nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2017‒10‒01
24 papers chosen by
Joseph Marchand
University of Alberta

  1. The Impact of State Medical Marijuana Laws on Social Security Disability Insurance and Workers' Compensation Benefit Claiming By Johanna Catherine Maclean; Keshar M. Ghimire; Lauren Hersch Nicholas
  2. Are They All Like Bill, Mark, and Steve? The Education Premium for Entrepreneurs By Michelacci, Claudio; Schivardi, Fabiano
  3. Signaling to Experts By Pablo Kurlat; Florian Scheuer
  4. Vocational and Career Tech Education in American High Schools: The Value of Depth Over Breadth By Daniel Kreisman; Kevin Stange
  5. Allocating Effort and Talent in Professional Labor Markets By Gadi Barlevy; Derek Neal
  6. The Non-Market Benefits of Education and Ability By James J. Heckman; John Eric Humphries; Gregory Veramendi
  7. The Effects of Cognitive and Noncognitive Skills on Migration Decisions By Bütikofer, Aline; Peri, Giovanni
  8. German Robots - The Impact of Industrial Robots on Workers By Dauth, Wolfgang; Findeisen, Sebastian; Südekum, Jens; Woessner, Nicole
  9. Does Student Work Really Affect Educational Outcomes? A Review of the Literature By Neyt, Brecht; Omey, Eddy; Verhaest, Dieter; Baert, Stijn
  10. The Short- and Long-Term Effects of Student Absence: Evidence from Sweden By Cattan, Sarah; Kamhöfer, Daniel A.; Karlsson, Martin; Nilsson, Therese
  11. Taxes and Market Hours: The Role of Gender and Skill By Duval Hernández, Robert; Fang, Lei; Ngai, L. Rachel
  12. Does the Adoption of Complex Software Impact Employment Composition and the Skill Content of Occupations? Evidence from Chilean Firms By Almeida, Rita K.; Fernandes, Ana Margarida; Viollaz, Mariana
  13. The creation and resolution of working hour discrepancies over the life course By Weber, Enzo; Zimmert, Franziska
  14. The Returns to Entrepreneurship: Evidence from Matched Person-Firm Data By van Praag, Mirjam C.; Raknerud, Arvid
  15. Environmental Regulation and Labor Demand: The Northern Spotted Owl By Ann E. Ferris
  16. Complementary Bias: A Model of Two-Sided Statistical Discrimination By Ashley C. Craig; Roland G. Fryer, Jr
  17. The Productivity Slowdown and the Declining Labor Share: A Neoclassical Exploration By Gene M. Grossman; Elhanan Helpman; Ezra Oberfield; Thomas Sampson
  18. Too Much of a Good Thing? Exporters, Multiproduct Firms and Labor Market Imperfections By Carsten Eckel; Stephen R. Yeaple
  19. The Impact of Trade on Inequality in Developing Countries By Pavcnik, Nina
  20. Before It Gets Better: The Short-Term Employment Costs of Regulatory Reforms By Bassanini, Andrea; Cingano, Federico
  21. Activation against Absenteeism: Evidence from a Sickness Insurance Reform in Norway By Hernaes, Øystein
  22. Gender Bias in Teaching Evaluations By Mengel, Friederike; Sauermann, Jan; Zölitz, Ulf
  23. Child Schooling and Child Work in the Presence of a Partial Education Subsidy By de Hoop, Jacobus; Friedman, Jed; Kandpal, Eeshani; Rosati, Furio C.
  24. General Equilibrium Effects of (Improving) Public Employment Programs: Experimental Evidence from India By Karthik Muralidharan; Paul Niehaus; Sandip Sukhtankar

  1. By: Johanna Catherine Maclean; Keshar M. Ghimire; Lauren Hersch Nicholas
    Abstract: We study the effect of state medical marijuana laws (MMLs) on Social Security Disability Insurance (SSDI) and Workers' Compensation (WC) claiming. We use data on benefit claiming drawn from the 1990 to 2013 Current Population Survey coupled with a differences-in-differences design. We find that passage of an MML increases SSDI, but not WC, claiming on both the intensive and extensive margins. Post-MML the propensity to claim SSDI increases by 0.27 percentage points (9.9%) and SSDI benefits increase by 2.6%. We identify heterogeneity by age and the manner in which states regulate medical marijuana. Our findings suggest an unintended consequence of MMLs: increased reliance on costly social insurance programs among working age adults.
