EMPLOYMENT EFFECTS OF THE MINIMUM WAGE: PANEL DATA EVIDENCE FROM CANADIAN PROVINCES

Recent U.S. studies offer conflicting evidence on minimum wage impacts. This paper studies the effects of 185 amendments to minimum wage on employment rates using panel data across Canadian provinces from 1981 to 2011. Ordinary least squares and instrumental variables (IV) estimates imply a 10% increase in minimum wage is associated with a 1%–4% reduction to employment rates for both male and female teens. We also find that an increase in the minimum wage is associated with lower employment of prime‐aged immigrants. Our results are robust to a wide array of IV and the use of controls for spatial heterogeneity. (JEL J30, J71, J23)     

Teen families,welfare transfers,and the minimum wage: evidence from Canada

Abstract This study evaluates the impacts of welfare transfers and the minimum wage on teen family formation by pooling provincial data from Canada between 1990 and 2005. OLS estimates suggest that welfare transfers have had limited impact on teen births. On the other hand, a 10% increase in the minimum wage is significantly correlated with a 3%–5% rise in teen birth rates. This finding is explained by further regressions, which reveal that an increase in the minimum wage is significantly associated with (1) higher earnings among male teens, (2) an increase in teen marriage rates, and (3) an increase in fertility among married teens but not among unmarried females. Finally, estimates based on the 2003 and 2005 waves of the Canadian Community Health Surveys demonstrate that married teens are more likely to engage in sex as well as unprotected intercourse in comparison with single teens.     

ESTIMATING THE IMPACT OF BEER PRICES ON THE INCIDENCE OF SEXUALLY TRANSMITTED DISEASES: CROSS‐PROVINCE AND TIME SERIES EVIDENCE FROM CANADA

We attempt to contribute to the literature by evaluating the effects of higher beer prices on gonorrhea and chlamydia rates through pooling data across Canadian provinces and over time. Ordinary least squares as well as instrumental variables estimates suggest that higher real beer prices are correlated with a reduction in both gonorrhea and chlamydia rates, with corresponding implied elasticities within a tightly defined interval of (roughly) ?0.7 to ?0.9. However, the increase in real beer prices over the sample period is only responsible for less than a tenth of the decline in gonorrhea rates. (JEL I18)     

Why is the teen birth rate in the United States so high and why does it matter?

Teens in the United States are far more likely to give birth than in any other industrialized country in the world. U.S. teens are two and a half times as likely to give birth as compared to teens in Canada, around four times as likely as teens in Germany or Norway, and almost 10 times as likely as teens in Switzerland. Among more developed countries, Russia has the next highest teen birth rate after the United States, but an American teenage girl is still around 25 percent more likely to give birth than her counterpart in Russia. Moreover, these statistics incorporate the almost 40 percent fall in the teen birth rate that the United States has experienced over the past two decades. Differences across U.S. states are quite dramatic as well. A teenage girl in Mississippi is four times more likely to give birth than a teenage girl in New Hampshire--and 15 times more likely to give birth as a teen compared to a teenage girl in Switzerland. This paper has two overarching goals: understanding why the teen birth rate is so high in the United States and understanding why it matters. Thus, we begin by examining multiple sources of data to put current rates of teen childbearing into the perspective of cross-country comparisons and recent historical context. We examine teen birth rates alongside pregnancy, abortion, and "shotgun" marriage rates as well as the antecedent behaviors of sexual activity and contraceptive use. We seek insights as to why the rate of teen childbearing is so unusually high in the United States as a whole, and in some U.S. states in particular. We argue that explanations that economists have tended to study are unable to account for any sizable share of the variation in teen childbearing rates across place. We describe some recent empirical work demonstrating that variation in income inequality across U.S. states and developed countries can explain a sizable share of the geographic variation in teen childbearing. To the extent that income inequality is associated with a lack of economic opportunity and heightened social marginalization for those at the bottom of the distribution, this empirical finding is potentially consistent with the ideas that other social scientists have been promoting for decades but which have been largely untested with large data sets and standard econometric methods. Our reading of the totality of evidence leads us to conclude that being on a low economic trajectory in life leads many teenage girls to have children while they are young and unmarried and that poor outcomes seen later in life (relative to teens who do not have children) are simply the continuation of the original low economic trajectory. That is, teen childbearing is explained by the low economic trajectory but is not an additional cause of later difficulties in life. Surprisingly, teen birth itself does not appear to have much direct economic consequence. Moreover, no silver bullet such as expanding access to contraception or abstinence education will solve this particular social problem. Our view is that teen childbearing is so high in the United States because of underlying social and economic problems. It reflects a decision among a set of girls to "drop-out" of the economic mainstream; they choose non-marital motherhood at a young age instead of investing in their own economic progress because they feel they have little chance of advancement. This thesis suggests that to address teen childbearing in America will require addressing some difficult social problems: in particular, the perceived and actual lack of economic opportunity among those at the bottom of the economic ladder.     

