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On Track to Success?
(2022)
Many countries consider expanding vocational curricula in secondary education to boost skills and labour market outcomes among non-university-bound students. However, critics fear this could divert other students from more profitable academic education. We study labour market returns to vocational education in England, where until recently students chose between a vocational track, an academic track and quitting education at age 16. Identification is challenging because self-selection is strong and because students’ next-best alternatives are unknown. Against this back- drop, we leverage multiple instrumental variables to estimate margin-specific treatment effects, i.e., causal returns to vocational education for students at the margin with academic education and, separately, for students at the margin with quitting education. Identification comes from variation in distance to the nearest vocational provider conditional on distance to the nearest academic provider (and vice-versa), while controlling for granular student, school and neighbourhood characteristics. The analysis is based on population-wide administrative education data linked to tax records. We find that the vast majority of marginal vocational students are indifferent be- tween vocational and academic education. For them, vocational enrolment substantially decreases earnings at age 30. This earnings penalty grows with age and is due to wages, not employment. However, consistent with comparative advantage, the penalty is smaller for students with higher revealed preferences for the vocational track. For the few students at the margin with no further education, we find merely tentative evidence of increased employment and earnings from vocational enrolment.
We demonstrate how the incentives of firms that partially own their suppliers or customers to foreclose rivals depend on how the partial owner can extract profits from the target (tunneling). Compared to a fully vertically integrated firm, a partial owner may obtain only a share of the target’s profit but influence the target’s strategy significantly. We show that the incentives for customer and input foreclosure can be higher, equal, or even lower with partial ownership than with a vertical merger, depending on how the protection of minority shareholders and transfer price regulations affect the scope for profit extraction.
The self-employed faced strong income losses during the Covid-19 pandemic. Many governments introduced programs to financially support the self-employed during the pandemic, including Germany. The German Ministry for Economic Affairs announced a €50bn emergency-aid program in March 2020, offering one-off lump-sum payments of up to €15,000 to those facing substantial revenue declines. By reassuring the self- employed that the government ‘would not let them down’ during the crisis, the program had also the important aim of motivating the self-employed to get through the crisis. We investigate whether the program affected the confidence of the self-employed to survive the crisis using real-time online-survey data comprising more than 20,000 observations. We employ propensity score matching, making use of a rich set of variables that influence the subjective survival probability as main outcome measure. We observe that this program had significant effects, with the subjective survival probability of the self- employed being moderately increased. We reveal important effect heterogeneities with respect to education, industries, and speed of payment. Notably, positive effects only occur among those self-employed whose application was processed quickly. This suggests stress-induced waiting costs due to the uncertainty associated with the administrative processing and the overall pandemic situation. Our findings have policy implications for the design of support programs, while also contributing to the literature on the instruments and effects of entrepreneurship policy interventions in crisis situations.
Strategic uncertainty is the uncertainty that players face with respect to the purposeful behavior of other players in an interactive decision situation. Our paper develops a new method for measuring strategic-uncertainty attitudes and distinguishing them from risk and ambiguity attitudes. We vary the source of uncertainty (whether strategic or not) across conditions in a ceteris paribus manner. We elicit certainty equivalents of participating in two strategic 2x2 games (a stag-hunt and a market-entry game) as well as certainty equivalents of related lotteries that yield the same possible payoffs with exogenously given probabilities (risk) and lotteries with unknown probabilities (ambiguity). We provide a structural model of uncertainty attitudes that allows us to measure a preference for or an aversion against the source of uncertainty, as well as optimism or pessimism regarding the desired outcome. We document systematic attitudes towards strategic uncertainty that vary across contexts. Under strategic complementarity [substitutability], the majority of participants tend to be pessimistic [optimistic] regarding the desired outcome. However, preferences for the source of uncertainty are distributed around zero.