    JEL: I1 I12 I18 J22
    Date: 2017–09
  2. By: Michelacci, Claudio; Schivardi, Fabiano
    Abstract: We rely on the Survey of Consumer Finances to study the return to education of US entrepreneurs since the late 1980s. We calculate the average yearly income that an entrepreneur expects to obtain during his venture, combining labor income, dividend payments, and capital gains upon selling the business. We find that the premium for postgraduate education has increased substantially more for entrepreneurs than for employees. Today an entrepreneur with a postgraduate degree earns on average \$100,000 a year more than one with a college degree. And the difference is substantially greater at the higher quantiles of the income distribution. In the late 1980s, the differences had been close to zero. The rise in the postgraduate premium is mainly due to increased complementarity between the advanced formal skills provided by higher education and the applied practical expertise acquired through past labor market experience. In combination, these two factors have become increasingly valuable to running successful businesses.
    Keywords: entrepreneurship; skill premium
    JEL: J24 J31 M13
    Date: 2017–09
  3. By: Pablo Kurlat; Florian Scheuer
    Abstract: We study competitive equilibrium in a signaling economy with heterogeneously informed buyers. In terms of the classic Spence (1973) model of job market signaling, firms have access to direct but imperfect information about worker types, in addition to observing their education. Firms can be ranked according to the quality of their information, i.e. their expertise. In equilibrium, some high type workers forgo signaling and are hired by better informed firms, who make positive profits. Workers’ education decisions and firms’ use of their expertise are strategic complements, allowing for multiple equilibria. We characterize wage dispersion and the extent of signaling as a function of the distribution of expertise among firms. The market can create insufficient or excessive incentives for firms to acquire information, and we provide a formula to measure this inefficiency. Our model can also be applied to a variety of other signaling problems, including securitization, corporate financial structure, insurance markets, or dividend policy.
    JEL: D4 D5 D8 G1 G2 H2 J2 J3 L1 L2 M3 M50
    Date: 2017–09
  4. By: Daniel Kreisman; Kevin Stange
    Abstract: Vocational education is a large part of the high school curriculum, yet we have little understanding of what drives vocational enrollment or whether these courses help or harm early careers. To address this we develop a framework for curriculum choice, taking into account ability and preferences for academic and vocational work. We test model predictions using detailed transcript and earnings information from the NLSY97. Our results are two-fold. First, students positively sort into vocational courses, suggesting the belief that low ability students are funneled into vocational coursework is unlikely true. Second, we find higher earnings among students taking more upper-level vocational courses – a nearly 2% wage premium for each additional year, yet we find no gain from introductory vocational courses. These results suggest (a) policies limiting students’ ability to take vocational courses may not be welfare enhancing, and (b) the benefits of vocational coursework accrue to those who focus on depth over breadth.
    JEL: I21 J24
    Date: 2017–09
  5. By: Gadi Barlevy; Derek Neal
    Abstract: In many professional service firms, new associates work long hours while competing in up-or-out promotion contests. Our model explores why these firms require young professionals to take on heavy workloads while simultaneously facing significant risks of dismissal. We argue that the productivity of skilled partners in professional service firms (e.g. law, consulting, investment banking, and public accounting) is quite large relative to the productivity of their peers who are competent and experienced but not well-suited to the partner role. Therefore, these firms adopt personnel policies that facilitate the identification of new partners. In our model, both heavy workloads and up-or-out rules serve this purpose. Firms are able to identify more professionals who can function effectively as partners when they require new associates to perform more tasks. Further, when firms replace experienced associates with new workers, they gain the opportunity to identify talented professionals who will have long careers as partners. Both of these personnel practices are costly. However, when the gains from increasing the number of talented partners exceed these costs, firms employ both practices in tandem. We present evidence on life-cycle patterns of hours and earnings among lawyers that supports our claim that both heavy workloads and up-or-out rules are screening mechanisms.
    JEL: J01 J22 J44 M51
    Date: 2017–09
  6. By: James J. Heckman (The University of Chicago); John Eric Humphries (Yale University); Gregory Veramendi (W.P. Carey School of Business, Arizona State University)
    Abstract: This paper analyzes the non-market benefits of education and ability. Using a dynamic model of educational choice we estimate returns to education that account for selection bias and sorting on gains. We investigate a range of non-market outcomes including incarceration, mental health, voter participation, trust, and participation in welfare. We find distinct patterns of returns that depend on the levels of schooling and ability. Unlike the monetary benefits of education, the benefits to education for many non-market outcomes are greater for low-ability persons. College graduation decreases welfare use, lowers depression, and raises self-esteem more for less-able individuals.
