Working Papers
The Labor Market for Teachers Under Different Pay Schemes [SSRN]
[previously circulated as "Unions, Salaries, and The Market for Teachers"]
NBER Working Paper n. 24813
2016 NAEd/Spencer Dissertation Fellowship; Selected "Best Applied Paper" during the Econometric Society European Summer Meeting 2016
Policy brief: Cato Institute
Press coverage: Wall Street Journal, 1/31/2017
Compensation of most US public school teachers is rigid and determined solely on the basis of seniority. This paper examines the effects of a major change in laws regulating teacher salaries. In 2011, the State of Wisconsin's Act 10 gave school districts full authority to design their own independent compensation schemes for teachers. Newly collected data on district-level policies show that roughly half of all districts retained seniority-based schedules, whereas the other half switched to flexible compensation and started paying high-quality teachers more. Teacher quality (measured using test scores) increased by 0.05 standard deviations in districts with flexible pay relative to those that retained the rigid compensation structure. This change was driven primarily by high-quality teachers moving into flexible-pay districts and low-quality teachers leaving these districts. Teachers' effort also increased by 0.07 standard deviations in flexible-pay districts compared with seniority-pay districts. Simulations based on a structural model of this labor market show that the introduction of individual salaries in all districts (as opposed to just a few) is associated with a smaller improvement in teacher quality, entirely attributable to exits of low-quality teachers.
School Finance Equalization and Intergenerational Mobility [SSRN]
Large differences in intergenerational mobility exist across US commuting zones, yet little is known about their causes. This paper studies the effects of equalizing per pupil expenditure across public school districts on students' intergenerational mobility, using variation from states' school finance reforms. Tiebout sorting of households across districts following a reform affects house prices, the property tax base, and districts' revenues, creating a problem of endogeneity. I address this issue with a simulated-instruments approach, which uses states' funding formulas and newly collected data on the formula components to simulate revenues for each district in the absence of sorting. 2SLS estimates indicate that equalizing school expenditure increases mobility for low-income students, with small negative effects on high-income pupils. 2SLS estimates are 1.5 times as large as OLS, suggesting that the endogeneity of post-reform expenditure can severely affect these estimates. Equalization affects intergenerational mobility by reducing gaps in inputs (such as the number of teachers) and intermediate educational outcomes (such as high school completion) between low- and high-income districts.
Effects of Copyrights on Science (with Petra Moser) [SSRN]
NBER Working Paper n. 24255, CEPR Discussion Paper n. 12651
Policy briefs: Voxeu.org, Cato Institute
Featured in the NBER Digest, March 2018 Issue
This paper investigates the effects of copyrights and access costs on science, using an exogenous change in copyright laws. In 1942 the WWII Book Republication Program (BRP) allowed US publishers to republish exact copies of German-owned science books at a lower price, effectively breaking the monopoly of copyrights. Using two complementary identification strategies we show that this program led to a substantial increase in citations. Lower access costs were a major determinant of this effect: A 10-percent decline in the price of a BRP book led to a 43-percent increase in citations. An empirical analysis of library holdings and the location of citations shows that lower prices helped distribute books to less affluent institutions, allowing a new group of researchers to use these books in their research. These results are confirmed by two alternative measures of scientific output: new PhDs and patents.
Career Effects of Mental Health (with Michael Dahl and Petra Moser) [SSRN]
Press coverage: Business Insider, 7/16/2015
One in twelve Americans is affected by a mental health disorder. This paper examines the effects of such disorders and treatment, using individual-level registry data on mental health diagnoses. We find that mental health conditions carry immense earnings penalties: Compared with the population, people with depression earn 32 percent less, people with bipolar disorder earn 36 percent less, and people with schizophrenia earn 74 percent less. Even compared with their siblings, they earn 35, 28, and 74 percent less, respectively. People with mental health disorders also face substantially higher risks of zero earnings and disability. To investigate the causal effects of treatments and changes in mental health we examine the approval of lithium as a treatment for bipolar disorder (BD) in 1976. Baseline estimates compare career outcomes for people with and without access to treatment in their early 20s, the typical age of onset for BD. We find that access to treatment eliminates one third of the earnings penalty from BD, reduces the risk of zero earnings by more than one third, and reduces the risk of disability by nearly two thirds. Notably, not only the costs of mental health disorders, but also the benefits from treatments are strongest in the bottom quantiles of earnings. These findings indicate that access to treatment has important implications for economic inequality.
