Category: 2023

Estimating Returns to Schooling and Experience: A History of Thought

2023, Authors, Barry Chiswick, Working Papers

November 2023

Barry Chiswick (George Washington University)

IIEP working paper 2023-12

Abstract: This paper is a review of the literature in economics up to the early 1980s on the issue of estimating the earnings return to schooling and labor market experience. It begins with a presentation of Adam Smith’s (1776) analysis of wage determination, with the second of his five points on compensating wage differentials being “the easiness or cheapness, or the difficulty and expense” of acquiring skills. It then proceeds to the analysis by Walsh (1935) estimating the net present value of investments at various levels of educational attainment. Friedman and Kuznets (1945) also used the net present value method to study the earnings in five independent professional practices. Based on the net present value technique, Becker (1964) estimates internal rates of return from high school and college/university schooling, primarily for native-born white men, but also for other demographic groups.
The first regression-based approach is the development of the schooling-earnings function by Becker and Chiswick (1966), which relates the logarithm of earnings, as a linear function of years invested in human capital, with the application to years of schooling. This was expanded by Mincer (1974) to the “human capital earnings function” (HCEF), which added years of post-school labor market experience. Attractive features of the HCEF are discussed. Extensions of the HCEF in the 1970s and early 1980s account for interrupted labor marker experience, geographic mobility, and self-employment and unpaid family workers.

JEL Codes: I24, I26, J3, J46, J61, O15, B290

Key Words: Human Capital, Schooling Earnings Function, Human Capital Earnings Function, Schooling, Labor Market Experience, Women, Immigrants, Less Developed Countries, Self-Employed, Unpaid Workers

Illuminating Africa?

2023, Authors, Tanner Regan, Working Papers

November 2023

Tanner Regan (George Washington University)
Giorgio Chiovelli (Universidad de Montevideo)
Stelios Michalopoulos (Brown University, CEPR and NBER)
Elias Papaioannou (London Business School, CEPR)

IIEP working paper 2023-11

Abstract: Satellite images of nighttime lights are commonly used to proxy local economic conditions. Despite their popularity, there are concerns about how accurately they capture local development in low-income settings and different scales. We compile a yearly series of comparable nighttime lights for Africa from 1992 to 2020, considering key factors that affect accuracy and comparability over time: sensor quality, top coding, blooming, and, importantly, variations in satellite systems (DMPS and VIIRS) using an ensemble, machine learning, approach. The harmonized luminosity series outperforms the unadjusted series as a stronger predictor of local development, particularly over time and at higher spatial resolutions.

JEL Codes: O1, R1, E01, I32

Keywords: Night Lights, Economic Development, Measurement, Africa

International Spillovers of Quality Regulations

2023, Ariel Weinberger, Authors, Working Papers

June 2023

Ariel Weinberger (George Washington University)
Luca Macedoni (Aarhus University)

IIEP working paper 2023-10

Abstract: This paper investigates the positive international spillover effects of non-discriminatory product regulations, such as quality standards. We incorporate regulations into a multi-country general equilibrium framework with firm heterogeneity and variable markups. We model regulations as a fixed cost that any firm selling to an economy must pay, consistent with stylized facts that we present. We demonstrate that in the presence of variable markups, the fixed cost generates a positive spillover on the rest of the world as it induces entry of high-quality firms, and it improves the terms of trade of the non-imposing countries. We argue that the benefits of such regulations are not fully realized under non-cooperative policy settings, leading to a call for international cooperation in setting regulations. We estimate our model and apply its gravity formulation to quantify the global welfare consequences of altering regulatory policies, the extent of the positive externalities across countries, the effects of cooperation, and the comparison with further tariff liberalization. Our analysis reveals that the entry of new high-quality firms, rather than changes in terms of trade, is the main quantitative driver of international spillovers.