    Keywords: education, Inequality, returns to education, government policy, health inequality, household behavior, family economics
    JEL: I14 I24 I28 D10
    Date: 2017–09
  7. By: Bütikofer, Aline (Dept. of Economics, Norwegian School of Economics and Business Administration); Peri, Giovanni (UC Davis)
    Abstract: There is growing evidence that cognitive and noncognitive skills affect the economic and social outcomes of individuals. In this paper, we analyze how they affect the migration decisions of individuals during their lifetimes. We use data that combine military enlistment and administrative records for the male population born in 1932 and 1933 in Norway. Records of interviews with a psychologist at age 18 allow us to construct an index of `sociability' and `adaptability' for each individual, as well as an index of cognitive ability, the intelligence quotient. We find that adaptability and cognitive ability have significant and positive impacts on the probability of an individual migrating out of his area, whether this involves rural{urban, long distance, or international migration. Adaptability has a particularly strong impact on migration for individuals with low cognitive skills, implying a strong positive selection of less educated migrants with respect to the (previously unobserved) adaptability skill. We also show that cognitive skills have a strong positive effect on the pre- and post-migration wage differential, whereas adaptability has no significant effect. Moreover, individuals with high cognitive ability migrate to areas with large wage returns to cognitive abilities, whereas this is not true for individuals with high adaptability. This evidence suggests that adaptability reduces the psychological cost of migrating, whereas cognitive skills increase the monetary returns associated with migration.
    Keywords: Noncognitive Skills; Mobility Costs; Returns to Migration
    JEL: J24 J61 R23
    Date: 2017–09–19
  8. By: Dauth, Wolfgang; Findeisen, Sebastian; Südekum, Jens; Woessner, Nicole
    Abstract: We study the impact of rising robot exposure on the careers of individual manufacturing workers, and the equilibrium impact across industries and local labor markets in Germany. We find no evidence that robots cause total job losses, but they do affect the composition of aggregate employment. Every robot destroys two manufacturing jobs. This accounts for almost 23% of the overall decline of manufacturing employment in Germany over the period 1994 - 2014, roughly 275,000 jobs. But this loss was fully offset by additional jobs in the service sector. Moreover, robots have not raised the displacement risk for incumbent manufacturing workers. Quite in contrast, more robot exposed workers are even more likely to remain employed in their original workplace, though not necessarily performing the same tasks, and the aggregate manufacturing decline is solely driven by fewer new jobs for young labor market entrants. This enhanced job stability for insiders comes at the cost of lower wages. The negative impact of robots on individual earnings arises mainly for medium-skilled workers in machine-operating occupations, while high-skilled managers gain. In the aggregate, robots raise labor productivity but not wages. Thereby they contribute to the decline of the labor income share.
    Keywords: Germany; labor market effects; robots; skill-biased technological change
    JEL: F16 J24 O33 R11
    Date: 2017–09
  9. By: Neyt, Brecht (Ghent University); Omey, Eddy (Ghent University); Verhaest, Dieter (KU Leuven); Baert, Stijn (Ghent University)
    Abstract: We review the theories put forward, methodological approaches used, and empirical conclusions found in the multidisciplinary literature on the relationship between student employment and educational outcomes. A systematic comparison of the empirical work yields new insights that go beyond the overall reported negative effect of more intensive working schemes and that are of high academic and policy relevance. One such insight uncovered by our review is that student employment seems to have a more adverse effect on educational choices and behaviour (study engagement and the decision to continue studying) than on educational performance (in particular, graduation).
    Keywords: student employment, education, self-selection, review
    JEL: I21 J22 J24
    Date: 2017–09
  10. By: Cattan, Sarah (Institute for Fiscal Studies, London); Kamhöfer, Daniel A. (University of Paderborn); Karlsson, Martin (University of Duisburg-Essen); Nilsson, Therese (Lund University)
    Abstract: Instructional time is seen as an important determinant of school performance, but little is known about the effects of student absence. Combining historical records and administrative data for Swedish individuals born in the 1930s, we examine the impacts of absence in elementary school on short-term academic performance and long-term socio-economic outcomes. Our siblings and individual fixed effects estimates suggest absence has a moderate adverse effect on academic performance. The detrimental effect fades out over time. While absence negatively correlates with final education, income and longevity, we only find robust evidence that it lowers the probability of employment at age 25–30.
