Real options and demographic decisions

The theory of real options is used to incorporate the influence of uncertainty on demographic decision-making. The decision to have children is formulated as an investment using portfolio theory. The timing of the decision to have a child is modelled as a real options decision, with uncertainty affecting a woman's ability to exercise the ‘option to wait’ in order to delay or space births. An increase and reduction in uncertainty on this option is explored. Compared to the widely used net present value (NPV) framework, the real options approach (ROA) better explains the process of demographic decision-making in poor countries.     

Job displacement and the transitions to re-employment and early retirement for non-employed older workers

Despite the relatively higher frequency of job displacement among older workers in Europe, little is known about its effect on the work-retirement decision. Employing individual data from the European Community Household Panel for a number of countries with differences in their institutional environments, the effect of job displacement for non-employed workers is identified separately for the transitions into re-employment and retirement. The findings suggest that in countries with relatively more generous unemployment insurance provisions for the older unemployed, which offer a pathway to early retirement, older displaced workers exhibit lower re-employment and higher retirement rates compared to the non-displaced. These results are robust to dynamic selection due to unobserved heterogeneity and to the endogeneity of displacement.     

Household bargaining over fertility: Theory and evidence from Malaysia

We develop and test a model of household bargaining over fertility when transfers between spouses are possible. The model makes precise how the fertility preferences of each spouse translate into fertility outcomes. We show this depends on whether or not spouses can commit to their future actions within marriage. If couples bargain with commitment, fertility outcomes take account of both spouses' fertility preferences and do not depend on the threat point in marital bargaining. If couples bargain without commitment, the influence of each spouse's fertility preference on fertility outcomes depends on the relevant threat point in marital bargaining, and the distribution of bargaining power. We test the models using household data from the Malaysia Family Life Survey. This data set contains information on each spouse's desired fertility level, as well as fertility outcomes. We exploit differences in threat points in marital bargaining across ethnic groups to help identify the underlying bargaining model. The evidence suggests couples bargain without commitment.     

Women as agents of change: Female income and mobility in India

Economic globalization will give many women in developing countries access to steady and relatively remunerative employment for the first time, potentially shifting bargaining power within their households and changing the choices that are made for their children. This paper exploits a unique setting — a group of tea plantations in South India where women are employed in permanent wage labor and where incomes do not vary by caste — to anticipate the impact of globalization on mobility across social groups in the future. The main result of the paper is that a relative increase in female income weakens the family's ties to the ancestral community and the traditional economy, but these mobility enhancing effects are obtained for certain historically disadvantaged castes alone. Although the paper provides a context-specific explanation for why the women from these castes emerge as agents of change, the first general implication of the analysis is that the incentive and the ability of women to use their earnings to influence household decisions depends importantly on their social background. The second implication is that historically disadvantaged groups may, in fact, be especially responsive to new opportunities precisely because they have fewer ties to the traditional economy to hold them back.     

Lifestyles of the rich and polygynous in Cote d’Ivoire

This paper investigates whether the sources of income, not just the levels, determine whether an individual is monogamous. Our results support the idea that polygyny stunts development by allowing wealthy men to acquire wives rather than investing in child quality.     

Social Affiliation and the Demand for Health Services: Caste and Child Health in South India

This paper assesses the role of social affiliation, measured by caste, in shaping investments in child health. The special setting that we have chosen for the analysis - tea estates in the South Indian High Range - allows us to control nonparametrically for differences in income, access to health services, and patterns of morbidity across low caste and high caste households. In this controlled setting, low caste households spend more on their children's health than high caste households, reversing the pattern we would expect to find elsewhere in India. Moreover, health expenditures do not vary by gender within either caste group, in contrast once again with the male preference documented throughout the country. A simple explanation, based on differences in the returns to human capital across castes in the tea estates is proposed to explain these striking results.     

Conflict displacement and labor market outcomes in post-war Bosnia and Herzegovina

The war in Bosnia and Herzegovina of the early nineties displaced 1.3 million people. This study uses longitudinal data to document the effects of this displacement on labor market outcomes. To account for endogeneity in displacement, I exploit the fact that the level of violence affected the decision to leave and that pre-war economic performance is orthogonal to local violence levels. I find that displaced Bosnians are less likely to be working relative to the people who stayed. Displaced men experience higher unemployment levels, and displaced women are more likely to drop out of the labor force.     