Property tax competition
(2022)
We develop a model of property taxation and characterize equilibria under three alternative taxa-tion regimes often used in the public finance literature: decentralized taxation, centralized taxation, and “rent seeking” regimes. We show that decentralized taxation results in inefficiently high tax rates, whereas centralized taxation yields a common optimal tax rate, and tax rates in the rent-seeking regime can be either inefficiently high or low. We quantify the effects of switching from the observed tax system to the three regimes for Japan and Germany. The decentralized or rent-seeking regime best describes the Japanese tax system, whereas the centralized regime does so for Germany. We also quantify the welfare effects of regime changes.
This paper sheds new light on the role of communication for cartel formation. Using machine learning to evaluate free-form chat communication among firms in a laboratory experiment, we identify typical communication patterns for both explicit cartel formation and indirect attempts to collude tacitly. We document that firms are less likely to communicate explicitly about price fixing and more likely to use indirect messages when sanctioning institutions are present. This effect of sanctions on communication reinforces the direct cartel-deterring effect of sanctions as collusion is more difficult to reach and sustain without an explicit agreement. Indirect messages have no, or even a negative, effect on prices.
We investigate the effect of the COVID-19 pandemic on self-employed people’s mental health. Using representative longitudinal survey data from Germany, we reveal differential effects by gender: whereas self-employed women experienced a substantial deterioration in their mental health, self-employed men displayed no significant changes up to early 2021. Financial losses are important in explaining these differences. In addition, we find larger mental health responses among self-employed women who were directly affected by government-imposed restrictions and bore an increased childcare burden due to school and daycare closures. We also find that self-employed individuals who are more resilient coped better with the crisis.
In light of climate change mitigation efforts, revenues from climate policies are growing, with no consensus yet on how they should be used. Potential efficiency gains from reducing distortionary taxes and the distributional implications of different revenue recycling schemes are currently debated. To account for households heterogeneity and dynamic trade-offs, we study the macroeconomic and welfare performance of different revenue recycling schemes using an Environmental Two-Agent New-Keynesian model, calibrated on the German economy. We find that, in the long run, welfare gains are higher when revenues are used to reduce distortionary taxes on capital, but this comes at the cost of higher inequality: while all households prefer labor income tax reductions to lump-sum transfers, only financially unconstrained households are better off when reducing taxes on capital income. Interestingly, we find that over the transition period relevant to meet short-medium run climate targets, labor income tax cuts are the most efficient and equitable instrument.
We provide the first estimates of the impact of managers’ risk preferences on their training allocation decisions. Our conceptual framework links managers’ risk preferences to firms’ training decisions through the bonuses they expect to receive. Risk-averse managers are expected to select workers with low turnover risk and invest in specific rather than general training. Empirical evidence supporting these predictions is provided using a novel vignette study embedded in a nationally representative survey of firm managers. Risk-tolerant and risk-averse decision makers have significantly different training preferences. Risk aversion results in increased sensitivity to turnover risk. Managers who are risk-averse offer significantly less general training and, in some cases, are more reluctant to train workers with a history of job mobility. All managers, irrespective of their risk preferences, are sensitive to the investment risk associated with training, avoiding training that is more costly or targets those with less occupational expertise or nearing retirement. This suggests the risks of training are primarily due to the risk that trained workers will leave the firm (turnover risk) rather than the risk that the benefits of training do not outweigh the costs (investment risk).
Carbon dioxide removal (CDR) moves atmospheric carbon to geological or land-based sinks. In a first-best setting, the optimal use of CDR is achieved by a removal subsidy that equals the optimal carbon tax and marginal damages. We derive second-best subsidies for CDR when no global carbon price exists but a national government implements a unilateral climate policy. We find that the optimal carbon tax differs from an optimal CDR subsidy because of carbon leakage, terms-of-trade and fossil resource rent dynamics. First, the optimal removal subsidy tends to be larger than the carbon tax because of lower supply-side leakage on fossil resource markets. Second, terms-of-trade effects exacerbate this wedge for net resource exporters, implying even larger removal subsidies. Third, the optimal removal subsidy may fall below the carbon tax for resource-poor countries when marginal environmental damages are small.