    Keywords: absence in school, educational performance, long-term effects, register data
    JEL: C23 I14 I21
    Date: 2017–09
  11. By: Duval Hernández, Robert (University of Cyprus); Fang, Lei (Federal Reserve Bank of Atlanta); Ngai, L. Rachel (London School of Economics)
    Abstract: Cross-country differences of market hours in 17 OECD countries are mainly due to the hours of women, especially low-skilled women. This paper develops a model to account for the gender-skill differences in market hours across countries. The model explains a substantial fraction of the differences in hours by taxes, which reduce market hours in favor of leisure and home production, and by subsidized care, which frees (mostly) women from home care in favor of their market hours. Low-skilled women are more responsive to policy because of their low market returns and their comparative advantage in home activities.
    Keywords: cross-country differences in market hours, home production, subsidies on family care
    JEL: E24 E62 J22
    Date: 2017–09
  12. By: Almeida, Rita K. (World Bank); Fernandes, Ana Margarida (World Bank); Viollaz, Mariana (CEDLAS-UNLP)
    Abstract: A major concern with the rapid spread of technology is that it replaces some jobs, displacing workers. However, technology may raise firm productivity, generating more jobs. The paper contributes to this debate by exploiting a novel panel data set for Chilean firms in all sectors between 2007 and 2013. While previous studies examine the impacts of automation on the use of routine tasks by middle-educated workers, this study focuses on a measure of complex software that is typically used by more educated workers in cognitive and nonroutine tasks for client, production, and business management. The instrumental variables estimates show that in the medium run, firms' adoption of complex software affects firms' employment decisions and the skill content of occupations. The adoption of complex software reallocates employment from skilled workers to administrative and unskilled production workers. This reallocation leads to an increase in the use of routine and manual tasks and a reduction in the use of abstract tasks within firms. Interestingly, the impacts tend to be concentrated in sectors with a less educated workforce, suggesting that technology can constrain job creation for the more skilled workers there. The paper concludes that the type of technology matters for understanding the impacts of technology adoption on the labor market.
    Keywords: complex software, tasks, skills, employment structure, Chile
    JEL: J23 J24 J31 O33
    Date: 2017–09
  13. By: Weber, Enzo (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Zimmert, Franziska (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "Studies on labor supply have increasingly taken account of not only the actual working hours, but also of working hour preferences as well as the discrepancy between them. However, longitudinal research on this topic remains scarce. This paper contributes to the analysis of working hour discrepancies by exploring how hours mismatch emerges and resolves with special consideration of the household context. We use a rich longitudinal data set, the German Socio-economic panel (GSOEP), for a discrete duration analysis applying a fixed effects-logit estimator. With special consideration of the household context, the findings suggest that female underemployment is strongly related to household responsibilities impeding the mismatch resolution. On the contrary, the creation of female overemployment is linked to higher qualification and job autonomy. In those positions working hour discrepancies also turn out to be persistent. Male hour constraints can be associated to job positions in a similar way. Nevertheless, the results also show that household responsibilities are less important for both male under- and overemployed." (Author's abstract, IAB-Doku) ((en))
    JEL: J21 J22 C23 C41
    Date: 2017–09–19
  14. By: van Praag, Mirjam C. (Copenhagen Business School); Raknerud, Arvid (Statistics Norway)
    Abstract: Empirical studies show low pecuniary returns of switching from wage employment to entrepreneurship. We reconsider the pecuniary gains of this switching by employing a two-stage procedure, where the randomness in the timing of inheritance transfers is used as an exclusion restriction to identify causal effects. The model is estimated on data covering the whole Norwegian population of individuals matched to the entire population of firms established in the period 2002-2011. The results indicate that the average returns to entrepreneurship are significantly negative for individuals entering entrepreneurship through self-employment and modest, but significantly positive, for incorporated startups.