DO PARENTAL INVOLVEMENT LAWS REDUCE ADOLESCENT ABORTION RATES?

This study assesses the impact of parental involvement laws on adolescent abortion rates and pregnancy rates. The analysis estimates abortion rate and pregnancy rate models using state-level data pooled over time for adolescents aged 15–17 compared to older teens aged 18–19 and adults aged 20–44. The results indicate that parental involvement laws reduce adolescent abortion rates and may, to a lessor degree, reduce adolescent pregnancy rates. Thus, the findings imply that enforcement of parental involvement laws will increase adolescent fertility rates.     

Courts of Law and Unforeseen Contingencies

We study a contracting model with unforeseen contingencies inwhich the court is an active player. Ex ante, the contractingparties cannot include the risky unforeseen contingencies inthe contract they draw up. Ex post, the court observes whetheran unforeseen contingency occurred and decides whether to voidor uphold the contract. If the contract is voided by the court,the parties can renegotiate a new agreement ex post. There aretwo effects of a court that voids contracts. The parties' incentivesto undertake relationship-specific investment are reduced, andthe parties enjoy greater insurance against the unforeseen contingenciesthat the ex ante contract cannot account for. In this context,we fully characterize the optimal decision rule for the court.The behavior of the optimal court is determined by the trade-offbetween the need for incentives and the gains from insurancethat voiding in some circumstances offers to the agents.     

High-growth versus declining firms: the differential impact of human capital and R&D

We provide evidence that both human capital and R&D increase the likelihood that a firm will be a high-growth firm in the industry. However, different from human capital, being an R&D active firm also increases the probability of substantial decline or failure, underscoring the risky nature of innovation. Quantile regression results show that, different from R&D, human capital is growth-enhancing for all firms, hence also those located in the lower quantiles of the distribution of growth rates across firms.     

Cheap money and risk taking: Opacity versus fundamental risk

We explore the effect of interest rates on risk taking and find that it depends on the type of risk involved. In a Bayesian setting, investments can be risky either because payoff-relevant signals are noisy or because the dispersion of the prior is high. While both types of risk contribute symmetrically to the overall riskiness of an investment project, we show that changes in interest rates affect risk taking in these two types of risk in opposite directions. This makes the net effect of interest rates on risk taking—as measured by the average riskiness of financed projects—necessarily ambiguous and dependent on the sources of risk.     

Games Parents and Adolescents Play: Risky Behaviors, Parental Reputation, and Strategic Transfers

This paper examines parental reputation formation in intra-familial interactions. In a repeated two-stage game, children decide whether to drop out of high school or daughters decide whether to have births as teens and parents then decide whether to provide support to their children beyond age 18. Drawing on Milgrom and Roberts (1982) and Kreps and Wilson (1982), we show that, under certain conditions, parents have the incentive to penalize older children for their adolescent risk-taking behaviours in order to dissuade their younger children from such behaviours when reaching adolescence. We find evidence in favour of this parental reputation model.     

