ÿþ<html xmlns:v="urn:schemas-microsoft-com:vml" xmlns:o="urn:schemas-microsoft-com:office:office" xmlns:w="urn:schemas-microsoft-com:office:word" xmlns:m="http://schemas.microsoft.com/office/2004/12/omml" xmlns:st1="urn:schemas-microsoft-com:office:smarttags" xmlns="http://www.w3.org/TR/REC-html40"> <head> <meta http-equiv=Content-Type content="text/html; charset=unicode"> <meta name=ProgId content=Word.Document> <meta name=Generator content="Microsoft Word 14"> <meta name=Originator content="Microsoft Word 14"> <link rel=File-List href="papers_files/filelist.xml"> <link rel=Edit-Time-Data href="papers_files/editdata.mso"> <!--[if !mso]> <style> v\:* {behavior:url(#default#VML);} o\:* {behavior:url(#default#VML);} w\:* {behavior:url(#default#VML);} .shape {behavior:url(#default#VML);} </style> <![endif]--> <title>Working Papers</title> <o:SmartTagType namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="City"/> <o:SmartTagType namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="place"/> <o:SmartTagType namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="country-region"/> <!--[if gte mso 9]><xml> <o:DocumentProperties> <o:Author>Kevin Lang</o:Author> <o:LastAuthor>lang</o:LastAuthor> <o:Revision>12</o:Revision> <o:TotalTime>5648</o:TotalTime> <o:Created>2006-08-05T19:33:00Z</o:Created> <o:LastSaved>2011-09-21T14:39:00Z</o:LastSaved> <o:Pages>2</o:Pages> <o:Words>1718</o:Words> <o:Characters>9799</o:Characters> <o:Company>Boston University</o:Company> <o:Lines>81</o:Lines> <o:Paragraphs>22</o:Paragraphs> <o:CharactersWithSpaces>11495</o:CharactersWithSpaces> <o:Version>14.00</o:Version> </o:DocumentProperties> </xml><![endif]--> <link rel=themeData href="papers_files/themedata.thmx"> <link rel=colorSchemeMapping href="papers_files/colorschememapping.xml"> <!--[if gte mso 9]><xml> <w:WordDocument> <w:Zoom>FullPage</w:Zoom> <w:SpellingState>Clean</w:SpellingState> 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font-family:"Times New Roman","serif";} </style> <![endif]--><!--[if gte mso 9]><xml> <o:shapedefaults v:ext="edit" spidmax="1026"/> </xml><![endif]--><!--[if gte mso 9]><xml> <o:shapelayout v:ext="edit"> <o:idmap v:ext="edit" data="1"/> </o:shapelayout></xml><![endif]--> </head> <body lang=EN-US link=blue vlink=blue style='tab-interval:.5in'> <div class=WordSection1> <p class=MsoNormal style='background:#CCCCCC'><a href="http://people.bu.edu/lang/index.htm"><span style='border:none windowtext 1.0pt; mso-border-alt:none windowtext 0in;padding:0in;mso-no-proof:yes;text-decoration: none;text-underline:none'><img border=0 width=116 height=86 id="_x0000_i1026" src=papers.gif alt="Description: Description: Description: papers.gif"></span></a></p> <p style='background:#CCCCCC'><br style='mso-special-character:line-break'> <![if !supportLineBreakNewLine]><br style='mso-special-character:line-break'> <![endif]></p> <p style='background:#CCCCCC'><a href="pencils.pdf"><b><span style='font-size: 14.0pt'>Of Pencils and Computers</span></b></a><b><span style='font-size:14.0pt; color:black'><br> </span></b><span style='color:black'>(<i>Although a number of people, including most of the key players in the debate, have given me very positive feedback about this paper, it was written primarily for students in my graduate labor classes and has no obvious outlet. This website seems like a good place for it.</i>)</span></p> <p class=MsoNormal style='background:#CCCCCC'><o:p>&nbsp;</o:p></p> <p style='background:#CCCCCC'><span style='color:black'>This paper discusses the well-known papers by Alan Krueger and by John <span class=SpellE>DiNardo</span> and Steve Pischke on the relation between computers and the rise in wage inequality. It addresses what can be learned from the exercise in the context of simple <st1:City w:st="on"><st1:place w:st="on">Roy</st1:place></st1:City> and hedonic models. I think there has been a great deal of misinterpretation of the Krueger/<span class=SpellE>DiNardo</span>/Pischke exchange. This paper helps to clarify the issues but does not break new theoretical or empirical ground.