Subsidizing the geographical mobility of unemployed workers may improve welfare by relaxing their financial constraints and allowing them to find jobs in more prosperous regions. We exploit regional variation in the promotion of mobility programs along administrative borders of German employment agency districts to investigate the causal effect of offering such financial incentives on the job search behavior and labor market integration of unemployed workers. We show that promoting mobility – as intended – causes job seekers to increase their search radius, apply for and accept distant jobs. At the same time, local job search is reduced with adverse consequences for reemployment and earnings. These unintended negative effects are provoked by spatial search frictions. Overall, the unconditional provision of mobility programs harms the welfare of unemployed job seekers.
The COVID-19 pandemic created the largest experiment in working from home. We study how persistent telework may change energy and transport consumption and costs in Germany to assess the distributional and environmental implications when working from home will stick. Based on data from the German Microcensus and available classifications of working-from-home feasibility for different occupations, we calculate the change in energy consumption and travel to work when 15% of employees work full time from home. Our findings suggest that telework translates into an annual increase in heating energy expenditure of 110 euros per worker and a decrease in transport expenditure of 840 euros per worker. All income groups would gain from telework but high-income workers gain twice as much as low-income workers. The value of time saving is between 1.3 and 6 times greater than the savings from reduced travel costs and almost 9 times higher for high-income workers than low-income workers. The direct effects on CO₂ emissions due to reduced car commuting amount to 4.5 millions tons of CO₂, representing around 3 percent of carbon emissions in the transport sector.
In Germany, the productivity of professional services, a sector dominated by micro and small firms, declined by 40 percent between 1995 and 2014. This productivity decline also holds true for professional services in other European countries. Using a German firm-level dataset of 700,000 observations between 2003 and 2017, we analyze this largely uncovered phenomenon among professional services, the 4th largest sector in the EU15 business economy, which provide important intermediate services for the rest of the economy. We show that changes in the value chain explain about half of the decline and the increase in part-time employment is a further minor part of the decline. In contrast to expectations, the entry of micro and small firms, despite their lower productivity levels, is not responsible for the decline. We also cannot confirm the conjecture that weakening competition allows unproductive firms to remain in the market.
Starting in 2009, the German state of Saxony distributed sports club membership vouchers among all 33,000 third graders in the state. The policy’s objective was to encourage them to develop a long-term habit of exercising. In 2018, we carried out a large register-based survey among several cohorts in Saxony and two neighboring states. Our difference-in-differences estimations show that, even after a decade, awareness of the voucher program was significantly higher in the treatment group. We also find that youth received and redeemed the vouchers. However, we do not find significant short- or long-term effects on sports club membership, physical activity, overweightness, or motor skills.
Against a background of increasing violence against non-natives, we estimate the effect of hate crime on refugees’ mental health in Germany. For this purpose, we combine two datasets: administrative records on xenophobic crime against refugee shelters by the Federal Criminal Office and the IAB-BAMF-SOEP Survey of Refugees. We apply a regression discontinuity in time design to estimate the effect of interest. Our results indicate that hate crime has a substantial negative effect on several mental health indicators, including the Mental Component Summary score and the Patient Health Questionnaire-4 score. The effects are stronger for refugees with closer geographic proximity to the focal hate crime and refugees with low country-specific human capital. While the estimated effect is only transitory, we argue that negative mental health shocks during the critical period after arrival have important long-term consequences. Keywords: Mental health, hate crime, migration, refugees, human capital.