The determinants of pornography actress production

This study investigates empirically the influences of physical appearances and risky sex in the production of adult video (AV) actresses. By analysing data concerning the Japanese AV actresses whose careers commenced between 2002 and 2013, we found that significant increases in the number of video shots of actresses are brought by cup sizes, working experiences, experiences as models or entertainers, and acting in videos of risky sex, but acting in risky sex videos has no significant influence on the production of those with greater cup sizes or serving as models or entertainers. We interpret that these actresses attract the market attention by their favoured appearances, and thus have no incentives to raise their production by acting in risky sex videos.     

Labor Market Institutions, Wages, and Investment: Review and Implications

Labor market institutions, via their effect on the wage structure,affect the investment decisions of firms in labor markets withfrictions. This observation helps explain rising wage inequalityin the US, but a relatively stable wage structure in Europein the 1980s. These different trends are the result of differentinvestment decisions by firms for the jobs typically held byless skilled workers. Firms in Europe have more incentives toinvest in less skilled workers, because minimum wages or unioncontracts mandate that relatively high wages have to be paidto these workers. I report some empirical evidence for investmentsin training and physical capital across the Atlantic, whichis roughly in line with this theoretical reasoning. (JEL E22,E24, J23, J24, J31)     

Informal parental care and female labour supply in Japan

Using the Japanese Study of Aging and Retirement, Japan’s first globally comparable panel survey of the elderly, we estimate the effect on female employment in Japan due to the provision of informal parental care. We observe that informal parental care has little impact on female employment, after controlling for endogeneity of informal care or individual unobserved time-invariant heterogeneity. This finding is consistent with those observed in Europe and the US, underscoring a limited association between care and work in Japan, which is facing ageing at the fastest pace among advanced economies.     

Firm heterogeneity in sources of total factor productivity growth for Japanese manufacturing firms

We investigate firm heterogeneity in productivity sources across technology sectors for Japanese manufacturers. Firm heterogeneity in productivity sources conveys more information about firm-specific differences in productivity. In this regard, large firms are more productive, largely because they are more innovative, despite being slow to catch up during booms or operating at a less-than-efficient scale. We find that the beneficial impact of exports on productivity is most evident when firms become exporters, and intrafirm trade causes enough inefficiency to offset the salutary effects of trade after a certain threshold. Notably, firm heterogeneity in productivity varies considerably across the technology sectors.     

Saving rates and portfolio choice with subsistence consumption

We analytically show that a common across rich/poor individuals Stone-Geary utility function with subsistence consumption in the context of a simple two-asset portfolio-choice model is capable of qualitatively and quantitatively explaining: (i) the higher saving rates of the rich, (ii) the higher fraction of personal wealth held in risky assets by the rich, and (iii) the higher volatility of consumption of the wealthier. On the contrary, time-variant “keeping-up-with-the-Joneses” weighted average consumption which plays the role of moving benchmark subsistence consumption gives the same portfolio composition and saving rates across the rich and the poor, failing to reconcile the model with what micro data say.     

Financial Frictions and Risky Corporate Debt

We offer clarifications on Cooley and Quadrini (2001) regarding financial frictions and risky corporate debt pricing. Even in a frictionless world, the promised rate on corporate debt is not identical across firms and across capital structures and it is not equal to the risk-free rate. Frictions are unnecessary for credit spreads to arise. Only if the macroeconomy is in actuality risk free or risk neutral do interest rates on corporate debt reflect default probabilities. To the extent that the firm's entire financial structure is traded, a bias in credit spreads introduces an exploitable arbitrage opportunity. Re-establishing no-arbitrage, firm dynamics move in the opposite direction to Cooley and Quadrini's.     