</span></p> <p class=MsoNormal style='background:#CCCCCC'><o:p>&nbsp;</o:p></p> <p style='background:#CCCCCC'><a href="multidi.pdf"><b><span style='font-size: 14.0pt'>The Pricing of Job Characteristics When Markets Do Not Clear: Theory and Policy Implications</span></b></a><b><span style='font-size:14.0pt; color:black'> (with <span class=SpellE>Sumon</span> <span class=SpellE>Majumdar</span>)</span></b><span style='color:black'> extended version of paper in <i>International Economic Review</i></span></p> <p class=MsoNormal style='background:#CCCCCC'><o:p>&nbsp;</o:p></p> <p style='background:#CCCCCC'><span style='color:black'>This paper examines a model of <span class=SpellE>nonsequential</span> search when jobs can vary with respect to <span class=SpellE>nonpecuniary</span> characteristics. We find that in the presence of frictions in the labor market, the equilibrium distribution need not show evidence of compensating wage differentials. The model also generates several pervasive features of labor markets: (a) unemployment and vacancies, (b) apparent discrimination, and (c) market segmentation. When workers are homogeneous, there is no positive role for policy -- restrictions on the range of job offers must decrease welfare and cannot reduce unemployment. However, when workers have heterogeneous preferences, such restrictions may lower unemployment and even lead to a Pareto-improvement in welfare. In particular, we consider the impact of policies banning discrimination and regulating working-conditions. </span></p> <p class=MsoNormal style='background:#CCCCCC'><span style='font-size:14.0pt'><o:p>&nbsp;</o:p></span></p> <p style='background:#CCCCCC'><span style='font-size:14.0pt'><a href="efwagetest6.pdf"><b>The Effect of the Payroll Tax on Earnings: A Test of Competing Models of Wage Determination</b></a><o:p></o:p></span></p> <p class=MsoNormal style='background:#CCCCCC'><o:p>&nbsp;</o:p></p> <p style='background:#CCCCCC'><span style='color:black'>Under the standard competitive model, if a tax change affects a group of workers with highly inelastic labor supply, their earnings will fall by essentially the entire nominal employer share of the tax increase. Allowing the wage to play a motivational role but maintaining the market-clearing assumption broadens the range of possible outcomes. With a 50/50 split in the nominal share, given a reasonable estimate of the elasticity of demand, earnings could fall from anywhere between 0 and more than 100% of the employer's nominal share but would not rise. In contrast, because there is excess labor (involuntary unemployment) in equilibrium, efficiency wage models function very much like models in which the supply of labor is perfectly elastic, and thus earnings rise by more than the worker's nominal share. I argue that the 1968, 1974 and 1979 increases in the taxable earnings base for FICA provide good opportunities to test the models. This tax increase affected only those workers earning significantly more than the median earnings for male full-time/year-round workers. Such workers' labor force participation is likely to have been highly inelastic. In addition, low earnings workers did not experience this tax increase. The results are supportive of models in which the motivational effects of wages are important but cannot clearly distinguish between the efficiency wage and market-clearing versions of those models.