Knowledge that Transforms

Economists generally assume, implicitly, that “the return to schooling” is invariant across local labor markets. We demonstrate that this outcome pertains if and only if preferences are homothetic—a special case that seems unlikely. Our theory predicts that returns to education will instead be relatively low in expensive high‐amenity locations. Our analysis of U.S. data provides support for this contention; returns to college are especially low in such cities as San Francisco and Seattle. Our findings call into question standard empirical exercises in labor economics that treat the returns to education as a single parameter.

Using a unique data set on teachers’ union election certifications from Iowa, Indiana, and Minnesota, I estimate the effect of teachers’ unions on school district resources and on student educational attainment. My empirical strategy allows for nonparametric leads and lags of union age. I find no impact on teacher pay or per student district expenditures but that unions increase teacher employment by 5%. I find no class size effect because of enrollment increases in unionized districts, and I estimate that unions have no net effect on high school dropout rates. These findings highlight the importance of correctly measuring unionization status.

I present the fact that wage gaps due to firm size increase with job responsibility. I use Swedish data to determine whether wage gaps increase with a direct measure of job responsibility, to compare the age patterns of the wage gaps for blue‐ and white‐collar workers, and to compare wages by job responsibility and spans of control. With U.S. data, I compare supervisory to nonsupervisory occupations and find that wage gaps increase with job responsibility for most occupational ladders. This fact is consistent with hierarchical matching models in which the larger number of subordinates amplifies managerial talent.

This article presents evidence about the effects of dismissals‐for‐cause requirements, a specific component of employment protection legislation that has received little attention. I study a quasi‐experiment generated by a law introduced in Portugal: out of the 12 paragraphs in the law that dictated the costly procedure required for dismissals for cause, eight did not apply to small firms. Using matched employer‐employee longitudinal data and difference‐in‐differences methods, I examine the impact of that differentiated change in firing costs upon several variables. The results do not indicate robust effects on job or worker flows, although some estimates suggest an increase in hirings. However, firms that gain flexibility in their dismissals exhibit sizable increases in their relative performance. This finding suggests that reducing firing costs of the type studied here increases workers’ effort.

We study the effects of surname change to Swedish‐sounding or neutral names on earnings for immigrants from Asian/African/Slavic countries. To estimate this effect, we exploit the variation resulting from different timing of name changes across individuals during the 1990s. The results imply that there is a substantial increase in annual earnings after a name change, no effects on earnings prior to a name change, and no positive general effects of a new name for other groups that renounced a foreign name. Based on these findings, we argue that these effects are due to name change as a response to discrimination.

Using personnel data from a large U.S. retail firm, we examine whether the race or ethnicity of the hiring manager affects the racial composition of new hires. We exploit manager turnover to estimate models with store fixed effects and store-specific trends. First, we find that all nonblack managers-that is, whites, Hispanics, and Asians-hire more whites and fewer blacks than do black managers. This is especially true in the South. Second, in locations with large Hispanic populations, Hispanic managers hire more Hispanics and fewer whites than do white managers. We also examine possible explanations for these differential hiring patterns.

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Uncovering the effect of school racial composition is difficult because racial mixing is not accidental but instead an outcome of government and family choices. Using rich panel data on the achievement of Texas students, we disentangle racial composition effects from other aspects of school quality and from differences in abilities and family background. The estimates strongly indicate that a higher percentage of black schoolmates reduces achievement for blacks, while it implies a much smaller and generally insignificant effect on whites. These results suggest that existing levels of segregation in Texas explain a small but meaningful portion of the racial achievement gap.

I examine the effects of the ethnic enclave size on labor market outcomes of immigrants. I account for ability sorting into enclaves by exploiting a Danish spatial dispersal policy under which refugees were randomly dispersed across locations. First, I find strong evidence that refugees with unfavorable unobserved characteristics self‐select into ethnic enclaves. Second, a relative standard deviation increase in the ethnic enclave size increases annual earnings by 18% on average, irrespective of skill level. Third, further findings are consistent with the explanation that ethnic networks disseminate job information, which increases the job‐worker match quality and thereby the hourly wage rate.

We estimate peer effects in college achievement using a data set in which individuals are exogenously assigned to peer groups of about 30 students with whom they are required to spend the majority of their time interacting. This feature enables us to estimate peer effects that are more comparable to changing the entire cohort of peers. Using this broad peer group, we measure academic peer effects of much larger magnitude than found in previous studies. The effects persist at a diminished rate into follow-on years, and we find evidence of nonlinearities in the magnitude of the effects across student academic ability.