Learning the master's trade: Apprenticeship and human capital in Ghana

This paper explores the institution of apprenticeship in Ghana. A model is presented where apprenticeship training is idiosyncratic, increasing an individual's productivity in the current firm, but not in any other firm. Still, individuals are willing to fund apprenticeships as they can reap the returns to the specific training of apprenticeship if they manage to acquire the capital required to start their own firms, and replicate the technology and business practice of the apprenticeship firm. Predictions of the model for the productivity and remuneration of different workers are developed and tested using both a linked employer–employee survey of manufacturing firms and a national household survey.     

Who benefits more from higher household consumption? The intra-household allocation of nutrients in China

Previous studies find that human capital investments in boys are less income elastic than investments in girls, attributing this result to favoritism toward boys. I show theoretically that it is plausible for more productive or favored household members to have higher income elasticities. I then investigate this question empirically, utilizing panel data on individual nutrient intake from the China Health and Nutrition Survey (CHNS) to analyze how changes in household per-capita nutrient intake affect the intra-household allocation of nutrients. To deal with potential biases due to omitted variables and simultaneity, I use measures of rainfall variation as instruments. I find that nutritional intakes are more elastic for males (especially prime-age men) than for females, and significantly less elastic for the elderly.     

Taxation of early retirement windows and delaying retirement: The French experience

This paper investigates the effect of the 2003 French pension reform on hiring, firing and employment rates among older workers. This reform increased the mandatory retirement age and simultaneously it set a tax levied on early retirement windows paid by firms to their older workers, to encourage them to leave their job early. We use a matching model with endogenous job destruction extended to account for a mandatory retirement age and we calibrate the model with data drawn from the French Labor Force Surveys for the years 2002 and 2003. We show that in the case of a high tax rate, delaying retirement raises job separation rates, which partially offsets its positive effect on job finding rates. Consequently, the combination of an increase in the retirement age and a taxation on early retirement windows may have negative effects on the employment rate among older workers.     

On measuring the benefits of lower transport costs

Despite large amounts invested in rural roads in developing countries, little is known about their benefits. This paper derives an expression for the willingness-to-pay for a reduction in transport costs from the canonical agricultural household model and uses it to estimate the benefits of a hypothetical road project. Estimation is based on novel cross-sectional data collected in a small region of Madagascar with enormous, yet plausibly exogenous, variation in transport cost. A road that essentially eliminated transport costs in the study area would boost the incomes of the remotest households – those facing transport costs of about $75/ton – by nearly half, mostly by raising non-farm earnings. This benefit estimate is contrasted to one based on a hedonic approach.     

Geography,health, and the pace of demo-economic development

This paper investigates the impact of subsistence consumption and extrinsic and intrinsic causes of child mortality on fertility and child expenditure. It offers a theory for why mankind multiplies at higher rates at geographically unfavorable, tropical locations. Placed into a macroeconomic framework this behavior creates an indirect channel through which geography shapes economic performance. It is explained why it are countries of low absolute latitude where we observe exceedingly slow (if not stalled) economic development and demographic transition.     

Employer pay policies, public transfers and the retirement decisions of men and women in Denmark

The empirical retirement literature measures individual responses to variations in income flows due to public transfers, private individual or employer-provided pensions. We estimate a model accounting for the incentive effects from these sources. A dynamic structural model is extended to allow both individual and employer heterogeneity. This is applied to a Danish matched panel of workers and establishments, spanning a period of reforms to a public early retirement programme. Employer-specific compensation is found to be an important determinant of work and retirement income flows. Employer effects on retirement age are only found among sub-samples where access to public transfers is limited.     

Endogenous phase switch in Baumol's service paradox model

This paper develops a two-sector model that considers Baumol's service paradox. The paper simultaneously incorporates two ideas about technological progress in the model: (1) the consumption of services contributes to human capital accumulation and (2) the production of manufacturing leads to technological progress due to learning-by-doing. Accordingly, productivity growth in both services and manufacturing is endogenously determined. We show that initially, a shift in the employment share toward the services sector decreases the per capita real GDP growth rate, but at some point in time, the shift begins to increase the growth rate. Therefore, we observe an endogenous phase switch from a phase where the employment shift toward services depresses the economy to another where the employment shift promotes the economy.     

Do unemployment benefits promote or hinder job reallocation?

