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Long-Term Effects of Vietnam-Era Conscription: Schooling, Experience and Earnings
August 2007
Working Paper Number:
CES-07-23
Instrumental variables (IV) estimates using the draft lottery show that white Vietnam-era draftees suffered substantial post-service earnings losses in the 1970s and 1980s. Angrist (1990) explains these losses as due primarily to lost labor market experience. Non-public use data from the 2000 Census allow the first longerterm follow-up for a large sample from the draft-lottery cohorts. We use these data to estimate the effects of military service on earnings, schooling, and a number of other variables. Consistent with the loss-of -experience model, IV estimates of the effects of Vietnam-era service on earnings are close to zero in 2000, when the draft-lottery cohorts were middle-aged and experience profiles relatively flat. On the other hand, draft-lottery estimates show a marked increase in schooling for Vietnam-era veterans. A variety of evidence suggests this increase reflects the impact of the Vietnam-era GI Bill more than draft-avoidance behavior. The economic return to the increased schooling generated by Vietnam-era service, estimated in a wage equation that constrains the impact of Vietnam-era military service to run solely through the experience and schooling channels, appears to be less than the OLS return. Finally, we look at measures of disability. The IV estimates point to an increase in non-workrelated disability rates and non-SSA disability income, but the fact that there is no corresponding effect on employment, hours worked, or work-related disability rates suggests health was affected little by Vietnam-era service. Allowing for excess disability among veterans raises the estimated returns to GI-Bill schooling slightly.
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Firms in International Trade
April 2007
Working Paper Number:
CES-07-14
Standard models of international trade devote little attention to firms. Yet of the 5.5 million firms operating in the United States in 2000, just 4 percent engaged in exporting, and the top 10 percent of these exporting firms accounted for 96 percent of U.S. exports. Since the mid 1990s, a large number of empirical studies have provided a wealth of information about the important role that firms play in mediating countries' imports and exports. This research, based on micro datasets that track countries' production and trade at the firm level, demonstrates that trading firms differ substantially from firms that solely serve the domestic market. Across a wide range of countries and industries, exporters have been shown to be larger, more productive, more skill- and capital-intensive, and to pay higher wages than non-trading firms.2 Furthermore, these differences exist even before exporting begins. The ex ante 'superiority' of exporters suggests self-selection: exporters are more productive, not as a result of exporting, but because only the most productive firms are able to overcome the costs of entering export markets. It is precisely this sort of microeconomic heterogeneity that grants firms the ability to influence macroeconomic outcomes. When trade policy barriers fall or transportation costs decline, high-productivity exporting firms survive and grow while lower-productivity non-exporting firms are more likely to fail. This reallocation of economic activity across firms raises aggregate productivity and provides a new source of welfare gains from trade. Confronting the challenges posed by the analysis of micro data has shifted the focus of the international trade field from countries and industries towards firms and products. We highlight these challenges with a detailed analysis of how trading firms differ from non-trading firms in the United States. We show how these differences serve as the foundation of a series of recent heterogeneous-firm models that offer new insights into the causes and consequences of international trade. We then introduce a new set of stylized facts that emerge from analysis of recently available U.S. customs data. These transaction-level trade data track all of the products imported and exported by the U.S. firms to all of its trading partners from 1992 to 2000. They show that the extensive margins of trade ' that is, the number of products firms trade as well as the number of countries they trade with ' are central to understanding the well-known role of distance in dampening aggregate trade flows. We conclude with suggestions for further theoretical and empirical research.
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Identifying Individual and Group Effects in the Presence of Sorting: A Neighborhood Effects Application
January 2007
Working Paper Number:
CES-07-03
Researchers have long recognized that the non-random sorting of individuals into groups generates correlation between individual and group attributes that is likely to bias naive estimates of both individual and group effects. This paper proposes a non-parametric strategy for identifying these effects in a model that allows for both individual and group unobservables, applying this strategy to the estimation of neighborhood effects on labor market outcomes. The first part of this strategy is guided by a robust feature of the equilibrium in the canonical vertical sorting model of Epple and Platt (1998), that there is a monotonic relationship between neighborhood housing prices and neighborhood quality. This implies that under certain conditions a non-parametric function of neighborhood housing prices serves as a suitable control function for the neighborhood unobservable in the labor market outcome regression. This control function converts the problem to a model with one unobservable so that traditional instrumental variables solutions may be applied. In our application, we instrument for each individual.s observed neighborhood attributes with the average neighborhood attributes of a set of observationally identical individuals. The neighborhood effects model is estimated using confidential microdata from the 1990 Decennial Census for the Boston MSA. The results imply that the direct effects of geographic proximity to jobs, neighborhood poverty rates, and average neighborhood education are substantially larger than the conditional correlations identified using OLS, although the net effect of neighborhood quality on labor market outcomes remains small. These findings are robust across a wide variety of specifications and robustness checks.