    Keywords: returns to entrepreneurship, earnings distribution, matched person-firm data, self-employment, random effects probit model
    JEL: L26 C23 J31 G32
    Date: 2017–09
  15. By: Ann E. Ferris
    Abstract: Environmental regulation can impact local labor markets, potentially reducing incomes and employment and inducing reallocation across sectors. The labor market consequences of environmental regulation are difficult to isolate because regulations frequently apply to large areas, such as the entire United States, and researchers cannot directly observe the counterfactual, in the absence of regulation. I claim that protection of the northern spotted owl in the Pacific Northwest in the 1990s led to an exogenous decline in labor demand in that region. I use this policy change to identify the local and regional impacts of endangered species regulation on employment and incomes in the timber industry. I estimate the local labor market impact of owl protection by comparing counties in the region with and without owl-protected areas. Depending on the choice of control areas and the inclusion of additional control factors, northern spotted owl protection plausibly led to a small loss of incomes and employment in the region.
    Keywords: employment effects, labor market impacts, environmental policy
    JEL: Q52 R11
    Date: 2017–09
  16. By: Ashley C. Craig; Roland G. Fryer, Jr
    Abstract: We introduce a model of two-sided statistical discrimination in which worker and firm beliefs are complementary. Firms try to infer whether workers have made investments required for them to be productive, and simultaneously, workers try to deduce whether firms have made investments necessary for them to thrive. When multiple equilibria exist, group differences can be generated and sustained by either side of the interaction – workers or firms. Strategic complementarity complicates both empirical analysis designed to detect discrimination and policy meant to alleviate it. Affirmative action is much less effective than in traditional statistical discrimination models. More generally, we demonstrate the futility of one-sided policies to correct gender and racial disparities. We analyze a two-sided version of “investment insurance” – a policy in which the government (after observing a noisy version of the employer’s signal) offers to hire any worker who it believes to be qualified and whom the employer does not offer a job – and show that in our model it (weakly) dominates any alternative. The paper concludes by proposing a way to identify statistical discrimination when beliefs are complements.
    JEL: D0 D21 J0 J15 J16 J24 J7
    Date: 2017–09
  17. By: Gene M. Grossman; Elhanan Helpman; Ezra Oberfield; Thomas Sampson
    Abstract: We explore the possibility that a global productivity slowdown is responsible for the widespread decline in the labor share of national income. In a neoclassical growth model with endogenous human capital accumulation a la Ben Porath (1967) and capital-skill complementarity a la Grossman et al. (2017), the steady-state labor share is positively correlated with the rates of capital-augmenting and labor-augmenting technological progress. We calibrate the key parameters describing the balanced growth path to U.S. data for the early postwar period and find that a one percentage point slowdown in the growth rate of per capita income can account for between one half and all of the observed decline in the U.S. labor share.
    JEL: E13 E25 J24 O41
    Date: 2017–09
  18. By: Carsten Eckel; Stephen R. Yeaple
    Abstract: International trade is primarily conducted by large, multiproduct firms (MPFs) that pay above average wages and exhibit high productivity. In this paper we show that if firms can invest in management technologies for identifying worker skill then they will enjoy a form of market power in the labor market that artificially lowers their labor costs. This market failure results in excessive consumption of resources by large, productive exporting firms relative to the social optimum. Trade liberalization then has an ambiguous effect on aggregate welfare: lower trade costs increase access to foreign goods but also exacerbates the labor market distortion as resources are transferred to large firms. The model highlights the need to know why firms "excel" before drawing welfare conclusions regarding cross firm reallocations of resources.
    JEL: F1 F16 J31 J42
    Date: 2017–09
  19. By: Pavcnik, Nina
    Abstract: This paper assesses the current state of evidence on how international trade shapes inequality and poverty through its influence on earnings and employment opportunities. While the focus is mainly on developing countries, in part because we have more evidence in that context, the discussion draws parallels to the empirical evidence from developed countries. The paper also discusses perceptions about international trade in over 40 countries at different levels of development, including perceptions on trade's overall benefits for the economy, trade's effect on the livelihood of workers through wages and jobs, and trade's contribution to inequality. The paper concludes with a survey of evidence on several policies that could mitigate the adverse effects of import competition.
    Keywords: inequality; Informality; Local Labor Markets; poverty; trade policy
    JEL: F10 F13 F14 F16 J2 O17 O24
    Date: 2017–09
  20. By: Bassanini, Andrea (OECD); Cingano, Federico (Bank of Italy)
    Abstract: We exploit long time series of industry-level data in a group of OECD countries to analyze the short-term labor market effects of reforms lowering barriers to entry and dismissal costs. Our estimates show that both policies induce non-negligible transitory employment losses, a result that is confirmed by complementary evidence from case studies of three recently implemented EPL reforms. The strength of these effects varies depending on the underlying industry and labor market structure, and on cyclical conditions: the employment cost of deregulation is higher in economic downturns, negligible in good times. These findings prove robust to a set of specification and sensitivity checks, and are confirmed after standard reverse causality and falsification tests.
