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Research
Does Raising the
Minimum Wage Help the Poor?, Economic Record, 2007
What is the impact of raising the minimum
wage on family incomes? Analysing the characteristics of low wage
workers, I find that those who earn near-minimum wages are
disproportionately female, unmarried and young, without post-school
qualifications and overseas born. About one-third of near-minimum wage
workers are the sole worker in their household. Due to low labour force
participation rates in the poorest households, minimum wage workers are
most likely to be in middle-income households. Using various plausible
parameters for the effect of minimum wages on hourly wages and
employment, I estimate the impact of a minimum wage rise on inequality.
Media
The Australian, 26 November 2005
Australian Financial Review, 22 October 2005
Earned Income Tax
Credits and Labor Supply: New Evidence from a British Natural Experiment, National Tax Journal, 2007
(Discussion paper version: ANU CEPR Discussion Paper
488)
With many countries considering the adoption of a system of earned income tax credits, it is useful to analyze how different types of credits affect labor supply and earnings. This paper focuses on a 1999 reform to the UK tax credit system, which increased the value of the credit and reduced the phase-out rate. Using panel data, with individual fixed effects, I compare eligibles and ineligibles within five groups: all individuals; those whose demographic characteristics predict that they will have low earnings; single women; women in couples; and men in couples. Over a 15-month period, boosting the credit appears to have raised the labor participation rates, hours, and earnings of those who were eligible to receive it.
Who Benefits from the Earned Income Tax Credit? Incidence Among Recipients, Coworkers and Firms, Revised July 2007 (first version November 2003)
How are hourly wages affected by the Earned Income Tax Credit? Using variation in state EITC supplements, I find that a 10 percent increase in the generosity of the EITC is associated with a 4 percent fall in the wages of high school dropouts and a 2 percent fall in the wages of those with only a high school diploma, while having no effect on the wages of college graduates. Given the large increase in labor supply induced by the EITC, this is consistent with reasonable estimates of the elasticity of labor demand. Although workers with children receive a much larger EITC than childless workers, and the effect of the credit on labor force participation is larger for those with children, the hourly wages of both groups are similarly affected by an EITC increase. As a check on this strategy, I also use federal variation in the EITC across labor markets, and find that real wages fell within demographic groups that received the largest EITC increases.
Employment Effects of Minimum Wages: Evidence from a Quasi-Experiment, Australian Economic Review, 2003
To estimate the impact of raising the minimum wage on employment, this paper uses a natural experiment, arising from six increases in the Western Australian statutory minimum wage during the period 1994-2001. Relative to the rest of Australia, the employment to population ratio in Western Australia fell by a statistically significant margin following four of the six increases. Aggregating the increases, the elasticity of labour demand with respect to the Western Australian statutory minimum wage is found to be -0.29. [Abstract amended to reflect March 2004 erratum]
Erratum, Australian Economic Review, March 2004 (this presents new versions of Tables 2-4, but makes no substantive difference to the statistics quoted in my January 14, 2004 AFR op-ed, nor those in the AFR's January 19, 2004 editorial).
Reply, Australian Economic Review, June 2004
The results of my study on the effect of minimum wages on employment (Leigh 2003, 2004) have been brought into question by Watson (2004), which raises some potential methodological concerns. Careful reanalysis of the Western Australian minimum wage experiment demonstrates that this critique is not well-founded. Further checks show that the results are robust to a number of alternative specifications, in addition to those presented in the original paper.
Data
Researchers who wish to re-analyse the WA Minimum Wage Experiment are welcome to download my Stata do-file and dataset (if you would like the data in a different format, please email me)
Opinion
Editorial, Australian Financial Review, 19 March 2004
Editorial, The Australian, 26 February 2004
Peter Hendy, Australian Financial Review, 20 January 2004
Editorial, Australian Financial Review, 19 January 2004
Senator John Cherry, Australian Financial Review, 15 January 2004
Andrew Leigh, Australian Financial Review, 14 January 2004
Reportage
Australian Financial Review, 9 March 2004
Australian Financial Review, 19 February 2004
Australian Financial Review, 29 January 2004
Australian Financial Review, 8 January 2004
Discussed the 2004 Safety Net Review
Safety Net Review decision, 5 May 2004 (pages 62-64)
ACTU submission (pages 100-103)
ACCI submission (pages 9.8-9.17)
Commonwealth Government submission (pages 59-60)
State and Territory Governments' submission (page 36) (this unfortunately misquotes my 14 January AFR op-ed)
ACTU reply submission (pages 57-60, Exhibit Tags 2-3)
Health and Economic Inequality (with Christopher Jencks and Timothy Smeeding). Prepared for W. Salverda, B. Nolan, and T. Smeeding (eds), The Oxford Handbook of Economic Inequality, 2009
Top Incomes. Prepared for W. Salverda, B. Nolan, and T. Smeeding (eds), The Oxford Handbook of Economic Inequality, 2009
How Closely Do Top Income Shares Track Other Measures of Inequality?, Economic Journal, 2007
In recent years, researchers have used taxation statistics to estimate the share of total income held by the richest groups, such as the top 10% or the top 1%. Compiling a standardised top income shares dataset for thirteen developed countries, I find that there is a strong and significant relationship between top income shares and broader inequality measures, such as the gini coefficient. This suggests that panel data on top income shares may be a useful substitute for other measures of inequality over periods when alternative income distribution measures are of low quality, or unavailable.
Top incomes dataset in Excel format
Stata files for replication
Intergenerational Mobility in Australia, Berkeley Electronic Press: Contributions in Economic Analysis and Policy, 2007
Combining four surveys conducted over a forty year period, I calculate intergenerational earnings elasticities for Australia, using predicted earnings in parents’ occupations as a proxy for actual parental earnings. In the most recent survey, the elasticity of sons’ wages with respect to fathers’ wages is around 0.2. Comparing this estimate with earlier surveys, I find little evidence that intergenerational mobility in Australia has significantly risen or fallen over time. Applying the same methodology to United States data, I find that Australian society exhibits more intergenerational mobility than the United States. My method appears to slightly overstate the degree of intergenerational mobility; if the true intergenerational earnings elasticity in the United States is 0.4–0.6 (as recent studies have suggested), then the intergenerational earnings elasticity in Australia is probably around 0.2–0.3.
