Knowledge that Transforms

We propose a test of the hypothesis of stochastic monotonicity. This hypothesis is of interest in many applications in economics. Our test is based on the supremum of a rescaled U-statistic. We show that its asymptotic distribution is Gumbel. The proof is difficult because the approximating Gaussian stochastic process contains both a stationary and a nonstationary part, and so we have to extend existing results that only apply to either one or the other case. We also propose a refinement to the asymptotic approximation that we show works much better in finite samples. We apply our test to the study of intergenerational income mobility.

We estimate short‐run, medium‐run, and long‐run individual labor market effects of training programs for the unemployed by following program participation on a monthly basis over a 10‐year period. Since analyzing the effectiveness of training over such a long period is impossible with experimental data, we use an administrative database compiled for evaluating German training programs. Based on matching estimation adapted to address the various issues that arise in this particular context, we find a clear positive relation between the effectiveness of the programs and the unemployment rate over time.

Spousal education is correlated with earnings for two reasons: cross‐productivity between couples and assortative mating. This article empirically disentangles the two effects by using Chinese twins data. We have two innovations: using twins data to control for the unobserved mating effect in our estimations and estimating both current and wedding‐time earnings equations. We find that both crossproductivity and mating are important in explaining the current earnings. Although the mating effect exists for both husbands and wives, the cross‐productivity effect mainly runs from Chinese husbands to wives. Our findings shed light on the theories of human capital, marriage, and the family.

France’s 1998 implementation of the 35‐hour workweek has been one of the greatest regulatory shocks on labor markets. Few studies evaluate the impact of this regulation because of a lack of identification strategies. For historical reasons due to the way Alsace‐Moselle was returned to France in 1918, the implementation of France’s 35‐hour workweek was less stringent in that region than in the rest of the country, which is confirmed by double and triple differences. Yet it shows no significant difference in employment with the rest of France, which casts doubt on the effectiveness of this regulation.

This article exploits a quasi‐experimental setting to estimate the impact that a commonly used performance‐related pay scheme had on branch performance in a large distribution firm. The scheme, which is based on the Balanced Scorecard, was implemented in all branches in one division but not in another. Branches from the second division are used as a control group. Our results suggest that the Balanced Scorecard had some impact but that it varied with branch characteristics, and, in particular, branches with more experienced managers were better able to respond to the new incentives.

This article studies the effect of changes in foreign competition on the structure of compensation and incentives of U.S. executives. We find that import penetration (instrumented with exchange rates and tariffs) leads to more incentive provision in a variety of ways. First, it increases the sensitivity of pay to performance. Second, it increases within-firm pay differentials between executive levels, with CEOs typically experiencing the largest wage increases. Finally, higher foreign competition is also associated with a higher demand for talent. These results suggest that increased foreign competition can explain some of the recent trends in compensation structures.

We estimate peer effects for fourth graders in six European countries. The identification relies on variation across classes within schools, which we argue are formed roughly randomly. The estimates are much reduced within schools compared to the standard ordinary least squares (OLS) results. This could be explained either by selection into schools or by measurement error in the peer variable. Correcting for measurement error, we find within‐school estimates close to the original OLS estimates. Our results suggest that the peer effect is modestly large, measurement error is important in our survey data, and selection plays little role in biasing peer effects estimates.