JEL Codes: F12, F13, L11

Keywords: Allocative Efficiency, International Spillover, Quality Standards, Variable Markups, Trade Policy

Outward and Upward Construction: A 3D Analysis of the Global Building Stock

2023, Authors, Remi Jedwab, Working Papers

October 2023

Remi Jedwab (GWU & NYU)
Thomas Esch (DLR-DFD)
Klaus Deininger (World Bank)
Daniela Palacios-Lopez (DLR-DFD)

IIEP working paper 2023-09

Abstract: The developing world has built structures on an unprecedented scale to accommodate population growth, demographic change, and urbanisation. The horizontal and vertical structuring of the building stock resulting from this “megatrend construction” strongly influences urban and rural poverty, sustainability, resilience, and quality of life. However, due to data constraints, little is known about how and why 3D building patterns vary globally, and in the developing world in particular. This study uncovers novel facts on global 3D building patterns as a result of outward and upward preferences in construction and investigates their relation to the development process. To this end, novel ground-breaking high-resolution data on the area, height, and volume of the global building stock is combined with a unique series of analyses undertaken at different spatial domains. The results show that building stocks per capita increase convexly with income, but that income only explains two-thirds of international volume differences. Additionally, while building upwards systematically drives international volume differences, low-rise buildings, not high-rise buildings, still dominate construction patterns. Also, megatrend construction is not just a phenomenon of megacities, as small settlements account for the largest share of global building volume. Finally, the presented analyses on construction preferences help assess construction needs by providing crowding measures and forecasting volume requirements in major developing economies.

Keywords: World in 3D; Construction; Urbanization; Vertical and Horizontal Expansion; Development Process; Global Socio-Economic Development; Housing; Poverty; Sustainability

Missing Persons: The case of public participation in AI strategies

2023, Global Governance, Susan Aaronson, Working Papers

August 2023

Susan Aaronson (George Washington University)
Adam Zable (Digital Trade and Data Governance Hub)

IIEP working paper 2023-08

Abstract: Governance requires trust. If policy makers inform, consult and involve citizens in decisions, policy makers are likely to build trust in their efforts. Public participation is particularly important as policy makers seek to govern data-driven technologies such as artificial intelligence (AI). Although many users rely on AI systems, they do not understand how these systems use their data to make predictions and recommendations that can affect their daily lives. Over time, if they see their data being misused, users may learn to distrust both the system and how policy makers regulate them. Hence, it seems logical that policy makers would make an extra effort to inform and consult their citizens about how to govern AI systems. This paper examines whether officials informed and consulted their citizens as they developed a key aspect of AI policy — national AI strategies. According to the Organisation for Economic Co-operation and Development (OECD), such strategies articulate how the government sees the role of AI in the country and its contribution to the country’s social and economic development. They also set priorities for public investment in AI and delineate research and innovation priorities. Most high-middle-income and high-income nations have drafted such strategies. Building on a data set of 68 countries and the European Union, qualitative methods were used to examine whether, how and when governments engaged with their citizens on their AI strategies and whether they were responsive to public comment. The authors did not find any country which modeled responsive democratic decision making in which policy makers invited public comment, reviewed these comments and made changes in a collaborative manner. As of October 2022, some 43 of the 68 nations and the EU sample had an AI strategy, but only 18 nations attempted to engage their citizens in the strategy’s development. Moreover, only 13 of these nations issued an open invitation for public comment and only four of these 13 provided evidence that public inputs helped shape the final text. Few governments made efforts to encourage their citizens to provide such feedback. As a result, in many nations, policy makers received relatively few comments. The individuals who did comment were generally knowledgeable about AI, while the general public barely participated. Policy makers are therefore missing an opportunity to build trust in AI by not using this process to involve a broader cross-section of their constituents.

JEL Codes: P48, P51, 038

Keywords: trust, AI, political participation, governance

Data Dysphoria: The Governance Challenge Posed by Large Learning Models for Generative AI

2023, Susan Aaronson, Working Papers

August 2023

Susan Aaronson (George Washington University)