Top Incomes in
Indonesia, 1920-2004 (with Pierre van der Eng)
Using taxation and household survey data, this paper estimates top income
shares for Indonesia during 1920-2004. Our results suggest that top income
shares grew during the 1920s and 1930s, but fell in the post-war era. In
more recent decades, we observe a sharp rise in top income shares during
the late-1990s, coincident with the economic downturn, and some evidence
that top income shares fell in the early-2000s. For pre-war Indonesia, we
decompose top income shares by income source, and find that for groups
below the top 0.5 percent, a majority of income was derived from wages.
Throughout the twentieth century, top income shares in Indonesia have been
higher than in India, broadly comparable to Japan, and somewhat lower than
levels prevailing in the United States.
More Inequality, Less Social Mobility (with Dan Andrews), Applied Economics Letters, 2008
We investigate the relationship between inequality and intergenerational mobility. Proxying fathers’ earnings with using detailed occupational data, we find that sons who grew up in countries that were more unequal in the 1970s were less likely to have experienced social mobility by the late-1990s.
Inequality and
Mortality: Long-Run Evidence from a Panel of Countries (with Christopher
Jencks), Journal of Health Economics, 2007
We investigate whether changes in economic inequality affect mortality in
rich countries. To answer this question we use a new source of data on
income inequality: tax data on the share of pretax income going to the
richest 10 percent of the population in Australia, Canada, France,
Germany, Ireland, the Netherlands, New Zealand, Spain, Sweden,
Switzerland, the UK, and the US between 1903 and 2003. Although this
measure is not a good proxy for inequality within the bottom half of the
income distribution, it is a good proxy for changes in the top half of the
distribution and for the Gini coefficient. In the absence of country and
year fixed effects, the income share of the top decile is negatively
related to life expectancy and positively related to infant mortality.
However, in our preferred fixed-effects specification these relationships
are weak, statistically insignificant, and likely to change their sign.
Nor do our data suggest that changes in the income share of the richest 10
percent affect homicide or suicide rates.
Data and do-files in Stata format (zipped)
Do Redistributive State Taxes Reduce Inequality?, National Tax Journal, 2008
Do income taxes levied at a state or regional level affect the after-tax distribution of income? Or do workers merely move between regions, causing pre-tax wages to adjust? Using the full income tax parameters for all US states from 1977-2002, I create a “simulated tax redistribution index”, which captures the mechanical impact of changes in tax policy on the Gini coefficient, but is exogenous to any behavioral response. Analyzing the effect of this redistribution index on inequality, I find that gross wages do not adjust so as to undo the effect of changes in state income taxes. On aggregate, more redistributive state taxes do not substantially affect interstate migration, nor do they reduce per-capita state personal income.
Data and do-files in Stata format (zipped)
Top Incomes in New Zealand 1921-2005: Understanding the Effects of Marginal Tax Rates, Migration Threat, and the Macroeconomy (with Tony Atkinson), Review of Income and Wealth, 2008
Using taxation statistics, we estimate the income share held by top income groups in New Zealand over the period 1921–2005. We find that the income share of the richest fell during the 1930s, rose again after the Second World War, and steadily declined from the late-1950s until the mid-1980s. From the mid-1980s until the mid-1990s, top income shares rose rapidly, particularly at the very top of the distribution. We present evidence that top marginal tax rates and changing top income shares in Australia and the United Kingdom may have contributed to fluctuations in the income share of the richest 1 percent. Past economic growth does not seem to have a strong effect on the income share of the top percentile group.
Media
Dominion Post, 17 November 2005
The Distribution of Top Incomes in Australia (with Tony Atkinson), Economic Record, 2007
Using taxation statistics, we estimate the income share held by top income groups in Australia over the period 1921-2003. We find that the income share of the richest fell from the 1920s until the mid-1940s, rose briefly in the post-war decade, and then declined until the early-1980s. During the 1980s and 1990s, top income shares rose rapidly. At the start of the twenty-first century, the income share of the richest was higher than it had been at any point in the previous fifty years. Among top income groups, recent decades have also seen a rise in the share of top income accruing to the super-rich. Trends in top income shares are similar to those observed among other elite groups, such as judges, politicians, top bureaucrats and CEOs. We speculate that changes in top income shares may have been affected by top marginal tax rates, skill-biased technological change, social norms about inequality, and the internationalisation of the market for English-speaking CEOs.
Tables and figures in Excel format
Sydney Morning Herald, 21 August 2006
Australian Financial Review, 15 March 2006
Sydney Morning Herald, 15 March 2006
The Age, 15 March 2006
Understanding the Distribution of Top Incomes in Anglo-Saxon Countries over the Twentieth Century (with Tony Atkinson), Nov 2004
The use of taxation data to create long-run top incomes series for several developed nations has led to speculation over the reasons for fluctuations in these series. We combine the series for five Anglo-Saxon countries: Australia, Canada, New Zealand, the U.K., and the U.S. Across these five countries, the shares of the very richest exhibit a strikingly similar pattern, falling in the three decades after World War II, before rising sharply from the mid-1970s onwards. The share of the top 1% is highly correlated across Anglo-Saxon countries, more so than the share of the next 4%. In each of the five countries, a reduction in the marginal tax rate on wage income is associated with an increase in the share of the top percentile group. Likewise, a fall in the marginal tax rate on investment income (based on a lagged moving average) is associated with a rise in the share of the top percentile group. While the wage tax effect is not robust to including controls for stockmarket returns and GDP growth, the investment tax effect persists even after the inclusion of these controls. When the top marginal tax rate is used to instrument for the median marginal rate paid by the top percentile group, the magnitude of the effect of taxation on top income shares becomes larger still.