    Keywords: product market regulation, EPL, employment losses, industry data
    JEL: J23 L51 L11
    Date: 2017–09
  21. By: Hernaes, Øystein (Institute for Social Research, Oslo)
    Abstract: I evaluate a program aimed at strictly enforcing a requirement that people on long-term sick leave be partly back at work unless explicitly defined as an exception. Employing the synthetic control method, I find that the reform reduced work-hours lost due to absenteeism by 12 % in the reform region compared to a comparison unit created by a weighted average of similar regions. The effect is driven by both increased part-time presence of temporary disabled workers and accelerated recovery. Musculoskeletal disorders was the diagnosis group declining the most. The findings imply large savings in social security expenditures.
    Keywords: absenteeism, disability, activation, forkfare
    JEL: I18 I38 J48
    Date: 2017–09
  22. By: Mengel, Friederike (University of Essex); Sauermann, Jan (SOFI, Stockholm University); Zölitz, Ulf (briq)
    Abstract: This paper provides new evidence on gender bias in teaching evaluations. We exploit a quasi-experimental dataset of 19,952 student evaluations of university faculty in a context where students are randomly allocated to female or male instructors. Despite the fact that neither students' grades nor self-study hours are affected by the instructor's gender, we find that women receive systematically lower teaching evaluations than their male colleagues. This bias is driven by male students' evaluations, is larger for mathematical courses and particularly pronounced for junior women. The gender bias in teaching evaluations we document may have direct as well as indirect effects on the career progression of women by affecting junior women's confidence and through the reallocation of instructor resources away from research and towards teaching.
    Keywords: gender bias, teaching evaluations, female faculty
    JEL: J16 J71 I23 J45
    Date: 2017–09
  23. By: de Hoop, Jacobus (UNICEF Office of Research, Innocenti); Friedman, Jed (World Bank); Kandpal, Eeshani (World Bank); Rosati, Furio C. (University of Rome Tor Vergata)
    Abstract: Could a partial subsidy for child education increase children's participation in paid work? In contrast to much of the theoretical and empirical child labor literature, this paper shows that child work and school participation can be complements under certain conditions. Using data from the randomized evaluation of a conditional cash transfer program in the Philippines, the analysis finds that some children, who were in neither school nor work before the program, increased participation in school and work-for-pay after the program. Earlier cash transfer programs, notably those in Mexico, Brazil, and Ecuador, increased school attendance while reducing child labor. Those programs fully offset schooling costs, while the transfers under the Philippine transfers fall short of the full costs of schooling for a typical child. As a result, some beneficiary children from poor Philippine households increased work to support their schooling. The additional earnings from this work represent a substantive share of the shortfall in the schooling costs net of transfer. The paper rules out several potential alternative explanations for the increase in child labor, including changes in household productive activities, adult labor supply, and household expenditure patterns that, in principle, can arise after a cash transfer and may also affect the supply of or demand for child labor.
    Keywords: cash transfers, child labor, education, education subsidy, Philippines
    JEL: C93 I21 J22 O22
    Date: 2017–09
  24. By: Karthik Muralidharan; Paul Niehaus; Sandip Sukhtankar
    Abstract: Public employment programs play a large role in many developing countries' anti-poverty strategies, but their net impact on the incomes of the poor will depend on both direct program earnings as well as indirect effects through changes induced in market wages and employment. We estimate this composite effect, exploiting a large-scale randomized experiment across 157 sub-districts and 19 million people that substantially improved the implementation of India's rural employment guarantee scheme. Despite no changes in government expenditure on the program itself, the earnings of low-income households rose 13%, driven overwhelmingly by market (90%) as opposed to program earnings (10%). Low-skilled wages increased 6% and days without paid work fell 7%, while migration and prices were unaffected. Effects on wages, employment, and income also spilled over into neighboring sub-districts, and estimates of program impact that adjust for these spillovers are substantially larger, typically double the unadjusted magnitudes. These results suggest that well-implemented public works programs can be highly effective at reducing poverty. They also highlight the importance of general equilibrium effects in program evaluation, and the feasibility of studying them using large-scale experiments.
    JEL: D50 D73 H53 J38 J43 O18
    Date: 2017–09

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