Are “Nearly Exogenous Instruments” reliable?

We show that when instruments are nearly exogenous, the two stage least squares t-statistic unpredictably over-rejects or under-rejects the null hypothesis that the endogenous regressor is insignificant and Anderson–Rubin test over-rejects the null. We prove that in the limit these tests are no longer nuisance parameter free.     

DO CHINESE UNIONS HAVE “REAL” EFFECTS ON EMPLOYEE COMPENSATION?

In this article, we use enterprise population‐level data to investigate the effectiveness of Chinese unions in improving employee wage and nonwage compensation. We show that the effectiveness of Chinese unions stems from a “collective voice” face rather than from a “monopoly” face. The empirical findings on the effectiveness of unions are remarkable: unions in the workplace significantly improve employee wage and nonwage compensation, along with employee training. Moreover, the presence of unions within the same region and industry generates positive spillovers for employee compensation. The unions in China do have “real” effects. (JEL J30, J50, J51, K31)     

WHAT DETERMINES THE “LEGAL” QUALITY Of BANK REGULATION AND SUPERVISION?

This article has two contributions. First, using the methodology of Neyapti and Dincer, it provides measures of legal quality of bank regulation and supervision (RS) for a new set of developed and less‐developed countries. Second, it investigates the determinants of RS in view of the hypothesis that the existing institutional environment matters for the quality of formal institutions such as banking laws. The empirical evidence in this article demonstrates that past financial crises and prevailing levels of both financial market development and foreign direct investment inflows affect RS beyond and above the effects of other potential factors, such as macroeconomic performance and good governance. Evidence from transition economies also supports these findings. (JEL E44, G2, K29, O1)     

DO “CAPITALIZATION EFFECTS” FOR PUBLIC GOODS REVEAL THE PUBLIC'S WILLINGNESS TO PAY?

This article develops a welfare theoretic framework for interpreting evidence on the impacts of public programs on housing markets. We extend Rosen's hedonic model to explain how housing prices capitalize exogenous shocks to public goods and externalities. The model predicts that trading between heterogeneous buyers and sellers will drive a wedge between these “capitalization effects” and welfare changes. We test this hypothesis in the context of changes in measures of school quality in five metropolitan areas. Results from boundary discontinuity designs suggest that capitalization effects understate parents’ willingness to pay for public school improvements by as much as 75%.     

“Fair go” for all? Wealth and Risk Aversion of Australian Households*

A mean‐variance framework is applied to Australian household financial portfolios in order to provide estimates of relative risk aversion in the economy. Controlling for various socio‐economic characteristics, we explore whether risk aversion heterogeneity is a function of wealth heterogeneity. In contrast to most studies, we find evidence of very high risk aversion amongst the majority of households of poor households but vastly lower risk aversion amongst the high percentiles in the wealth distribution. Applying a first differences model across three survey waves spanning 2002 to 2010, we find that risk tolerance increases significantly with wealth. Risk tolerance is positively associated with mortgage payments, but rental payments have no relationship. In addition, we found no evidence that holding a university education has any discernible impact on risk aversion. Lastly, we present some preliminary findings as to the impact of financial advice on observed risk aversion. Financial advice is found to accentuating risk aversion, particularly amongst the wealthiest households. The findings have potential implications for the distribution of wealth in Australia that has received renewed interest recently.     

HOW IMPORTANT ARE TERMS‐OF‐TRADE SHOCKS?

According to conventional wisdom, terms‐of‐trade shocks represent a major source of business cycles in emerging and poor countries. This view is largely based on the analysis of calibrated business‐cycle models. We argue that the view that emerges from empirical structural vector autoregression (SVAR) models is strikingly different. We estimate country‐specific SVARs using data from 38 countries and find that terms‐of‐trade shocks explain less than 10% of movements in aggregate activity. We then estimate key structural parameters of a three‐sector business‐cycle model country by country and find a disconnect between the importance assigned to terms‐of‐trade shocks by theoretical and SVAR models.     

