Knowledge that Transforms

The job-finding rate of unemployment insurance (UI) recipients declines in the initial months of unemployment and then exhibits a spike at the benefit exhaustion point. A range of theoretical explanations have been proposed, but those are hard to disentangle using data on job finding alone. To better understand the underlying mechanisms, we conducted a large text-message-based survey of unemployed workers in Germany. We surveyed 6,349 UI recipients twice a week for four months about their job search effort. The panel structure allows us to observe how search effort evolves in individuals over the unemployment spell. We provide three key facts: (i) search effort is flat early on in the UI spell, (ii) search effort exhibits an increase up to UI exhaustion and a decrease thereafter, (iii) UI recipients do not appear to time job start dates to coincide with the UI exhaustion point. A standard search model with unobserved heterogeneity struggles to explain the second fact, and a model of storable offers is not consistent with the third fact. The patterns are well captured by a model of reference-dependent job search or by a model with duration dependence in search cost.

This article presents a new methodology to detect corruption in customs and applies it to Madagascar’s main port. Manipulation of assignment of import declarations to inspectors is identified by measuring deviations from random assignment prescribed by official rules. Deviant declarations are more at risk of tax evasion, yet less likely to be deemed fraudulent by inspectors, who also clear them faster. An intervention in which inspector assignment was delegated to a third party validates our approach, but also triggered a novel manifestation of manipulation that rejuvenated systemic corruption. Tax revenue losses associated with the corruption scheme are approximately 3% of total taxes collected and are highly concentrated among a select few inspectors and brokers.

The recent ascent of right-wing populist movements in several countries has rekindled interest in understanding the causes of the rise of fascism in the interwar years. In this article, we argue that there was a strong link between the surge of support for the Socialist Party after World War I and the subsequent emergence of fascism in Italy. We first develop a source of variation in socialist support across Italian municipalities in the 1919 election based on war casualties from the area. We show that these casualties are unrelated to a battery of political, economic, and social variables before the war and had a major effect on socialist support (partly because the socialists were the main antiwar political movement). Our main result is that this boost to socialist support (that is “exogenous” to the prior political leaning of the municipality) led to greater local fascist activity as measured by local party branches and fascist political violence, and to significantly larger vote share of the Fascist Party in the 1921 and 1924 elections. We provide evidence that landowner associations and greater presence of local elites played an important role in the rise of fascism. Finally, we find greater likelihood of Jewish deportations in 1943–45 and lower vote share for Christian Democrats after World War II in areas with greater early fascist activity.

Bottom-up stimulus-driven visual salience is largely automatic, effortless, and independent of a person’s “top-down” perceptual goals; it depends only on features of a visual stimulus. Algorithms have been carefully trained to predict stimulus-driven salience values for each pixel in any image. The economic question we address is whether these salience values help explain economic decisions. Our first experimental analysis shows that when people pick between sets of fruits that have artificially induced value, predicted salience (which is uncorrelated with value by design) leads to mistakes. Our second analysis uses evidence from games in which choices are locations in images. When players are trying to cooperatively match locations, predicted salience is highly correlated with the success of matching (r = .57). In competitive hider-seeker location games, players choose salient locations more often than predicted by the unique Nash equilibrium. This tendency creates a disequilibrium “seeker’s advantage” (seekers win more often than predicted in equilibrium). The result can be explained by level-k models in which predicted stimulus-driven salience influences level-0 choices and thereby influences overall perceptions, beliefs, and choices of higher-level players. The third analysis shows that there is an effect of visual salience in matrix games, but it is small and statistically weak. Applications to behavioral IO, price and tax salience, nudges and design, and visually influenced beliefs are suggested.

We estimate the effect of losing Supplemental Security Income (SSI) benefits at age 18 on criminal justice and employment outcomes over the next two decades. To estimate this effect, we use a regression discontinuity design in the likelihood of being reviewed for SSI eligibility at age 18 created by the 1996 welfare reform law. We evaluate this natural experiment with Social Security Administration data linked to records from the Criminal Justice Administrative Records System. We find that SSI removal increases the number of criminal charges by a statistically significant 20% over the next two decades. The increase in charges is concentrated in offenses for which income generation is a primary motivation (60% increase), especially theft, burglary, fraud/forgery, and prostitution. The effect of SSI removal on criminal justice involvement persists more than two decades later, even as the effect of removal on contemporaneous SSI receipt diminishes. In response to SSI removal, youth are twice as likely to be charged with an illicit income-generating offense than they are to maintain steady employment at $15,000/year in the labor market. As a result of these charges, the annual likelihood of incarceration increases by a statistically significant 60% in the two decades following SSI removal. The costs to taxpayers of enforcement and incarceration from SSI removal are so high that they nearly eliminate the savings to taxpayers from reduced SSI benefits.