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Where Do Manufacturing Firms Locate Their Headquarters?
October 2005
Working Paper Number:
CES-05-17
Firms' headquarters [HQ] support their production activity, by gathering information and outsourcing business services, as well as, managing, evaluating, and coordinating internal firm activities. In search of locations for these functions, firms often separate the HQ function physically from their production facilities and construct stand-alone HQs. By locating its HQ in a large, service oriented metro area away from its production facilities, a firm may be better able to out-source service functions in that local metro market and also to gather information about market conditions for their products. However if the firm locates the HQ away from its production activity, that increases the coordination costs in managing plant activities. In this paper we empirically analyze the trade-off of these two considerations.
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How is Value Created in Spin-Offs? A Look Inside the Black Box
July 2005
Working Paper Number:
CES-05-09
Using a unique sample of plant level data from the Longitudinal Research Database (LRD), we identify (for the first time in the literature), how (the precise channel and mechanism), where (parent or subsidiary), and when (the dynamic pattern) performance improvements arise following corporate spinoffs. We identify the source of value improvements in spin-offs by comparing the magnitude of post-spinoff changes in the wages, employment, materials costs, rental and administrative expenses, sales, and capital expenditures in the plants belonging to firms undergoing spin-offs relative to the magnitude of such changes in a control group of plants belonging to firms not undergoing spin-offs. We show that the total factor productivity (TFP) of plants belonging to spin-off firms (parent or spun-off subsidiary) increase, on average, following the spin-off. This increase in overall productivity begins immediately, starting with the first year following the spin-off, and continuing in the years thereafter. This performance improvement can be attributed to a decrease in workers' wages, employment at the plant, decrease in the cost of materials purchased, as well as a decrease in rental and office expenditures, but not from improved product market performance by these plants. Further, such productivity improvements arise primarily in plants that remain with the parent; plants belonging to the spun-off subsidiary do not experience such productivity increases. However, contrary to speculation in the previous literature, plants that are spun-off do not underperform parent plants prior to the spin-off. Finally, in our split-sample study of plants that were acquired subsequent to the spin-off and those that were not, we find that productivity increases for both groups of plants: while such productivity increases start immediately after the spin-off for the nonacquired plants, for the acquired plants they occur only after being taken over by a better management team.
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Assessing Multi-Dimensional Performance: Environmental and Economic Outcomes
May 2005
Working Paper Number:
CES-05-03
This study examines the determinants of environmental and economic performance for plants in three traditional smoke-stack industries: pulp and paper, oil, and steel. We combine data from Census Bureau and EPA databases and Compustat on the economic performance, regulatory activity and environmental performance on air and water pollution emissions and toxic releases. We find that plants with higher labor productivity tend to have lower emissions. Regulatory enforcement actions (but not inspections) are associated with lower emissions, and state-level political support for environmental issues is associated with lower water pollution and toxic releases. There is little evidence that plants owned by larger firms perform better, nor do older plants perform worse.
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Transitions in Welfare Participation and Female Headship
February 2004
Working Paper Number:
CES-04-01
This study uses data from the 1990, 1992, 1993, and 1996 panels of the Survey of Income and Program Participation to examine how welfare policies and local economic conditions contribute to women's transitions into and out of female headship and into and out of welfare participation. It also examines whether welfare participation is directly associated with longer spells of headship. The study employs a simultaneous hazards approach that accounts for unobserved heterogeneity in all of its transition models and for the endogeneity of welfare participation in its headship model. The estimation results indicate that welfare participation significantly reduces the chances of leaving female headship. The estimates also reveal that more generous welfare benefits contribute indirectly to headship by increasing the chances that mothers will enter welfare. More generous Earned Income Tax Credit benefits are associated with longer spells of headship, nonheadship, and welfare participation and nonparticipation. Other measures of welfare policies, including indicators for the adoption of welfare waivers and the implementation of Temporary Assistance for Needy Families programs, are generally not significantly associated with headship or welfare receipt. Better economic opportunities are estimated to increase headship but reduce welfare participation among unmarried mothers.
