Knowledge that Transforms

The maturity date of a mortgage loan marks the end of monthly mortgage payments for homeowners. In the period after the last payment, homeowners experience an increase in their disposable income. Our study interprets this event as an anticipated increase in income, and tests whether households smooth consumption over the transition period as predicted by the rational expectation Life-Cycle/Permanent-Income Hypothesis. We find households do not alter nondurable goods consumption in the period following the last mortgage payment. Instead, they increase both financial savings and savings in durable goods such as housefurnishings and entertainment equipments in the year of the last mortgage payment.

A structural labor demand model is developed that allows for worker heterogeneity regarding firing costs and productivity. It is estimated for a firm in demise when 3,650 workers were made redundant in a restructuring following bankruptcy. This was the largest mass layoff in the history of the Netherlands. The model produces sharp predictions on how firing thresholds depend on individual worker characteristics. The signs of the estimated coefficients are consistent with these predictions. The model correctly predicts 68% of individual worker displacement. The results provide new in-depth knowledge on how firing costs influence personnel decisions.

Employers became more willing to hire a range of disadvantaged workers during the 1990s boom—including minorities, workers with certain stigmas (such as welfare recipients), and those without recent experience or high school diplomas. The wages paid to newly hired less-skilled workers also increased. On the other hand, employers' demand for specific skill certification rose over time, as did their use of certain screens. The results suggest that the tight labor markets of the late 1990s, in conjunction with other secular changes, raised hiring costs and induced employers to shift toward screens that seemed more cost-effective.

We would expect that the process of globalization between 1870 and 1914 and subsequent disintegration of the world economy during the interwar period would have led first to income convergence and then to income divergence between the participating countries. But in fact we find stronger evidence for income convergence during the interwar period than during the first globalization. Similarly, the average level of import protection in the world cannot be shown to have either helped or hampered convergence. The evidence for trade-induced convergence is therefore weak.

This note shows that the local average treatment effect (LATE) assumptions of Angrist and Imbens are weaker than imposing an ordered, discrete-choice selection model if one imposes the standard assumption of constant thresholds in the latter. However, the note extends results of Vytlacil to show that the LATE assumptions are equivalent to an ordered, discrete-choice selection model if one allows for random thresholds in the latter. A nonparametric representation result for ordered, discrete-choice models is produced as a by-product of these results.

Foreclosure laws govern the rights of borrowers and lenders when borrowers default on mortgages.Many states protect borrowers by imposing restrictions on the foreclosure process; these restrictions, in turn, impose large costs on lenders.Lenders may respond to these higher costs by reducing loan supply; borrowers may respond to the protections imbedded in these laws by demanding larger mortgages.I examine empirically the effect of the laws on equilibrium loan size.I exploit the rich geographic information available in the 1994 and 1995 Home Mortgage Disclosure Act data to compare mortgage applications for properties located in census tracts that border each other, yet are located in different states.Using semiparametric estimation methods, I find that defaulter-friendly foreclosure laws are correlated with a four percent to six percent decrease in loan size.This result suggests that defaulter-friendly foreclosure laws impose costs on borrowers at the time of loan origination.

Recent research documents a significant increase in U.S. transitory income variance over the past 25 years. An emerging literature explores the role of durables in the household's attempt to smooth consumption over these movements in transitory income. This paper examines the degree to which homeowners adjust their home maintenance decisions in order to offset transitory income fluctuations. American Housing Survey data show that home maintenance expenditures are economically significant, amounting to nearly $2,100 per year. We find a statistically significant positive elasticity of maintenance expenditures to estimated transitory income changes. However, the results suggest that adjusting home maintenance expenditures plays a relatively minor role in the household's overall consumption smoothing strategy. In terms of actual dollars, deferred home maintenance offsets on average from 1 to 7 cents of each dollar of transitory income loss.

Using a large, individual-level wage data set, we examine the impact of a major technological innovation—the steam engine—on the demand for skills in the merchant shipping industry. We find that the technical change created a new demand for engineers, a skilled occupation. It had a deskilling effect on production work—moderately skilled able-bodied seamen were replaced by unskilled engine room operatives. On the other hand, able-bodied seamen, carpenters, and mates employed on steam vessels earned a premium relative to their counterparts on sail vessels, and this appears partly related to skill.

We examine the relationship between casinos and crime using county-level data for the US between 1977 and 1996. Casinos were non-existent outside Nevada before 1978, and expanded to many other states during our sample period. Most factors that reduce crime occur before or shortly after a casino opens, while those that increase crime, including problem and pathological gambling, occur over time. The results suggest that the effect on crime is low shortly after a casino opens, and grows over time. Roughly 8 percent of crime in casino counties in 1996 was attributable to casinos, costing the average adult $75 per adult per year.