Using 40 countries’ subnational data, we estimate age-specific mortality-temperature relationships and extrapolate them to countries without data today and into a future with climate change. We uncover a U-shaped relationship where extre6me cold and hot temperatures increase mortality rates, especially for the elderly. Critically, this relationship is flattened by higher incomes and adaptation to local climate. Using a revealed-preference approach to recover unobserved adaptation costs, we estimate that the mean global increase in mortality risk due to climate change, accounting for adaptation benefits and costs, is valued at roughly 3.2% of global GDP in 2100 under a high-emissions scenario. Notably, today’s cold locations are projected to benefit, while today’s poor and hot locations have large projected damages. Finally, our central estimates indicate that the release of an additional ton of CO2 today will cause mortality-related damages of $36.6 under a high-emissions scenario, with an interquartile range accounting for both econometric and climate uncertainty of [−$7.8, $73.0]. These empirically grounded estimates exceed the previous literature’s estimates by an order of magnitude.

In many economic decisions, people estimate probabilities, such as the likelihood that a risk materializes or that a job applicant will be a productive employee, by retrieving experiences from memory. We model this process based on two established regularities of selective recall: similarity and interference. We show that the similarity structure of a hypothesis and the way it is described (not just its objective probability) shape the recall of experiences and thus probability assessments. The model accounts for and reconciles a variety of empirical findings, such as overestimation of unlikely events when these are cued versus neglect of noncued ones, the availability heuristic, the representativeness heuristic, conjunction and disjunction fallacies, and over- versus underreaction to information in different situations. The model yields several new predictions, for which we find strong experimental support.

We provide new evidence that cash transfers following the birth of a first child can have large and long-lasting effects on that child’s outcomes. We take advantage of the January 1 birthdate cutoff for U.S. child-related tax benefits, which results in families of otherwise similar children receiving substantially different refunds during the first year of life. For the average low-income single-child family in our sample, this difference amounts to roughly $1,300, or 10% of income. Using the universe of administrative federal tax data in selected years, we show that this transfer in infancy increases young adult earnings by at least 1%–2%, with larger effects for males. These effects show up at earlier ages in terms of improved math and reading test scores and a higher likelihood of high-school graduation. The observed effects on shorter-run parental outcomes suggest that additional liquidity during the critical window following the birth of a first child leads to persistent increases in family income that likely contribute to the downstream effects on children’s outcomes. The longer-term effects on child earnings alone are large enough that the transfer pays for itself through subsequent increases in federal income tax revenue.

We describe how sexual harassment contributes to sex segregation and pay inequality in the labor market. Combining nationally representative survey data and administrative data, we show that both harassment and wages vary strongly and systematically across workplaces. Women self-report more harassment from colleagues and managers in male-dominated workplaces where wages are relatively high, and men self-report more harassment in female-dominated workplaces where wages are low. These patterns imply two ways that harassment may contribute to gender inequality. First, harassment deters women and men from applying for jobs in workplaces where they are the gender minority. A survey experiment with hypothetical job choices supports this mechanism. Respondents are highly averse to accepting jobs in workplaces with a higher harassment risk for their own gender, but less averse when people of the opposite sex are at higher risk. A second way that harassment contributes to inequality is by making workplace gender minorities leave their workplaces for new jobs. An analysis of workplace transitions supports this mechanism. Women who self-report harassment are more likely to switch to new workplaces with more female colleagues and lower pay.

The earnings of individuals depend on the demand for the factor services they supply. International trade may therefore affect earnings inequality because either (i) foreign consumers and firms demand domestic factor services in different proportions than domestic consumers and firms do, an export channel; or (ii) domestic consumers and firms change their demand for domestic factor services in response to the availability of foreign goods, an import channel. Building on this idea, we develop new measures of export and import exposure at the individual level and provide estimates of their incidence across the earnings distribution. The key input fed into our empirical analysis is a unique administrative data set from Ecuador that merges firm-to-firm transaction data, employer-employee matched data, owner-firm matched data, and firm-level customs transaction records. We find that export exposure is pro-middle class, import exposure is pro-rich, and in terms of overall incidence, the import channel is the dominant force. As a result, earnings inequality in Ecuador is higher than it would be in the absence of trade.