Deriving Long-Run Inequality Series from Tax Data, Economic Record, 2005 (Discussion paper version: Australian National University Centre for Economic Policy Research Discussion Paper 476)
Prior to the last three decades, regular surveys on household income were rare or non-existent in many developed countries, making it difficult for economists to develop long-run series on income distribution. Using taxation statistics, which tend to be available over a longer time span, I propose a method for imputing the incomes of non-taxpayers, and deriving the underlying distribution of income. Because taxation statistics are typically disaggregated by gender, it is possible to derive separate income distribution series for men and women in countries where individuals file separately. I show that over the past four decades, the distribution of adult male incomes is a good proxy for the distribution of family incomes. Applying this method to Australia, I develop a new annual series for inequality from 1942 to 2001. Inequality fell in the 1950s and the 1970s, and rose during the 1980s and 1990s – a pattern similar to the United Kingdom.
Trust, Inequality, and Ethnic Heterogeneity, Economic Record, 2006
Using a large Australian social survey, combined with precise data on neighbourhood characteristics, I explore the factors that affect trust at a local level (“localised trust”) and at a national level (“generalised trust”). Trust is positively associated with the respondent’s education, and negatively associated with the amount of time spent commuting. At a neighbourhood level, trust is higher in affluent areas, and lower in ethnically and linguistically heterogeneous communities, with the effect being stronger for linguistic heterogeneity than ethnic heterogeneity (suggesting that communication may be a key mediating factor). Linguistic heterogeneity reduces localised trust for both natives and immigrants, and reduces generalised trust only for immigrants. Instrumental variables specifications show similar results. By contrast with the United States, there is no apparent relationship between trust and inequality across neighbourhoods in Australia.
Op-Ed version, Australian Financial Review, 23 July 2005
Does Equality Lead to Fraternity?, Economics Letters, 2006
Several cross-country studies have observed a negative correlation between inequality and interpersonal trust. Using data from 59 countries, I instrument for inequality using the relative size of the mature-aged cohort, and find that a rise in inequality reduces trust.
How Much of the Variation in Literacy and Numeracy can be Explained by School Performance? (with Hector Thompson), Economic Roundup, 2008
Family background is known to have a substantial impact on students’ literacy and numeracy results. This raises questions about whether any of the remaining differences in results are due to school performance, or whether they are merely due to random noise. This article reviews research from the OECD’s Programme for International Student Assessment (PISA) study, based on student-level analysis. It then presents new evidence based on publicly reported school-level data from Western Australia. Combining test results with data on schools’ socioeconomic characteristics, this study estimates the degree to which some schools outperform those with similar characteristics. On a ‘like schools’ basis, school differences are shown to be persistent across subjects, grades and years.
Estimating Cognitive Gaps Between Indigenous and Non-Indigenous Australians (with Xiaodong Gong), Education Economics, 2008
Improving cognitive skills of young children has been suggested as a possible strategy for equalising opportunities across racial groups. Using data on 4-5 year olds in the Longitudinal Survey of Australian Children, we focus on two cognitive tests: the Peabody Picture Vocabulary Test (PPVT) and the ‘Who Am I?’ test (WAI). We estimate the test score gap between Indigenous and non-Indigenous children to be about 0.3 to 0.4 standard deviations, suggesting that the typical Indigenous 5 year-old has a similar test score to the typical non-Indigenous 4 year-old. Between one-third and two-thirds of the Indigenous/non-Indigenous test score gap appears to be due to socio-economic differences, such as income and parental education. We review the literature on test score differences in Australia, and find that our estimated gaps are lower than most of those found in the literature. This implies that the test score gap between Indigenous and non-Indigenous children may widen over the lifecycle, a finding that has implications for policies aimed at improving educational opportunities for Indigenous children.
Stata do-files (zipped)
How Has School Productivity Changed in Australia? (with Chris Ryan), 2008
Using two series of data that ask overlapping questions to successive cohorts, we estimate how the literacy and numeracy skills of young Australian teenagers (aged 13-14) have changed over time. We find a small but statistically significant fall in numeracy over the period 1964-2003, and in both literacy and numeracy over the period 1975-1998. The decline is in the order of one-tenth to one-fifth of a standard deviation. Adjusting this decline for changes in student demographics does not affect this conclusion; if anything, the decline appears to be more acute. Next, we estimate long-run changes in real per-child school expenditure. This estimate varies somewhat according to the treatment of private spending, and the chosen price index, but our preferred estimate suggests that real per-child school expenditure increased by 10 percent over the period 1975-1998, and by 258 percent over the period 1964-2003. This increase in spending funded a substantial reduction in student-teacher ratios. Measuring productivity in terms of literacy and numeracy points per dollar, our results imply that the productivity of Australian schools may have fallen over the past 3-4 decades. Although we cannot account for all the phenomena that might have affected test score results, we identify a number of plausible factors that might have led to a drop in school productivity.
Estimating Teacher Effectiveness From Two-Year Changes in Students’ Test Scores, May 2007
Using a dataset covering over 10,000 Australian primary school teachers and over 90,000 pupils, I estimate how effective teachers are in raising students’ test scores from one exam to the next. Since the exams are conducted only every two years, it is necessary to take account of the work of the teacher in the intervening year. Even after adjusting for measurement error, the resulting teacher fixed effects are widely dispersed across teachers, and there is a strong positive correlation between a teacher’s gains in literacy and numeracy. Teacher fixed effects show a significant association with some, though not all, observable teacher characteristics. Experience has the strongest effect, with a large effect in the early years of a teacher’s career. Female teachers do better at teaching literacy. Teachers with a masters degree or some other form of further qualification do not appear to achieve significantly larger test score gains. Overall, teacher characteristics found in the departmental payroll database can explain only a small fraction of the variance in teacher performance.