“COERCIVE COOPERATION”? ONTARIO'S PAY EQUITY ACT OF 1988 AND THE GENDER PAY GAP

Evaluating the effect of pay‐equity laws is important and yet difficult as one needs to deduce what would have occurred without the policy intervention. We use a new tool, synthetic‐control method, to examine the effects of Ontario's Pay Equity Act on the gender pay gap. This tool enables us to create a “Synthetic” Ontario, which resembles Ontario more closely than does any other single province. Using Synthetic Ontario to compare what actually happened in Ontario to what would have happened, we find that the act has had little or no effect on the female‐male wage gap in Ontario. (JEL J7, J3)     

DO ACTIONS SPEAK AS LOUD AS WORDS? COMMITMENTS TO “GOING GREEN” ON CAMPUS

Signatories to the American College and University Presidents' Climate Commitment (ACUPCC) pledge to pursue a path toward carbon neutrality through the choice of a set of Tangible Actions (TAs). The actions can be chosen either because they will lead to reductions or because they are the easiest to achieve. By exploiting the variation in the TAs chosen by colleges, we find evidence for both of these motivations. We find evidence that schools focusing their efforts on improving energy efficiency have achieved swift reductions. Conversely, schools pledging to use green power are generally already utilizing it and therefore do not achieve additional reductions. We conclude with suggestions for improvement in the ACUPCC reporting system that would improve potential for analysis. (JEL Q01, Q40, Q56)     

“WHY NOT SETTLE DOWN ALREADY?” A QUANTITATIVE ANALYSIS OF THE DELAY IN MARRIAGE

A striking change in American society in the last 40 years has been the decline and delay in marriage. The fraction of young adults who have never been married increased significantly between 1970 and 2000. Idiosyncratic labor income volatility also rose. We establish a quantitatively important link between these facts. If marriage involves consumption commitments, then a rise in income volatility delays marriage. We quantitatively assess this hypothesis vis‐à‐vis others in the literature. Increased volatility accounts for about 20% of the observed delay in marriage and is strong relative to other mechanisms.     

LA POLITIQUE BUDGÉTAIRE ÉVINCE‐T‐ELLE L’INVESTISSEMENT PRIVÉ AU BÉNIN?

RESUME : Cet article analyse les effets de la politique budgétaire sur l’investissement privé au Bénin à l’aide de deux modèles économétriques (l’approche par le flux d’investissement public et l’approche par le capital public), estimés en utilisant les outils d’économétrie avancée tels que les tests de racine unitaire et de cointégration et en appliquant la procédure en deux étapes suggérée par Engle et Granger (1987) . Nos résultats indiquent que la politique fiscale mais aussi le stock permanent de capital privé et le crédit au secteur privé favorise l’investissement privé. Cependant, la formation de capital public et les dépenses de consommation publique évincent l’investissement privé.     

Chasing after “good jobs.” Do they exist and does it matter if they do?

Most people believe that there are such things as good jobs—jobs that a worker would consider herself lucky to get. But for economists, the existence of good jobs is debatable. In this paper, I provide a definition of a good job based on various theories of the labour market: a job that involves a surplus captured partly by the worker. I use that definition to guide an empirical investigation of the existence and importance of good jobs. I conclude that good jobs do exist—that the labour market does not just function according to a Roy model with wage differentials reflecting only skill differentials, compensating differentials or bond posting—and that their impact on the overall wage structure is substantial. Finally, I discuss the implications of the existence of good jobs for policy setting and for assessments of the justice of a society.     

Does consumption respond to predicted increases in cash-hand availability?: Evidence from the Italian “severance pay”

We examine whether Italian household consumption exhibits excess sensitivity to “severance pay”, a sizable lump-sum that workers receive at job termination. We find no evidence of excess sensitivity of non-durable expenditure to this anticipated cash-in-hand change.