While a growing body of literature finds positive impacts of Start-Up Subsidies (SUS) on labor market outcomes of participants, little is known about how the design of these programs shapes their effectiveness and hence how to improve policy. As experimental variation in program design is unavailable, we exploit the 2011 reform of the current German SUS program for the unemployed which strengthened case-workers’ discretionary power, increased entry requirements and reduced monetary support. We estimate the impact of the reform on the program’s effectiveness using samples of participants and non-participants from before and after the reform. To control for time-constant unobserved heterogeneity as well as differential selection patterns based on observable characteristics over time, we combine Difference-in-Differences with inverse probability weighting using covariate balancing propensity scores. Holding participants’ observed characteristics as well as macroeconomic conditions constant, the results suggest that the reform was successful in raising employment effects on average. As these findings may be contaminated by changes in selection patterns based on unobserved characteristics, we assess our results using simulation-based sensitivity analyses and find that our estimates are highly robust to changes in unobserved characteristics. Hence, the reform most likely had a positive impact on the effectiveness of the program, suggesting that increasing entry requirements and reducing support in-creased the program’s impacts while reducing the cost per participant.
The large literature that aims to find evidence of climate migration delivers mixed findings. This meta-regression analysis i) summarizes direct links between adverse climatic events and migration, ii) maps patterns of climate migration, and iii) explains the variation in outcomes. Using a set of limited dependent variable models, we meta-analyze thus-far the most comprehensive sample of 3,625 estimates from 116 original studies and produce novel insights on climate migration. We find that extremely high temperatures and drying conditions increase migration. We do not find a significant effect of sudden-onset events. Climate migration is most likely to emerge due to contemporaneous events, to originate in rural areas and to take place in middle-income countries, internally, to cities. The likelihood to become trapped in affected areas is higher for women and in low-income countries, particularly in Africa. We uniquely quantify how pitfalls typical for the broader empirical climate impact literature affect climate migration findings. We also find evidence of different publication biases.
We develop a model of optimal carbon taxation and redistribution taking into account horizontal equity concerns by considering heterogeneous energy efficiencies. By deriving first- and second-best rules for policy instruments including carbon taxes, transfers and energy subsidies, we then investigate analytically how horizontal equity is considered in the social welfare maximizing tax structure. We calibrate the model to German household data and a 30 percent emission reduction goal. Our results show that energy-intensive households should receive more redistributive resources than energy-efficient households if and only if social inequality aversion is sufficiently high. We further find that redistribution of carbon tax revenue via household-specific transfers is the first-best policy. Equal per-capita transfers do not suffer from informational problems, but increase mitigation costs by around 15 percent compared to the first- best for unity inequality aversion. Adding renewable energy subsidies or non-linear energy subsidies, reduces mitigation costs further without relying on observability of households’ energy efficiency.
We investigate how the economic consequences of the pandemic, and of the government-mandated measures to contain its spread, affect the self-employed – particularly women – in Germany. For our analysis, we use representative, real-time survey data in which respondents were asked about their situation during the COVID-19 pandemic. Our findings indicate that among the self-employed, who generally face a higher likelihood of income losses due to COVID-19 than employees, women are 35% more likely to experience income losses than their male counterparts. Conversely, we do not find a comparable gender gap among employees. Our results further suggest that the gender gap among the self-employed is largely explained by the fact that women disproportionately work in industries that are more severely affected by the COVID-19 pandemic. Our analysis of potential mechanisms reveals that women are significantly more likely to be impacted by government-imposed restrictions, i.e. the regulation of opening hours. We conclude that future policy measures intending to mitigate the consequences of such shocks should account for this considerable variation in economic hardship.
In this paper, we study the effect of exogenous global crop price changes on migration from agricultural and non-agricultural households in Sub-Saharan Africa. We show that, similar to the effect of positive local weather shocks, the effect of a locally-relevant global crop price increase on household out-migration depends on the initial household wealth. Higher international producer prices relax the budget constraint of poor agricultural households and facilitate migration. The order of magnitude of a standardized price effect is approx. one third of the standardized effect of a local weather shock. Unlike positive weather shocks, which mostly facilitate internal rural-urban migration, positive income shocks through rising producer prices only increase migration to neighboring African countries, likely due to the simultaneous decrease in real income in nearby urban areas. Finally, we show that while higher producer prices induce conflict, conflict does not play a role for the household decision to send a member as a labor migrant.