According to recent and largely untested theories, unemployment benefits (UBs) could improve the extent and quality of job reallocation even at the cost of increasing unemployment. In this paper, we use a new set of yearly panel data from a large number of countries to evaluate empirically the relationship between unemployment benefits and job reallocation. Unlike previous work assessing the effects of UBs on labor market stocks, we focus on flows and rely on policy “experiments,” notably the introduction from scratch of unemployment benefits in many countries. We exploit the longitudinal nature of our data to lessen the potentially important selection, endogeneity, and omitted variable problems. We find a positive, sizable, and significant effect of the introduction of UBs on job reallocation, arising mainly from the job destruction margin although this effect fades away over time. These findings appear to be robust to changes in the countries in the sample, control variables or estimation methods. We discuss to what extent our results are consistent with equilibrium matching models with or without endogenous sorting of workers into jobs providing entitlement to UBs and stochastic job matching.     

Industrial de-licensing, trade liberalization, and skill upgrading in India

We investigate the relationship between industrial de-licensing, trade liberalization, and skill upgrading during the 1980s and 1990s among manufacturing plants in India. We use a unique dataset on India's industrial licensing regime to test whether industrial de-licensing during the 1980s and 1990s played a role in skill upgrading, as measured by the employment and wagebill shares of white-collar workers. In addition, we assess the relative contribution of industrial de-licensing and trade liberalization to skill upgrading. We identify two main channels through which industrial de-licensing affects skill upgrading: capital- and output-skill complementarities. Using both difference-in-differences as well as regression discontinuity techniques, we find two important results. First, after controlling for the size-based exemption rule that determined whether or not a plant faced licensing restrictions, industrial de-licensing during the 1980s appears to have increased the relative demand for skilled workers via capital- and output-skill complementarities. Capital- and output-skill complementarities exist for plants in both licensed and de-licensed industries but were stronger in de-licensed industries during the 1980s, prior to India's massive trade liberalization reforms in 1991. Second, regardless of de-licensing, capital- and output-skill complementarities are generally weaker after trade was liberalized during the early 1990s. Together, capital- and output-skill complementarities contributed 75% (57%) and 31% (29%), respectively, of the growth in the employment and wagebill shares of white-collar workers in de-licensed (licensed) industries before trade was liberalized. After trade liberalization, these contributions were smaller. This suggests that trade liberalization may not have played a major role in raising the relative demand for skilled labor during the early 1990s.     

Access to capital in rural Thailand: An estimated model of formal vs. informal credit

This paper analyzes the mechanism underlying access to credit, focusing on two important aspects of rural credit markets. First, moneylenders and other informal lenders coexist with formal lending institutions such as government or commercial banks, and, more recently, micro-lending institutions. Second, potential borrowers presumably face sizable transaction costs in obtaining external credit. We develop and estimate a model based on limited enforcement and transaction costs that provides a unified view of these facts. Based on data from Thailand, the results show that the limited ability of banks to enforce contracts, more than transaction costs, is crucial in understanding the observed diversity of lenders.     

Wars and Child Health: Evidence from the Eritrean-Ethiopian Conflict

Conflict between and within countries can have lasting health and economic consequences, but identifying such effects can be empirically challenging. This paper uses household survey data from Eritrea to estimate the effect of exposure to the 1998-2000 Eritrea-Ethiopia war on children's health. The identification strategy exploits exogenous variation in the conflict's geographic extent and timing and the exposure of different birth cohorts to the fighting. The unique survey data include details on each household's migration history, which allows us to measure a child's geographic location during the war and without which war exposure would be incorrectly classified. War-exposed children have lower height-for-age Z-scores, with similar effects for children born before or during the war. Both boys and girls who are born during the war experience negative impacts due to conflict. Effects are robust to including region-specific time trends, alternative conflict exposure measures, and mother fixed effects.     

Income and bargaining effects on education and health in Brazil

This study examines the impacts of the 1991 reform of Brazil's rural pension system on schooling and health indicators. We conclude that the reform had significant positive effects on schooling, especially on literacy for girls co-residing with a male pensioner. We were unable to find similar results for children living with a female pensioner. We further investigated whether these results were driven by bargaining power differences within households; our findings suggest that this explanation is plausible.     

Child labor and the minimum wage: Evidence from India

This study examines how changes in the minimum wage affect child labor in India. The analysis uses repeated cross sections of India's NSSO employment data from 1983 to 2008 merged with data on state-level minimum wage rates. Theoretically, the impact of the minimum wage on child work could go either way, so empirical evidence from a country with high rates of child labor and a myriad of minimum wage laws across states and industries helps to lessen the ambiguity. Results indicate that regardless of gender, in urban areas, a higher minimum wage reduces child labor in household work. In rural areas a similar result applies for girls while household labor does rise for boys. The minimum wage has virtually no impact on child work outside of the home across urban and rural areas.