IIEP working paper 2023-07

Abstract: Only 8 months have passed since Chat-GPT and the large learning model underpinning it took the world by storm. This article focuses on the data supply chain—the data collected and then utilized to train large language models and the governance challenge it presents to policymakers These challenges include: • How web scraping may affect individuals and firms which hold copyrights. • How web scraping may affect individuals and groups who are supposed to be protected under privacy and personal data protection laws. • How web scraping revealed the lack of protections for content creators and content providers on open access web sites; and • How the debate over open and closed source LLM reveals the lack of clear and universal rules to ensure the quality and validity of datasets. As the US National Institute of Standards explained, many LLMs depend on “largescale datasets, which can lead to data quality and validity concerns. “The difficulty of finding the “right” data may lead AI actors to select datasets based more on accessibility and availability than on suitability… Such decisions could contribute to an environment where the data used in processes is not fully representative of the populations or phenomena that are being modeled, introducing downstream risks” –in short problems of quality and validity (NIST: 2023, 80). Thie author uses qualitative methods to examine these data governance challenges. In general, this report discusses only those governments that adopted specific steps (actions, policies, new regulations etc.) to address web scraping, LLMs, or generative AI. The author acknowledges that these examples do not comprise a representative sample based on income, LLM expertise, and geographic diversity. However, the author uses these examples to show that while some policymakers are responsive to rising concerns, they do not seem to be looking at these issues systemically. A systemic approach has two components: First policymakers recognize that these AI chatbots are a complex system with different sources of data, that are linked to other systems designed, developed, owned, and controlled by different people and organizations. Data and algorithm production, deployment, and use are distributed among a wide range of actors who together produce the system’s outcomes and functionality Hence accountability is diffused and opaque(Cobbe et al: 2023). Secondly, as a report for the US National Academy of Sciences notes, the only way to govern such complex systems is to create “a governance ecosystem that cuts across sectors and disciplinary silos and solicits and addresses the concerns of many stakeholders.” This assessment is particularly true for LLMs—a global product with a global supply chain with numerous interdependencies among those who supply data, those who control data, and those who are data subjects or content creators (Cobbe et al: 2023).

JEL Codes: 033, 034, 036, 038, P51

Key Words: data, data governance, personal data, property rights, open data, open source, governance

The Effects of Climate Change in the Poorest Countries: Evidence from the Permanent Shrinking of Lake Chad

2023, Authors, Remi Jedwab, Working Papers

August 2023

Remi Jedwab (George Washington University)
Federico Haslop (George Washington University)
Roman D. Zarate (World Bank)
Carlos Rodríguez–Castelán (World Bank)

IIEP working paper 2023-06

Abstract: Empirical studies of the economic effects of climate change (CC) largely rely on climate anomalies for causal identification purposes. Slow and permanent changes in climate-driven geographical conditions, i.e. CC as defined by the IPCC (2013), have been studied relatively less, especially in Africa which remains the most vulnerable continent to CC. We focus on Lake Chad, which used to be the 11th-largest lake in the world. This African lake the size of El Salvador, Israel, or Massachusetts slowly shrunk by 90% for exogenous reasons between 1963 and 1990. While water supply decreased, land supply increased, generating a priori ambiguous effects. These effects make the increasing global disappearance of lakes a critical trend to study. For Cameroon, Chad, Nigeria, and Niger – 25% of sub-Saharan Africa’s population –, we construct a novel data set tracking population patterns at a fine spatial level from the 1940s to the 2010s. Difference-in-differences show much slower growth in the proximity of the lake, but only after the lake started shrinking. These effects persist two decades after the lake stopped shrinking, implying limited adaptation. Additionally, the negative water supply effects on fishing, farming, and herding outweighed the growth in land supply and other positive effects. A quantitative spatial model used to rationalize these results and estimate aggregate welfare losses taking into account adaptation shows overall losses of about 6%. The model also allows us to study the aggregate and spatial effects of policies related to migration, land use, trade, roads, and cities.

JEL Codes: Q54; Q56; Q15; Q20; R11; R12; O13; O44

Key Words: Climate Change; Aridification; Shrinkage of Lakes; Natural Disasters; Environment; Water Supply; Land Supply; Rural Decline; Agricultural Sectors; Adaptation; Land Use; Africa

The Role of Social Connections in the Racial Segregation of US Cities

2023, Authors, Tanner Regan, Working Papers

July 2023

Tanner Regan (George Washington University)
Andreas Diemer (Stockholm University (SOFI))
Cheng Keat Tang (Nanyang Tech. University)

IIEP working paper 2023-05

Abstract: We study the extent of segregation in the social space of urban America. We measure segregation as the (lack of) actual personal connections between groups as opposed to conventional measures based on own neighbourhood composition. We distinguish social segregation from geographical definitions of segregation, and build and compare city-level indices of each. Conditional on residential segregation, cities with more institutions that foster social cohesion (churches and community associations) are less socially segregated. Looking at within-city variation across neighbourhoods, growing up more socially exposed to non-white neighbourhoods is related to various adulthood outcomes (jailed, income rank, married, and non-migrant) for black individuals. Social exposure to non-white neighbourhoods is always related to worsening adulthood outcomes in neighbourhoods that are majority non-white. Our results suggest that social connections, beyond residential location or other spatial relationships, are important for understanding the effective segregation of race in America.

