Knowledge that Transforms

This paper examines the short and longer-term economic effects of the 1966 Fair Labor Standards Act (FLSA) which increased the national minimum wage to its highest level of the 20th Century and extended coverage to an additional 9.1 million workers. Exploiting differences in the "bite" of the minimum wage due to regional variation in the standard of living and industry composition, this paper finds that the 1966 FLSA increased wages dramatically but reduced aggregate employment only modestly. However, the disemployment effects were significantly larger among African-American men, forty percent of whom earned below the new minimum wage in 1966.

This paper investigates the wage returns to schooling and actual early work experiences and how these returns have changed over the past 20 years. Using the NLSY surveys, we develop and estimate a dynamic model of the joint schooling and work decisions that young men make in early adulthood and quantify how they affect wages using a generalized Mincerian specification. Our results highlight the need to account for dynamic selection and changes in composition when analyzing changes in wage returns. In particular, we find that ignoring the selectivity of accumulated work experiences results in overstatement of the returns to education.

We estimate turnover costs in small retail sales teams using daily sales data and an advance notice requirement to address endogeneity concerns. In addition to short-staffing and onboarding costs, we identify two less familiar sources of turnover costs: incumbent workers’ recruitment activities and reductions in team morale after a departure is announced. Our estimates of total turnover costs are relatively modest, however: 10% higher turnover is about as costly as a 0.6% wage increase. We attribute these low costs to a set of complementary personnel policies that ensure that only 25% of departures result in a short-staffing spell.

Recent research suggests that the share of US households living on less than $2/person/day is high and rising. We reexamine such extreme poverty by linking SIPP and CPS data to administrative tax and program data. We find that more than 90% of those reported to be in extreme poverty are not, once we include in-kind transfers, replace survey reports of earnings and transfer receipt with administrative records, and account for ownership of substantial assets. More than half of all misclassified households have incomes from the administrative data above the poverty line, and many have middle-class measures of material well-being.

We document that individuals who grow up in high firm density areas are more likely to become entrepreneurs, given firm density in their current location, and to run businesses in the sector with the highest density when young. Firm density at an entrepreneur’s young age drives current firm profitability and is more important than current density for business performance. Results hold in a sample of movers, which allows addressing endogeneity concerns. These results are consistent with entrepreneurial skills being partly learnable through social contacts. Accordingly, entrepreneurs who grow up in high firm density areas adopt better managerial practices.

We study the impact of trade exposure on the job biographies of 2.4 million manufacturing workers in Germany. Rising export opportunities lead to two equally important sources of earnings gains: on the job and employer switches within the same industry. Highly skilled workers benefit the most. Import shocks mostly hurt low-skilled workers, especially when they possess lots of industry-specific human capital. They also destroy workers’ rents when separating from high-wage plants, and they leave strongly scarring effects in the event of a mass layoff. We connect our results to the growing theoretical literature on the labor market effects of trade.

Deciding which field to study is one of the most consequential decisions college students make, but most research on the topic focuses on students attending four-year colleges. To understand how students attending community colleges make field of study decisions, the author links administrative educational records of recent high school graduates with local mass layoff and plant closing announcements. He finds that declines in local employment deter students from entering closely related community college programs and instead induce them to enroll in other vocationally-oriented programs. He further documents that students predominantly shift enrollment between programs that lead to occupations requiring similar skills.

This paper reports on a field experiment in 82 high schools trialing a low-cost intervention in schools’ operations: teachers working in the same school observed and scored each other’s teaching. Students in treatment schools scored 0.07 student standard deviations higher on math and English exams. Teachers were further randomly assigned to roles—observer and observee—and students of both types benefited, observers’ students perhaps more so. Doubling the number of observations produced no difference in student outcomes. Treatment effects were larger for otherwise low-performing teachers.

We report the results of a field experiment in which treated employers could not observe the compensation history of their job applicants. Treated employers responded by evaluating more applicants and evaluating those applicants more intensively. They also responded by changing what kind of workers they evaluated: treated employers evaluated workers with 5% lower past average wages and hired workers with 13% lower past average wages. Conditional on bargaining, workers hired by treated employers struck better wage bargains for themselves.

In an interconnected world, economic and political interests inevitably reach beyond national borders. Since policy choices generate external economic and political costs, foreign state and non-state actors have an interest in influencing policy actions in other sovereign countries to their advantage. Foreign influence is a strategic choice aimed at internalizing these externalities and takes three principal forms: (i) voluntary agreements, (ii) policy interventions based on rewarding or sanctioning the target country to obtain a specific change in policy, and (iii) institution interventions aimed at influencing the political institutions in the target country. We propose a unifying theoretical framework to study when foreign influence is chosen and in which form, and use it to organize and evaluate the new political economics literature on foreign influence along with work in cognate disciplines (JEL D72, D74, F51, F53, P26, P33).