How and Why has Teacher Quality Changed in Australia? (with Chris Ryan), Australian Economic Review, 2008
International research suggests that differences in teacher performance can explain a large portion of student achievement. Yet little is known about how the quality of the Australian teaching profession has changed over time. Using consistent data on the academic aptitude of new teachers, we compare those who have entered the teaching profession in Australia over the past two decades. We find that the aptitude of new teachers has fallen considerably. Between 1983 and 2003, the average percentile rank of those entering teacher education fell from 74 to 61, while the average rank of new teachers fell from 70 to 62. One factor that seems to have changed substantially over this period is average teacher pay. Compared to non-teachers with a degree, average teacher pay fell substantially over the period 1983-2003. Another factor is pay dispersion in alternative occupations. During the 1980s and 1990s, non-teacher earnings at the top of the distribution rose faster than earnings at the middle and bottom of the distribution. For an individual with the potential to earn a wage at the 90th percentile of the distribution, a non-teaching occupation looked much more attractive in the 2000s than it did in the 1980s. We believe that both the fall in average teacher pay, and the rise in pay differentials in non-teaching occupations are responsible for the decline in the academic aptitude of new teachers over the past two decades.
Op-Ed, The Australian, 28 August 2006
Media
Australian Financial Review (oped by John Quiggin), 31 August 2006
Australian Financial Review, 31 August 2006
The Australian (oped by Judith Wheeldon), 29 August 2006
The Australian, 29 August 2006
The Australian, 28 August 2006
AM, 28 August 2006
The Age, 28 August 2006
Canberra Times, 28 August 2006
Courier Mail, 28 August 2006
Sydney Morning Herald, 28 August 2006
Teacher Pay and Teacher Aptitude, October 2006
Can changes in teacher pay encourage more able individuals to enter the teaching profession? So far, studies of the impact of pay on the aptitude distribution of teachers have provided mixed evidence on the extent to which altering teacher salaries represents a feasible solution to the teacher quality problem. One possible reason is that these studies have been unable to separate labor supply effects from labor demand effects. To address this, I model the relationship between current salaries and the academic aptitude of future teachers (those entering teacher education courses). Using a unique dataset of test scores for every individual admitted into an Australian university between 1989 and 2003, I explore how changes in average pay or pay dispersion affect the decision to enter teacher education courses in Australia’s eight states and territories. A 1 percent rise in the salary of a starting teacher boosts the average aptitude of students entering teacher education courses by 0.6 percentile ranks, with the effect being strongest for those at the median. This result is robust to instrumenting for teacher pay using uniform salary schedules for public schools. I also find some evidence that pay dispersion in the non-teaching sector affects the aptitude of potential teachers.
Media
The Daily Telegraph, 25 October 2006
The Australian, 23 October 2006
The West Australian, 23 October 2006
How Much Do Public Schools Really Cost? Estimating the Relationship Between House Prices and School Quality (with Ian Davidoff), Economic Record, 2008
This paper investigates the relationship between housing prices and the quality of public schools in the Australian Capital Territory. To disentangle the effects of schools and other neighbourhood characteristics on the value of residential properties, we compare sale prices of homes on either side of high school attendance boundaries. We find that a 5 percent increase in test scores (approximately one standard deviation) is associated with a 3.5 percent increase in house prices. Our result is in line with private school tuition costs, and accords with prior research from Britain and the United States. Estimating the effect of school quality on house prices provides a possible measure of the extent to which parents value better educational outcomes.
Media
The Australian, 3 February 2007
Australian Financial Review, 8 August 2006
Canberra Times, 8 August 2006
Do Very
High Tax Rates Induce Bunching? Implications for the Design of
Income-Contingent Loan Schemes (with Bruce
Chapman), May 2006
We test whether very high marginal tax rates affect taxpayer behaviour,
using a unique policy. Under the Higher Education Contribution Scheme –
an income-related university loans scheme in Australia – former students
with a debt face a sharp discontinuity. At the first repayment threshold
they are required to repay a percentage of their entire income,
resulting in an effective marginal tax rate that could be regarded as
being as high as 76,000 percent. We formally model the taxpayer
decision, and then use a sample of taxpayer returns provided to us by
the tax office to investigate whether taxpayers bunch below the
repayment threshold. We find a statistically significant degree of
bunching below the threshold, but the effect is economically small. On
net, we estimate that both the deadweight cost and the budgetary loss
are less than A$1 million per year, a small fraction of the amount
annually repaid through the Higher Education Contribution Scheme. The
result has an important implication for the design of income contingent
loans for higher education, such as those being introduced in the UK for
tuition in September 2006. This is that it is possible to design
arrangements in which the first income threshold of repayment is
apparently high, but which are still able to deliver relatively high
revenue streams in the early stages of income contingent policy reform
without important tax payment avoidance consequences. Our findings also
reinforce earlier research suggesting only minimal bunching around kink
points in taxation schedules.
Media
The Australian, 3 May 2006
Returns to Education in Australia, Economic Papers, 2008
Using data from the 2001-2005 waves of the Household, Income and Labour Dynamics in Australia survey, and taking account of existing estimates of ability bias and social returns to schooling, I estimate the economic return to various levels of education. Raising high school attainment appears to yield the highest annual benefits, with per-year gains as high as 30 percent (depending on the adjustment for ability bias). Some forms of vocational training also appear to boost earnings, with significant gains from Certificate Level III/IV qualifications (for high school dropouts only), and from Diploma and Advanced Diploma qualifications. At the university level, Bachelor degrees and postgraduate qualifications are associated with significantly higher earnings, with each year of a Bachelor degree raising annual earnings by about 15 percent. For high school, slightly less than half the gains are due to increased productivity, with the rest due to higher levels of participation. For vocational training, about one-third of the gains are from productivity, and two-thirds from greater participation. For university, most of the gains are from productivity. I find some evidence that the productivity benefits of education are higher towards the top of the distribution, but the participation effects are higher towards the bottom of the conditional earnings distribution.