The Competitive Saving Motive: Concept,Evidence, and Implications

This short essay surveys recent literature on the competitive saving motive and its broader economic implications. The competitive saving motive is defined as saving to improve one’s status relative to other competitors for dating and marriage partners. Here are some of the key results of the recent literature: (i) cross-country evidence show that greater gender imbalances tend to correspond with higher savings rates; (ii) household-level evidence suggest that: (a) families with unmarried sons in rural regions with more skewed sex ratios tend to have higher savings rates, while savings rates of families with unmarried daughters appear uncorrelated with gender imbalances; and (b) savings rates of families in cities tend to rise with the local sex ratio; (iii) rising sex ratios contribute nearly half of the rise in housing prices in the People’s Republic of China; and (iv) families with sons in regions of greater sex ratios are more likely to become entrepreneurs and take risky jobs to earn more income.     

Heterogeneity effects on the management of retirement fund

This article studies the importance of plan members’ heterogeneity to the management of defined benefit (DB) pension fund. We propose a new multi-member model of DB pension fund that allows for heterogeneity in plan members’ retirement ages, salary growths and other characteristics. We first solve analytically for optimal management strategy and show that the sponsor’s supplementary contribution and the fund’s allocation in risky assets are determined by the cross-product between the fund’s expected retirement liabilities and some heterogeneity-adjusted discount factors. We then demonstrate that the presence of heterogeneity can have a significant influence on the optimal management strategy and that a management decision made while ignoring heterogeneity will be suboptimal. The knowledge of desirable and undesirable effects of heterogeneity that we uncover in this article also provides implications to the grouping of fund members. Introducing a presence of young member whose salary is positively correlated with the risky asset and avoid stacking members with negative correlations will all help the management.     

Global inequality and international trade

The paper analyses the effect of widespread trade liberalisationon global income inequality. The analysis of the trend in globalinequality during 1981–97, presented in the first partof the paper, shows that the apparent growth of income inequalityamong countries conceals a process of convergence. Some developingcountries achieved significantly faster economic growth thanthe advanced industrialised countries and, though small in number,they actually account for a majority of the population of thedeveloping world. Thus international inequality (i.e., the inequalityof distribution of per capita incomes among the world's population)in fact declined even though the inter-country income inequalityincreased. The analysis in the second part of the paper shows(i) that while improved trade performance did have a stimulatingeffect on growth performance of countries, trade liberalisationhad extremely varied effects on trade performance across countries,and (ii) that the distribution of benefits and costs of tradeliberalisation across countries has been such as to reduce internationalinequality without affecting inter-country inequality.     

The effect of public financial aid on dropout from and completion of university education: evidence from a student grant reform

There is limited and uncertain evidence on how financial aid affects dropout from or the completion of higher education. A large-scale reform of the Danish student grant and loan system that among others increased student grants by up to $3,000 per year (57 %) was used to identify causal effects of financial aid on outcomes for university students. Estimates were obtained from year-of-study specific models for students observed just before and after the reform, controlling for student, parental and labour-market characteristics. The estimates indicate that the reform lowered dropout rates, but had no overall effect on completion rates, although with substantial variation across population subgroups. The impact on dropout rates was found to be higher for students from a lower socio-economic background and the impact on completion rates was found to be higher three years after the designated study time to completion. The reform seems to have performed as intended by increasing the take-up of student grants and lowering work hours while studying.     

Corporate tax and location choice for multinational firms

This article examines the effects of corporate tax on these location decisions of newly established multinational subsidiaries across 26 European countries over an 8-year period. We contribute to the existing literature by examining the effects of a non-linear response of firm location decisions to changes in the tax rate. We also show that there are large variations in the sensitivity to tax rates across sectors and firm size groups. In particular, financial sector firms are more than twice as sensitive to changes in corporation tax rates relative to other sectors. Our baseline result is a finding that a 1% increase in the statutory or policy rate of corporation tax would lead to a reduction in the conditional location probability of 0.68%. Using the effective average tax rate, the marginal effect implies a reduction in the location probability of 1.15% following a 1% increase in the tax rate. Although overall tax has the expected negative effect on location probability, the marginal effect of an increase is lower at higher rates of tax.