JEL Codes: R23, J15

Key Words: Residential and Social Segregation, Networks, Social connectedness

Public Disclosure and Tax Compliance: Evidence from Uganda

2023, Authors, Tanner Regan, Working Papers

June 2023

Tanner Regan (George Washington University)
Priya Manwaring (University of Oxford)

IIEP working paper 2023-04

Abstract: Public disclosure of tax behavior is a promising policy tool for raising tax compliance in low-income countries with limited capacity for alternative enforcement mechanisms. Through a field experiment involving over 65,000 taxpayers in Kampala, we study effects of reporting delinquents and recognizing compliers and provide evidence on the social determinants of tax compliance. The threat of publicly disclosing delinquency raises compliance, but subsequently disseminating delinquent behavior lowers compliance of others. Public recognition backfires, lowering compliance both for those promised recognition and for those who receive information about compliant taxpayers. These results are consistent with a model of tax evasion with privacy costs to tax eligibility status and limited shame of delinquency. Disseminating tax behavior reduces compliance by lowering compliance beliefs as measured in survey data. Overall, public disclosure policies in this context are limited at raising revenue and enforcement reminder nudges more effective.

JEL Codes: O18, H30, H26

Key Words: property tax, tax morale, public disclosure, shaming

The Occupational Attainment of American Jewish Men in the Mid-19th Century

2023, Authors, Barry Chiswick, Working Papers

March 2023

Barry R. Chiswick (George Washington University)
RaeAnn H. Robinson (George Washington University)

IIEP working paper 2023-03

Abstract: This paper is concerned with analyzing the occupational status of American Jewish men compared to other free men in the mid–19th century to help fill a gap in the literature. It does this by using the 1/100 microdata sample from the 1850 Census of Population, the first census to ask occupation. Two independent lists of surnames are used to identify men with a higher probability of being Jewish. The men identified as Jews had a higher probability of being professionals, managers, and craft workers, and were less likely to be in farm occupations or in operative jobs. Using the Duncan Socioeconomic Index (SEI), the Jewish men have a higher SEI overall. In the multiple regression analysis, it is found that among Jewish and other free men occupational status increases with age (up to about age 44 for all men), literacy, being married, being native born, living in the South, and living in an urban area. Controlling for a set of these variables, Jews have a significantly higher SEI, which is the equivalent of about half the size of the effect of being literate. This higher occupational status is consistent with patterns found elsewhere for American Jews throughout the 20th century.

JEL Codes: N31, J62, J15

Key Words: Jews, Occupational Status, Duncan Socioeconomic Index, 1850 Census of Population, Antebellum America, Labor Market Analysis, Human Capital

Early pension withdrawal as stimulus

2023, Authors, Steven Hamilton, Working Papers

February 2023

Steven Hamilton (George Washington University)
Geoffrey Liu (Harvard University)
Tristram Sainsbury (Australian National University)

IIEP working paper 2023-02

Abstract: During the COVID-19 pandemic, the Australian government allowed eligible individuals to withdraw up to A$20,000 (around half median annual wage income) across two tranches from their retirement accounts, ordinarily inaccessible until retirement. Based on historical returns, the modal withdrawal by the modal-aged withdrawer can be expected to reduce their balance at retirement by more than $120,000 in today’s dollars. One in six working-age people withdrew a total of $38 billion (on average, 51% of their balances). These transfers represented a liquidity shock and were much larger than those considered in the literature to date. Using administrative and weekly bank transactions data, we find a high marginal propensity to spend (MPX) given the size of the transfers of at least 0.43 within eight weeks, spread broadly across categories (including around half or more on non-durables) and across withdrawers. The response to the second withdrawal, which two-thirds returned for and which occurred after activity had recovered, was even larger at 0.48. Withdrawal and spending are predicted strongly by numerous measures of poor financial health, high pre-withdrawal rates of cash withdrawal and gambling, and younger age. The MPX of rational, forward-looking but liquidity constrained consumers can be expected to asymptote to zero as the transfer size rises, while that of present-biased consumers can be expected to remain high. Our findings overwhelmingly are consistent with the latter, suggesting roughly 80% of withdrawers were present-biased. In selecting strongly on the present-biased, the program presents a sharp trade-off between effective macroeconomic stimulus and suboptimal retirement saving policy.

JEL Codes: E21, E63, E71, H31, H55, J32

Key Words: Stimulus, retirement saving, marginal propensity to consume, present bias

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