Estimating Returns to Education Using Different Natural Experiment Techniques (with Chris Ryan), Economics of Education Review, 2008
We compare three quasi-experimental approaches to estimating the returns to schooling in Australia: instrumenting schooling using month of birth, instrumenting schooling using changes in compulsory schooling laws, and comparing outcomes for twins. With annual pre-tax income as our measure of income, we find that the naïve (OLS) returns to an additional year of schooling is 13%. The month of birth IV approach gives an 8% rate of return to schooling, while using changes in compulsory schooling laws as an IV produces a 12% rate of return. Finally, we review estimates from twins studies. While these studies have tended to estimate a lower return to education, we believe that this is primarily due to the better measurement of income and schooling in our dataset. Australian twins studies are consistent with our findings insofar as they find little evidence of ability bias in the OLS rate of return to schooling. Our estimates of the ability bias in OLS estimates of the rate of return to schooling range from 9% to 39%. Overall, our findings suggest the Australian rate of return to education, corrected for ability bias, is around 10%, which is similar to the rate in Britain, Canada, the Netherlands, Norway and the United States.
Pulled Away or Pushed Out? Explaining the Decline of Teacher Aptitude in the United States (with Caroline Hoxby), American Economic Review, 2004
Education Next version, Spring 2005
There are two main hypotheses for the decline in the aptitude of public school teachers since 1960: improved job opportunities for females in other occupations and the compression of teaching wages owing to unionization. Using data on several college graduating cohorts from 1961 to 1997, we investigate both hypotheses. To separate the hypotheses, we exploit the fact that states varied considerably in the progress of unionization and female wage parity. We proxy for a teacher's aptitude with the mean college aptitude of students at her undergraduate college. We identify the effects of unionization using laws that legalized and facilitated teachers' unionization. The evidence suggests that compression of teaching wages is responsible for about three-quarters of the decline in teacher aptitude. Females' opportunities in alternative occupations do matter, but opportunities improved rather similarly for females of all aptitudes. Although alternative occupations drew women out of teaching in general, they did not have a sufficiently disproportionate effect on high aptitude women to explain the bulk of the decline in teachers aptitude.
Discussed in:
New York Daily News, 11 May 2005
Christian Science Monitor, 8 March 2005
New York Times, 25 March 2004
Progressive Policy Institute, 21st Century Schools Project Bulletin, 24 February 2004
Are State Elections Affected by the National Economy? Evidence from Australia (with Mark McLeish), Economic Record, 2009
Using data from 191 Australian state elections, we test how voters respond to economic conditions. We find that unemployment has a strong impact on election outcomes, with each additional percentage point of unemployment reducing the incumbent’s re-election probability by 3-5 percent. However, when we separate luck (unemployment in other states) from competence (unemployment in that state relative to the rest of Australia), we find that both luck and competence are equally important. This is consistent with a psychological theory of the ‘fundamental attribution error’, in which observers consistently underestimate the importance of situational constraints. We also find evidence that unemployment driven by a clearly exogenous source – the United States economy – has a non-trivial impact on the re-election probability of Australian state governments. Our results suggest that Australian voters either retain too many state governments in economic booms, vote out too many state governments in recessions, or perhaps both.
Stata dataset and do-file (zipped)
Is Voting Skin-Deep? Estimating the Effect of Candidate Ballot Photographs on Election Outcomes (with Tirta Susilo), Journal of Economic Psychology, 2009
In the Northern Territory, Australia, ballot papers for territory elections depict candidates’ photographs. We exploit this unusual electoral feature by looking at the effect that candidates’ beauty and skin color has on voting patterns. Our results for beauty are mixed, but we find strong evidence that skin color matters. In electorates with a small Indigenous population, lighter-skinned candidates receive more votes, while in electorates with a high number of Indigenous people, darker-skinned candidates are rewarded at the ballot box. The relationship between skin color and electoral performance is stronger for challengers than incumbents. We explain this with a model in which voters use skin color as a proxy for some underlying characteristic which they value only to the extent that they share the trait.
Beautiful
Politicians (with Amy King), Dec 2006
Are beautiful politicians more likely to be elected? To test this, we
use evidence from Australia, a country in which voting is compulsory,
and in which voters are given ‘How to Vote’ cards depicting photos of
the major party candidates as they arrive to vote. Using raters chosen
to be representative of the electorate, we assess the beauty of
political candidates from major political parties, and then estimate the
effect of beauty on voteshare for candidates in the 2004 federal
election. Beautiful candidates are indeed more likely to be elected,
with a one standard deviation increase in beauty associated with a 1½ –
2 percentage point increase in voteshare. Our results are robust to
several specification checks: adding party fixed effects, dropping
well-known politicians, using a non-Australian beauty rater, omitting
candidates of non-Anglo Saxon appearance, controlling for age, and
analyzing the ‘beauty gap’ between candidates running in the same
electorate. The marginal effect of beauty is larger for male candidates
than for female candidates, and appears to be approximately linear.
Consistent with the theory that returns to beauty reflect
discrimination, we find suggestive evidence that beauty matters more in
electorates with a higher share of apathetic voters.
Are Ballot Order Effects Heterogeneous? (with Amy King), Social Science Quarterly, forthcoming 2008
Past studies of ballot order effects have typically focused on the average benefit to a candidate from being placed at the top of the ballot. But it is possible that this simple average may mask systematic differences in how the ballot order effect varies across candidates and voters. To test this, we analyse all Australian federal elections from 1984-2004, a dataset that is an order of magnitude larger than those used in previous ballot order studies. We find that being placed first on the ballot increases a candidate’s vote share by about 1 percentage point. As a proportion of their total vote, the ballot order effect is much larger for independents and minor parties than for major parties. The ballot order effect appears to be similar for male and female candidates, and does not show strong trends upwards or downwards over the 20 year period covered by our study. Across electorates, the ballot order effect is higher in places where voters are younger and fluency in English is lower.