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Pollution Abatement Expenditures and Plant-Level Productivity: A Production Function Approach
August 2003
Working Paper Number:
CES-03-16
In this paper, we investigate the impact of environmental regulation on productivity using a Cobb-Douglas production function framework. Estimating the effects of regulation on productivity can be done with a top-down approach using data for broad sectors of the economy, or a more disaggregated bottom-up approach. Our study follows a bottom-up approach using data from the U.S. paper, steel, and oil industries. We measure environmental regulation using plant-level information on pollution abatement expenditures, which allows us to distinguish between productive and abatement expenditures on each input. We use annual Census Bureau information (1979-1990) on output, labor, capital, and material inputs, and pollution abatement operating costs and capital expenditures for 68 pulp and paper mills, 55 oil refineries, and 27 steel mills. We find that pollution abatement inputs generally contribute little or nothing to output, especially when compared to their '''productive''' equivalents. Adding an aggregate pollution abatement cost measure to a Cobb-Douglas production function, we find that a $1 increase in pollution abatement costs leads to an estimated productivity decline of $3.11, $1.80, and $5.98 in the paper, oil, and steel industries respectively. These findings imply substantial differences across industries in their sensitivity to pollution abatement costs, arguing for a bottom-up approach that can capture these differences. Further differentiating plants by their production technology, we find substantial differences in the impact of pollution abatement costs even within industries, with higher marginal costs at plants with more polluting technologies. Finally, in all three industries, plants concentrating on change-in-production-process abatement techniques have higher productivity than plants doing predominantly end-of-line abatement, but also seem to be more affected by pollution abatement operating costs. Overall, our results point to the importance using detailed, disaggregated analyses, even below the industry level, when trying to model the costs of forcing plants to reduce their emissions.
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The Impact of Welfare Waivers on Female Headship Decisions
February 2003
Working Paper Number:
CES-03-03
While much of the focus of recent welfare reforms has been on moving recipients from welfare to work, many reforms were also directed at affecting decisions about living arrangements, pregnancy, marriage and cohabitation. This paper focuses on women's decisions to become or remain unmarried mothers, that is, female heads of families. We assess the impact of welfare reform waivers on those decisions while controlling for confounding local economic and social contextual conditions. We pool the 1990, 1992, and 1993 panels of the Survey of Income and Program Participation (SIPP) which span the calendar time when many states began adopting welfare waivers. For its descriptors of local labor market conditions, the project uses skill specific measures of wages and employment opportunities for counties. We estimate models for levels of female headship and proportional hazard models for entry and exit from female headship. In the hazards, we employ stratified Cox partial likelihood methods and investigate the use of state fixed effects or state stratified hazard models to control for unmeasured state influences. Based on data through 1995, we find limited evidence that workencouraging waivers had a beneficial effect by reducing female headship of families. We find little evidence that family caps, teenage coresidence requirements or termination limits will reduce the number of single-parent families.
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Redistribution in the Current U.S. Social Security System
April 2002
Working Paper Number:
CES-02-09
Because its benefit formula replaces a greater fraction of the lifetime earnings of lower earners than of higher earnings, Social Security is generally thought to be progressive, providing a 'better deal' to low earners in a cohort than to high earners. However, much of the intra-cohort redistribution in the U.S. Social Security system is related to factors other than lifetime income. Social Security transfers income from people with low life expectancies to people with high life expectancies, from single workers and from married couples with substantial earnings by the secondary earner to married one-earner couples, and from people who work for more than 35 years to those who concentrate their earnings in 35 or fewer years. This paper studies the redistribution accomplished in the retirement portion of the current U.S. Social Security system using a microsimulation model built around a match of the 1990 and 1991 Surveys of Income and Program Participation to Social Security administrative earnings and benefit records. The model simulates the distribution of internal rates of returns, net transfers, and lifetime net tax rates from Social Security that would have been received by members of the 1925 to 1929 birth cohorts if they had lived under current Social Security rules for their entire lives. The paper finds that annual income-related transfers from Social Security are only 5 to 9 percent of Social Security benefits paid, or $19 to $34 billion, at 2001 aggregate benefits levels, when taxes and benefits are discounted at the cohort rate of return of 1.29 percent. At higher discount rates, Social Security appears to be more redistributive by some measures, and less redistributive by others. Because much of the redistribution that occurs through Social Security is not related to income, the range of transfers received at a given level of lifetime income is quite wide. For example, 19 percent of individuals in the top lifetime income quintile receive net transfers that are greater than the average transfer for people in the lowest lifetime income quintile.
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