</span></p> <p class=MsoNormal style='background:#CCCCCC'><o:p>&nbsp;</o:p></p> <p style='background:#CCCCCC'><a href="hi.pdf"><b><span style='font-size:14.0pt'>Worker Sorting, Taxes and Health Insurance Coverage</span></b> </a></p> <p class=MsoNormal style='background:#CCCCCC'><o:p>&nbsp;</o:p></p> <p style='background:#CCCCCC'><span style='color:black'>If firms hire heterogeneous workers but must offer all workers insurance benefits under similar terms, then in equilibrium, some firms offer free health insurance, some require an employee premium payment and some do not offer insurance. Making the employee contribution pre-tax lowers the cost to workers of a given employee premium and encourages more firms to charge. This increases the offer rate, lowers the take-up rate, increases (decreases) coverage among high (low) demand groups, with an indeterminate overall effect. This pattern is consistent with trends in the U.S. economy following the creation of section 125 plans.</span></p> <p class=MsoNormal style='background:#CCCCCC'><o:p>&nbsp;</o:p></p> <p style='background:#CCCCCC'><span style='font-size:14.0pt'><a href="ability.pdf"><b>Ability Bias, Discount Rate Bias and the Return to Education</b></a><o:p></o:p></span></p> <p class=MsoNormal style='background:#CCCCCC'><o:p>&nbsp;</o:p></p> <p style='background:#CCCCCC'><span style='color:black'>This is a paper that I wrote a long time ago and for which I still get frequent requests. Although I got a  revise and resubmit from a prestigious journal, I never rewrote the paper because I thought there were errors in the approach. There are definitely mistakes in the paper, but in retrospect I regret not revising it. I believe the paper was very influential in making people think about the proper interpretation of instrumental variables when coefficients are not constant and, in particular, laid some of the groundwork for the work of Josh Angrist and Guido <span class=SpellE>Imbens</span> on LATE and the work of Jim Heckman and his coauthors on the interpretation of instrumental variables. I post it here for the historical record.<o:p></o:p></span></p> <p style='background:#CCCCCC'><b><span style='color:black'><o:p>&nbsp;</o:p></span></b></p> <p style='background:#CCCCCC'><b><span style='font-size:14.0pt'><a href="teenpreg.pdf">The Consequences of Teenage Childbearing: Consistent Estimates When Abortion Makes Miscarriage Nonrandom</a></span></b> <b><span style='font-size:14.0pt'>(with Adam Ashcraft)</span></b></p> <p style='background:#CCCCCC'><o:p>&nbsp;</o:p></p> <p style='background:#CCCCCC'>We examine the effect of teenage childbearing on the adult outcomes of a sample of women who gave birth, miscarried or had an abortion as teenagers. Because teens who abort are more favorably selected than the set of teens <span class=GramE>who</span> become pregnant, teens who miscarry are less favorably selected than those who either give birth or abort but more favorably selected than those who give birth. Consequently, using miscarriage as an instrument for non-birth is biased towards a benign view of teen motherhood while OLS on a sample of those giving birth or miscarrying is biased towards a negative view. We derive a consistent estimate based on a weighted average of OLS and IV. The estimated effects are generally adverse but modest.</p> <p style='background:#CCCCCC'><o:p>&nbsp;</o:p></p> <p style='background:#CCCCCC'><b style='mso-bidi-font-weight:normal'><u><span style='font-size:14.0pt'><a href="http://people.bu.edu/lang/college.pdf">Why Is An Elite Undergraduate Education Valuable? Evidence from Israel</a></span></u></b><b style='mso-bidi-font-weight:normal'><span style='font-size:14.0pt'> (with Erez Siniver) forthcoming <span class=SpellE><i style='mso-bidi-font-style:normal'>Labour</i></span><i style='mso-bidi-font-style:normal'> Economics<o:p></o:p></i></span></b></p> <p style='background:#CCCCCC'><b style='mso-bidi-font-weight:normal'><span style='font-size:14.0pt'><o:p>&nbsp;</o:p></span></b></p> <p style='background:#CCCCCC'>In this paper we compare students in <st1:country-region w:st="on"><st1:place w:st="on">Israel</st1:place></st1:country-region> who attended one of the leading universities, Hebrew University (HU), with those who attended a professional undergraduate college,<b> </b>College of Management Academic Studies (COMAS). Entry into HU is largely formulaic with each department setting a cutoff entry requirement based on the bagrut (high school exit exam) and a <span class=SpellE>pychometric</span> test similar to the SAT. HU is both more prestigious and less expensive since COMAS is private while HU is heavily subsidized by government. During the period we study, the tuition at HU was about $2,400 compared with about $6,000 at COMAS.