Bringing Home the Bacon, Public Choice, forthcoming 2008
Which electorates receive targeted funding, and does targeted funding swing votes? To answer these questions, I analyze four discretionary programs funded by the Australian federal government during the 2001-2004 election cycle. Controlling for relevant demographic characteristics of the electorate, those electorates held by the governing coalition received a larger share of discretionary funding, and a larger number of program grants. Among government seats, funding does not appear to have been directed towards those that were more marginal. More discretionary funding – particularly on road-building – was associated with a larger swing towards the government in the 2004 election.
Stata dataset and do-file (zipped)
Media
Australian Financial Review, 28 February 2006
Courier Mail, 27 February 2006
ABC Radio, 26 February 2006
The Age, 25 February 2006
Herald Sun, 25 February 2006
Media Release, 25 February 2006
How Do Unionists Vote? Estimating the Causal Impact of Union Membership on Voting Behaviour from 1966 to 2004, Australian Journal of Political Science, 2006
I explore the voting patterns of trade union members in Australian elections conducted between 1966 and 2004, and find that on average, 63 percent of trade union members vote for the Australian Labor Party. Despite the fact that union membership declined from around one-half of the workforce in the early-1980s to one-quarter of the workforce in the early-2000s, unionists have not become more pro-Labor. Analysing unionists’ voting behaviour by gender, I find that male unionists were more pro-Labor than female unionists in the 1960s, but the reverse is true today. Recognising that union membership may be endogenous with respect to political ideology, I instrument for union membership and conclude that the observed association between union membership and voting reflects a causal relationship.
Op-Ed, Australian Financial Review, 3 December 2005
Media
The Age, 9 April 2006
Competing Approaches to Forecasting Elections: Economic Models, Opinion Polling and Prediction Markets (with Justin Wolfers), Economic Record, 2006
We review the efficacy of three approaches to forecasting elections: econometric models that project outcomes on the basis of the state of the economy; public opinion polls; and election betting (prediction markets). We assess the efficacy of each in light of the 2004 Australian election. This election is particularly interesting both because of innovations in each forecasting technology, and also because the increased majority achieved by the Coalition surprised most pundits. While the evidence for economic voting has historically been weak for Australia, the 2004 election suggests an increasingly important role for these models. The performance of polls was quite uneven, and predictions both across pollsters, and through time, vary too much to be particularly useful. Betting markets provide an interesting contrast, and a slew of data from various betting agencies suggests a more reasonable degree of volatility, and useful forecasting performance both throughout the election cycle and across individual electorates.
Media
The Age, 27 September 2005
Australian Financial Review, 26 September 2005
Estimating the Impact of Gubernatorial Partisanship on Policy Settings and Economic Outcomes: A Regression Discontinuity Approach, European Journal of Political Economy, 2008
Using panel data from US states over the period 1941-2002, I measure the impact of gubernatorial partisanship on a wide range of different policy settings and economic outcomes. Across 32 measures, there are surprisingly few differences in policy settings, social outcomes and economic outcomes under Democrat and Republican Governors. In terms of policies, Democratic Governors tend to prefer slightly higher minimum wages. Under Republican Governors, incarceration rates are higher, while welfare caseloads are higher under Democratic Governors. In terms of social and economic outcomes, Democratic Governors tend to preside over higher median post-tax income, lower post-tax inequality, and lower unemployment rates. However, for 26 of the 32 dependent variables, gubernatorial partisanship does not have a statistically significant impact on policy outcomes and social welfare. I find no evidence of gubernatorial partisan differences in tax rates, welfare generosity, the number of government employees or their salaries, state revenue, incarceration rates, execution rates, pre-tax incomes and inequality, crime rates, suicide rates, and test scores. These results are robust to the use of regression discontinuity estimation, to take account of the possibility of reverse causality. Overall, it seems that Governors behave in a fairly non-ideological manner.
Working paper version (with detailed results in appendices)
Stata dataset and do-file (zipped)
Does the World Economy Swing National Elections?, Australian National University Centre for Economic Policy Research Discussion Paper 485, December 2004
Do voters reward national leaders who are more competent economic managers, or merely those who happen to be in power when the world economy booms? According to rational voting models, electors should parse out the state of the world economy when deciding whether to re-elect their national leader. I test this theory using data from 268 democratic elections held between 1978 and 1999, comparing the effect of world growth (“luck”) and national growth relative to world growth (“competence”). In the preferred specification, which allows for countries to have different degrees of global integration, an extra percentage point of world growth boosts incumbents’ chances of re-election by 9 percent, while an extra percentage point of national growth relative to world growth only boosts an incumbent’s chances of re-election by 4 percent. Voters are more likely to reward competence in countries that are richer and better educated. Controlling for income, higher rates of newspaper readership reduce the returns to luck, while higher rates of television viewing reduce the returns to competence.
Economic Voting and Electoral Behavior: How do Individual, Local and National Factors Affect the Partisan Choice?, Economics and Politics, 2005
What impact do income and other demographic factors have on voters’ partisan choice? Using post-election surveys of 14,000 voters in ten Australian elections between 1966 and 2001, I explore the impact that individual, local and national factors have on voters’ decisions.
(Note: The PDF is an electronic version of an article published in Economics and Politics: complete citation information for the final version of the paper, as published in the print edition of Economics and Politics, is available on the Blackwell Synergy online delivery service, accessible via the journal’s website).
Data
Researchers who wish to re-analyse this data are welcome to adapt my Stata do-files, though you will need to obtain the election surveys from the ICPSR or ASSDA (for more details of the surveys used, see the paper's Data Appendix). Two Stata do-files were used in this paper - one which sets up the datasets, and another which runs the regressions.
Media
Media release, 27 September 2004
Sydney Morning Herald, 2 October 2004
Sydney Morning Herald, 30 September 2004
Courier Mail, 28 September 2004
Canberra Times, 28 September 2004
What do Financial Markets Think of War in Iraq? (with Justin Wolfers and Eric Zitzewitz), NBER Working Paper 9587
We analyze financial market data in order to produce an ex-ante assessment of the cost of war with Iraq. The novel feature of our analysis derives from the existence of a market for "Saddam Securities," a new option traded on an online betting exchange that pays only if Saddam Hussein is ousted. We find that war raises oil prices by around $10 per barrel, and lowers the value of US equities by about 15 percent.
