Wage equation parameters are estimated from mixed samples of workers reporting and not reporting earnings, the latter assigned earnings of donors. Regressions including attributes not used as imputation match criteria (e.g., union) are severely biased. Match bias also arises with attributes used as match criteria but matched imperfectly. Imperfect matching on schooling (age) flattens earnings profiles within education (age) groups and creates jumps across groups. Assuming conditional missing at random, a general analytic expression correcting match bias is derived and compared to alternatives. Reweighting a respondent‐only sample proves an attractive approach.