<span style='mso-fareast-font-family: "Times New Roman";mso-bidi-language:HE'> </span>Our results are most consistent with a model in which employers have good information about the quality of HU graduates and pay them according to their ability, but in which the market has relatively little information about COMAS graduates so that their return to skill increases over time. Because COMAS graduates are, on average, weaker, they earn less, on average, than do HU graduates. Initially high skill COMAS graduates are treated as if they were the average COMAS graduate, but over time the market differentiates among them so that after several years of experience, COMAS and HU graduates with similar entry scores have similar earnings.</p> <p style='background:#CCCCCC'><o:p>&nbsp;</o:p></p> <p style='background:#CCCCCC'><b style='mso-bidi-font-weight:normal'><u><span style='font-size:14.0pt'><a href="http://people.bu.edu/lang/network.pdf">Social Ties and the Job Search of Recent Immigrants</a></span></u></b><b style='mso-bidi-font-weight:normal'><span style='font-size:14.0pt'> (with Deepti Goel)<o:p></o:p></span></b></p> <p style='background:#CCCCCC'><b style='mso-bidi-font-weight:normal'><span style='font-size:14.0pt'><o:p>&nbsp;</o:p></span></b></p> <p style='background:#CCCCCC'>We show that increasing the probability of obtaining a job offer through the network should raise the observed mean wage in jobs found through formal (non-network) channels relative to that in jobs found through the network. This prediction also holds at all percentiles of the observed wage distribution, except the highest and lowest. The largest changes are likely to occur below the median. We test and confirm these implications using a survey of recent immigrants to Canada. We also develop a simple structural model, consistent with the theoretical model, and show that it can replicate the broad patterns in the data. For recent immigrants, our results are consistent with the primary effect of strong networks being to increase the arrival rate of offers rather than to alter the distribution from which offers are drawn.</p> <p style='background:#CCCCCC'><o:p>&nbsp;</o:p></p> <p style='background:#CCCCCC'><b style='mso-bidi-font-weight:normal'><u><span style='font-size:14.0pt'><a href="http://people.bu.edu/lang/entry.pdf">School Entry, Educational Attainment and Quarter of Birth: A Cautionary Tale of LATE</a></span></u></b><b style='mso-bidi-font-weight:normal'><span style='font-size:14.0pt'> (with <span class=SpellE>Rashmi</span> <span class=SpellE>Barua</span>)<o:p></o:p></span></b></p> <p style='background:#CCCCCC'><b style='mso-bidi-font-weight:normal'><span style='font-size:14.0pt'><o:p>&nbsp;</o:p></span></b></p> <p style='background:#CCCCCC'>Partly in response to increased testing and accountability, states and districts have been <span class=GramE>raising</span> the minimum school entry age, but existing studies show mixed results regarding the effects of entry age. These studies may be severely biased because they violate the monotonicity assumption needed for LATE. We propose an instrument not subject to this bias and show no effect on the educational attainment of children born in the fourth quarter of moving from a December 31 to an earlier cutoff. We then estimate a model that reconciles the different IV estimates including ours. We find that one standard instrument is badly biased but that the other diverges from ours because it estimates a different LATE. We also find that an early entry age cutoff that is applied loosely (as in the 1950s) raises educational attainment but one that is strictly enforced lowers it.