Media coverage
Algemeen Dagblad, 14 June 2003
HedgeWorld, 10 April 2003
BBC, 1 April 2003
Harvard Crimson, 1 April 2003
The Economist, 29 March 2003
San Francisco Chronicle, 28 March 2003 (same article in Seattle Post-Intelligencer)
Washington Post, 22 March 2003 (same article in Hindustan Times)
Australian Financial Review, 22 March 2003
Marketplace (requires RealPlayer), 21 March 2003
Mercury News, 21 March 2003
El Universal, 21 March 2003
The Age, 20 March 2003
Sacramento Business Journal, 17 March 2003
Boston Globe, 11 March 2003
The Australian, 24 February 2003
CBS Marketwatch, 21 February 2003
New York Times, 16 February 2003
Three Tools for Forecasting Federal Elections: Lessons from 2001 (with Justin Wolfers) Australian Journal of Political Science, 2002 (also Stanford Graduate School of Business Research Paper 1723)
Analyses three forecasting tools – opinion polls, economic models, and betting odds, and assesses how effectively they have performed, with a particular focus on the 2001 Australian federal election.
Media coverage:
Time Magazine, September 6, 2004
Sydney Morning Herald, June 15, 2004
Sydney Morning Herald, March 29, 2002
The Australian, April 2, 2002
Apila, the online journal of the Center Party in Finland, April 30, 2002 [English translation]
Dominion Post (Wellington, NZ), July 20, 2002
On the Punt, August 2002
Stanford Business, August 2002
Rolling Good Times, October 1, 2002
Silicon Valley/San Jose Business Journal, October 3, 2002
Wired, October 16, 2002
National Gaming Summary, November 4, 2002
Crooked Timber (online discussion), December 19, 2003
Born on the First of July: An (Un)natural
Experiment in Birth Timing (with Joshua
Gans), Journal of Public Economics, 2009
It is well understood that government policies can distort behavior. But
what is less often recognized is the anticipated introduction of a
policy can introduce its own distortions. We study one such
“introduction effect”, using evidence from a unique policy change in
Australia. In 2004, the Australian government announced that children
born on or after July 1, 2004 would receive a $3000 “Baby Bonus.”
Although the policy was only announced a few months before its
introduction, parents appear to have behaved strategically in order to
receive this benefit, with the number of births dipping sharply in the
days before the policy commenced. On July 1, 2004, more Australian
children were born than on any other single date in the past thirty
years. We estimate that over 1000 births were “moved” so as to ensure
that their parents were eligible for the Baby Bonus, with about one
quarter being moved by more than two weeks. Most of the effect was due
to changes in the timing of inducement and cesarean section procedures.
This birth timing event represents a considerable opportunity for health
researchers to study the impact of planned birthdays and hospital
management issues.
Op-Ed, The Australian, 20 June 2006
Media
Sunday Age, 25 June 2006
Sun Herald, 25 June 2006
People's Daily, 20 June 2006
Sydney Morning Herald, 19 June 2006
The Australian, 19 June 2006
Australian Financial Review, 19 June 2006
Courier Mail, 19 June 2006
Canberra Times, 19 June 2006
Herald Sun, 19 June 2006
NineMSN, 19 June 2006
AAP, 19 June 2006
Media Release, 18 June 2006
Weak Tests and Strong Conclusions: A Re-Analysis of Gun Deaths and the Australian Firearms Buyback (with Christine Neill), Current Issues in Criminal Justice, 2008
Using time series analysis on data from 1979-2004, Baker and McPhedran (2006) argue that the stricter gun laws introduced in the National Firearms Agreement (NFA) post-1996 did not affect firearm homicide rates, and may not have had an impact on the rate of gun suicide or accidental death by shooting. We revisit their analysis, and find that their results are not robust to: (a) using a longer time series; or (b) using the log of the rate rather than the level (to take account of the fact that the rate cannot fall below zero). We also show that claims that the authors had allowed both for method substitution and for underlying trends in suicide or homicide rates are misleading. The high variability in the data and the fragility of the results with respect to different specifications suggest that time series analysis cannot conclusively answer the question of whether the NFA led to lower gun deaths. Drawing strong conclusions from simple time series analysis is not warranted, but to the extent that this evidence points anywhere, it is towards the firearms buyback reducing gun deaths.
Immigrants
Assimilate as Communities, Not Just as Individuals (with Tim Hatton), Jan 2007
There is a large econometric literature that examines the economic
assimilation of immigrants in the United States and elsewhere. On the
whole immigrants are seen as atomistic individuals assimilating in a
largely anonymous labour market, a view that runs counter to the spirit
of the equally large literature on ethnic groups. Here we argue that
immigrants assimilate as communities, not just as individuals. The
longer the immigrant community has been established the better adjusted
it is to the host society and the more the host society comes to accept
that ethnic group. Thus economic outcomes for immigrants should depend
not just on their own characteristics, but also on the legacy of past
immigration from the same country. In this paper we test this hypothesis
using data from a 5 percent sample of the 1980, 1990 and 2000 US
censuses. We find that history matters in immigrant assimilation: the
stronger is the tradition of immigration from a given source country,
the better the economic outcomes for new immigrants from that source.
Minding the Shop: The
Case of Obstetrics Conferences (with Joshua Gans and Elena Varganova), Social Science and Medicine, 2007
We estimate the impact of annual obstetricians and gynecologists’
conferences on births in Australia and the United States. In both
countries, the number of births drops by 1 to 4 percent during the days
on which these conferences are held. We argue that for this reason
professional obstetrics societies should reconsider the timing of their
annual conferences to accommodate the lowest natural birth rate in the
year.
