Knowledge that Transforms

Data linking 1972 and 1992 adolescent skill endowments to adult outcomes reveal increasing complementarity between cognitive and social skills. In fact, previously noted growth in demand for cognitive skills affected only individuals with strong endowments of both social and cognitive skills. These findings are corroborated using Census and CPS data matched with Dictionary of Occupational Titles (DOT) job task measures; employment in and earnings premia to occupations requiring high levels of both cognitive and social skill grew substantially compared with occupations that require only one or neither type of skill, and this emerging feature of the labor market has persisted into the new millennium.

This paper examines the relationship between the minimum high school dropout age and juvenile arrest rates by exploiting state-level variation in dropout age laws. County-level arrest data for the period 1980 to 2008 and difference-in-difference-in-difference-type empirical strategy are used to compare the arrest rates over time of various age groups within counties that differ by their state's minimum dropout age. The evidence suggests that minimum dropout age requirements have a significant and negative effect on property and violent crime arrest rates for individuals 16 to 18 years old. The results are consistent with an incapacitation effect of schooling.

This paper presents an analysis of mortgage delinquency between 2004 and 2008 using a loan-level data set from a major national mortgage bank. Our analysis highlights two problems underlying the mortgage crisis: a reliance on mortgage brokers who tend to originate lower-quality loans and a prevalence of low-documentation loans—known in the industry as “liar's loans”—that result in borrower information falsification. While over three-quarters of the difference in delinquency rates between bank and broker channels can be attributed to observable loan and borrower characteristics, the delinquency difference between full- and low-documentation mortgages is due to unobservable heterogeneity, about half of it potentially due to income falsification.

We investigate long-run effects of World War II on socio-economic status and health of older individuals in Europe. We analyze data from SHARELIFE, a retrospective survey conducted as part of SHARE in Europe in 2009. SHARELIFE provides detailed data on events in childhood during and after the war for over 20,000 individuals in 13 European countries. We construct several measures of war exposure-experience of dispossession, persecution, combat in local areas, and hunger periods. Exposure to war and more importantly to individual-level shocks caused by the war significantly predicts economic and health outcomes at older ages.

A model of racial discrimination provides testable implications for two features of statistical discriminators: differential treatment of signals by race and heterogeneous experience that shapes perception. We construct an experiment in the U.S. rental apartment market that distinguishes statistical discrimination from taste-based discrimination. Responses from over 14,000 rental inquiries with varying applicant quality show that landlords treat identical information from applicants with African American– and white-sounding names differently. This differential treatment varies by neighborhood racial composition and signal type in a manner consistent with statistical discrimination and in contrast to patterns predicted by a model of taste-based discrimination.

This paper investigates the long-run development of China's treaty ports from the mid-eighteenth century until today. Focusing on a sample of prefectures on the coast or on the Yangtze River, I document the dynamic development paths of treaty ports and their neighbors in alternate phases of closedness and openness. I also provide suggestive evidence on migration and sector-wise growth to understand the advantage of treaty ports in the long run.

A large literature shows that the self-employed underreport their income to tax authorities. In this paper, we quantify the extent to which the self-employed also systematically underreport their income in U.S. household surveys. We use the Engel curve describing the relationship between income and expenditures of wage and salary workers to infer the actual income, and thus the reporting gap, of the self-employed based on their reported expenditures. On average, the self-employed underreport their income by about 25%. We show that failing to account for such income underreporting leads to biased conclusions in a variety of settings.

We link industry-level data on trade and offshoring with individual-level worker data from the Current Population Surveys from 1984 to 2002. We find that occupational exposure to globalization is associated with significant wage effects, while industry exposure has no significant impact. We present evidence that globalization has put downward pressure on worker wages through the reallocation of workers away from higher-wage manufacturing jobs into other sectors and other occupations. Using a panel of workers, we find that occupation switching due to trade led to real wage losses of 12 to 17 percentage points.

We test for an effect of Arizona's 2007 Legal Arizona Workers Act (LAWA) on the proportion of the state's population characterized as noncitizen Hispanic. We use the synthetic control method to select a group of states against which Arizona's population trends can be compared. We document a notable and statistically significant reduction in the proportion of the Hispanic noncitizen population in Arizona. The decline observed matches the timing of LAWA's implementation, deviates from the time series for the synthetic control group, and stands out relative to the distribution of placebo estimates for other states in the nation.

Using a unique and rich database of high-technology firms in China, we show that effective enforcement of intellectual property rights at the provincial level is critical in encouraging financing and investing in R&D. Better enforcement of intellectual property (IP) rights positively affects firms' ability to acquire new external debt and allows firms to invest in more R&D, generate more innovation patents, and produce more sales from new products. Our results suggest that facilitating financing and investing in R&D are the channels through which better IP rights enforcement can affect economic growth.