</p> <p style='background:#CCCCCC'><o:p>&nbsp;</o:p></p> <p style='background:#CCCCCC'><b style='mso-bidi-font-weight:normal'><u><span style='font-size:14.0pt'><a href="http://people.bu.edu/lang/w17450.pdf">Racial Discrimination in the Labor Market:<span style='mso-spacerun:yes'>  </span>Theory and Empirics</a></span></u></b><b style='mso-bidi-font-weight: normal'><span style='font-size:14.0pt'> (with Jee-<span class=SpellE>Yeon</span> K. Lehmann) forthcoming <i style='mso-bidi-font-style:normal'>Journal of Economic Literature</i></span></b><i style='mso-bidi-font-style:normal'><o:p></o:p></i></p> <p style='background:#CCCCCC'><o:p>&nbsp;</o:p></p> <p style='background:#CCCCCC'>We review theories of race discrimination in the labor market. Taste-based models can generate wage and unemployment duration differentials when combined with either random or directed search even when strong prejudice is not widespread, but no existing model explains the unemployment rate differential. Models of statistical discrimination based on differential <span class=SpellE>observability</span> of productivity across races can explain the pattern and magnitudes of wage differentials but do not address employment and unemployment. At their current state of development, models of statistical discrimination based on rational stereotypes have little empirical content. It is plausible that models combining elements of the search models with statistical discrimination could fit the data. We suggest possible avenues to be pursued and comment briefly on the implication of existing theory for public policy.</p> <p style='background:#CCCCCC'><span style='font-size:18.0pt;font-family:"TimesNewRomanPSMT","serif"; mso-bidi-font-family:TimesNewRomanPSMT'><o:p>&nbsp;</o:p></span></p> <p style='background:#CCCCCC'><b style='mso-bidi-font-weight:normal'><span style='font-size:14.0pt;font-family:"TimesNewRomanPSMT","serif";mso-bidi-font-family: TimesNewRomanPSMT'><a href="monitor.pdf">A Theory of Monitoring and Internal Labor Markets</a> (with Gautam Bose)<o:p></o:p></span></b></p> <p style='background:#CCCCCC'><span style='font-size:14.0pt;font-family:"TimesNewRomanPSMT","serif"; mso-bidi-font-family:TimesNewRomanPSMT'><o:p>&nbsp;</o:p></span></p> <p style='background:#CCCCCC'><span style='font-family:"TimesNewRomanPSMT","serif"; mso-bidi-font-family:TimesNewRomanPSMT'>We analyze a firm's job-assignment and worker-monitoring decisions when workers face occasional crises. Firms prefer to assign good workers to a difficult task and to not employ bad workers. Firms observe failures but only observe successfully resolved crises if they monitor the worker. If monitoring costs are positive but sufficiently small, for a range of probabilities that the worker is good, the firm assigns the worker to a low task (less sensitive to crises) and monitors her. At probabilities below this range and not too much above it, she is assigned to the low task and not monitored. At high probabilities of being good, she is assigned to the difficult task. We analyze the implications for internal labor markets of the case where a worker has the same ex ante probability of being good at all firms and learning is about ability at this particular firm.<o:p></o:p></span></p> <p style='background:#CCCCCC'><o:p>&nbsp;</o:p></p> <p class=MsoNormal style='background:#CCCCCC'><o:p>&nbsp;</o:p></p> <div style='float:none'> <p class=MsoNormal style='background:#CCCCCC'><a href="file:///\\Econ\lang_web\index.htm"><span style='border:none windowtext 1.0pt; mso-border-alt:none windowtext 0in;padding:0in;mso-no-proof:yes;text-decoration: none;text-underline:none'><img border=0 width=116 height=86 id="_x0000_i1025" src=papers.gif alt="Description: Description: Description: papers1.gif"></span></a></p> </div> <p class=MsoNormal style='background:#CCCCCC'><o:p>&nbsp;</o:p></p> </div> </body> </html>