Did the
Death of Australian Inheritance Taxes Affect Deaths? (with Joshua Gans), Berkeley Electronic Press: Topics in Economic Analysis & Policy, 2006
In 1979, Australia abolished federal inheritance taxes. Using daily
deaths data, we show that approximately 50 deaths were shifted from the
week before the abolition to the week after (amounting to over half of
those who would have been eligible to pay the tax). Our results imply
that over the very short run, the death rate is highly elastic with
respect to the inheritance tax rate.
Op-Ed, The Age, 27 June 2006
Media
Financial Times, 4 August 2006
Sydney Morning Herald, 16 June 2006
Toying with Death and
Taxes: Some Lessons from Down Under (with Joshua Gans), The Economists' Voice, 2006
Economists think many (most?) things are subject to incentives. The
evidence from down under suggests that even the timing of death could
vary with a repeal of estate taxes.
Bargaining Over Labor: Do Patients have any Power? (with Joshua
Gans), 2006
Using data on births from Australia, we estimate the level of patient
bargaining power in negotiations over birth timing. In doing so, we exploit
the fact that parents do not like to have children born on the
“inauspicious” dates of February 29 and April 1. We show that, in general,
the birth rate is lower on these dates, and argue that this reflects parent
preferences. When these inauspicious dates abut a weekend, this creates a
potential conflict between avoiding the inauspicious date, and avoiding the
weekend. We find that in approximately three-quarters of cases, this
conflict is resolved in favor of the physician. This suggests that while
doctors have more power than patients, patients are sometimes able to
influence medical decisions for non-medical reasons.
The Millennium Bub (with Joshua Gans), Applied Economics Letters, 2008
How much do non-medical factors affect the timing of conceptions, births and deaths? To test this, we estimate the effect of the millennium on conceptions, births and deaths. With a highly flexible empirical specification, we find large and significant increases in conceptions and births, and suggestive evidence of an effect on deaths.
Media
The Age, 27 May 2006
Does the Lunar
Cycle Affect Birth and Deaths? (with Joshua
Gans), 2006
There is a commonplace notion that full moons affect natality and
mortality. To test this theory, we obtain daily births and deaths data
from Australia, covering all 10,592 days from 1 January 1975 to 31
December 2003. We find that full moons are not associated with any
significant change in the number of conceptions, births, or deaths.
Moreover, our standard errors are sufficiently tight to make it possible
to rule out even modest positive or negative effects.
Does
Child Gender Affect Marital Status?, Journal of Population Economics, 2008
Pooling microdata from five Australian censuses, I explore the relationship between child gender and divorce. By contrast with the United States, I find no evidence that the gender of the first child has a significant impact on the decision to marry or divorce. However, among two-child families, parents with two children of the same sex are 1.7 percentage points less likely to be married than parents with a boy and a girl. Surveys of parental attitudes suggest that this effect is more likely to be driven by fathers than by mothers. This finding is not consistent with theories of preference for sons over daughters, differential costs, role models or complementary costs, but is consistent with a theory of parity preference.
Stata do-file (for details on obtaining the microdata, see the ABS website)
Media
CBC News, 24 May 2006
Australian Financial Review, 29 May 2006
Happiness and the Human Development Index: Australia is Not a Paradox (with Justin Wolfers), Australian Economic Review, 2006
Blanchflower and Oswald (2005) observe an apparent puzzle: they claim that Australia ranks highly in the Human Development Index (HDI), but relatively poorly in happiness. However, when we compare their happiness data with the HDI, Australia appears happier, not sadder, than its HDI score would predict. This conclusion also holds when we turn to a larger cross-national dataset than the one used by Blanchflower and Oswald, when we analyse life satisfaction in place of happiness, and when we measure development using GDP per capita in place of the HDI. Indeed, in the World Values Survey, only one other country (Iceland) has a significantly higher level of both life satisfaction and happiness than Australia. Our findings are also consistent with numerous cross-national surveys conducted since the 1940s, which have consistently found that Australians report high levels of wellbeing.
Discussion paper version (with detailed appendix)
Blanchflower and Oswald's original paper
Blanchflower and Oswald's rejoinder
Latest Australian suicide statistics
Media
The Guardian, 28 June 2006
Sydney Morning Herald, 13 April 2006
The Australian, 15 February 2006
Daily Telegraph (London), 5 February 2006
Materialism on the March: From Conspicuous Leisure to Conspicuous Consumption? (with Paul Frijters), Journal of Socio-Economics, 2008
This paper inserts Veblen’s (1898) concepts of conspicuous leisure and conspicuous consumption into a very simple model. Individuals have the choice to either invest their time into working, leading to easily observable levels of consumption, or into conspicuous leisure, whose effect on utility depends on how observable leisure is. We let the visibility of leisure depend positively on the amount of time an individual and her neighbors have lived in the same area. Individuals optimize across conspicuous leisure and conspicuous consumption. If population turnover is high, individuals are made worse off, since the visibility of conspicuous leisure then decreases and the status race must be played out primarily via conspicuous consumption. Analyzing interstate mobility in the US, we find strong support for our hypothesis: a 1 percentage point rise in population turnover increases the average work week of non-migrants by 7 minutes. The negative externality of population turnover on the visibility of conspicuous leisure is an argument for higher mobility taxes.
Popular economics writing (see also op-eds and book reviews)
How Can We Improve Teacher Quality?, Melbourne Review, 2007
Prediction Markets for Business and Public Policy (with Justin Wolfers), Melbourne Review, 2007
Unusual Days in Births and Deaths (with Joshua Gans), Melbourne Review, 2007
Taxpaying Made Easy, Agenda: A Journal of
Policy Analysis and Reform, 2007
Why not simplify the tax-filing system, exempting Australians with simple income from the obligation of filing a return?
Diversity, Trust and Redistribution, Dialogue (Journal of the
Academy of Social Sciences in Australia), 2006
It is a
safe bet that Australia will become more ethnically diverse in the
future. How will this affect trust and attitudes towards redistribution?