Retirement Age Effects of Pension and Salary Reforms: Evidence from Wisconsin Teachers [new draft coming soon]
Public sector employees in the US receive a large part of their lifetime compensation in the form of defined benefit pensions, financed in part with employees’ salary contributions. Combined with different wage structures, these pension plans can affect workers’ decisions on the optimal retirement age and, in turn, the composition of the workforce. In this paper I study the retirement effects of a reform which increased all Wisconsin teachers’ contribution to the pension fund, and at the same time changed the structure of their salaries in some districts, away from a lock- step schedule and towards individually-based salaries. I first show that the reform increased the retirement age of high-quality teachers working in individual-salaries districts more compared with lower quality teachers. I then build and estimate a life-cycle model of consumption and retirement, and I use it to show that a) the reform reduced welfare of all teachers, and b) an alternative budget-cutting policy which, instead of increasing contributions, reduces pension benefits by an equal amount, increases welfare for all teachers and induces higher-quality teachers to remain longer in the labor force.
[previously circulated as "Unions, Salaries, and The Market for Teachers"]
NBER Working Paper n. 24813
2016 NAEd/Spencer Dissertation Fellowship; Selected "Best Applied Paper" during the Econometric Society European Summer Meeting 2016
Policy brief: Cato Institute
Press coverage: Wall Street Journal, 1/31/2017
Compensation of most US public school teachers is rigid and determined solely on the basis of seniority. This paper examines the effects of a major change in laws regulating teacher salaries. In 2011, the State of Wisconsin's Act 10 gave school districts full authority to design their own independent compensation schemes for teachers. Newly collected data on district-level policies show that roughly half of all districts retained seniority-based schedules, whereas the other half switched to flexible compensation and started paying high-quality teachers more. Teacher quality (measured using test scores) increased by 0.05 standard deviations in districts with flexible pay relative to those that retained the rigid compensation structure. This change was driven primarily by high-quality teachers moving into flexible-pay districts and low-quality teachers leaving these districts. Teachers' effort also increased by 0.07 standard deviations in flexible-pay districts compared with seniority-pay districts. Simulations based on a structural model of this labor market show that the introduction of individual salaries in all districts (as opposed to just a few) is associated with a smaller improvement in teacher quality, entirely attributable to exits of low-quality teachers.
School Finance Equalization and Intergenerational Mobility [SSRN]
Large differences in intergenerational mobility exist across US commuting zones, yet little is known about their causes. This paper studies the effects of equalizing per pupil expenditure across public school districts on students' intergenerational mobility, using variation from states' school finance reforms. Tiebout sorting of households across districts following a reform affects house prices, the property tax base, and districts' revenues, creating a problem of endogeneity. I address this issue with a simulated-instruments approach, which uses states' funding formulas and newly collected data on the formula components to simulate revenues for each district in the absence of sorting. 2SLS estimates indicate that equalizing school expenditure increases mobility for low-income students, with small negative effects on high-income pupils. 2SLS estimates are 1.5 times as large as OLS, suggesting that the endogeneity of post-reform expenditure can severely affect these estimates. Equalization affects intergenerational mobility by reducing gaps in inputs (such as the number of teachers) and intermediate educational outcomes (such as high school completion) between low- and high-income districts.
Effects of Copyrights on Science (with Petra Moser) [SSRN]
NBER Working Paper n. 24255, CEPR Discussion Paper n. 12651
Policy briefs: Voxeu.org, Cato Institute
Featured in the NBER Digest, March 2018 Issue
This paper investigates the effects of copyrights and access costs on science, using an exogenous change in copyright laws. In 1942 the WWII Book Republication Program (BRP) allowed US publishers to republish exact copies of German-owned science books at a lower price, effectively breaking the monopoly of copyrights. Using two complementary identification strategies we show that this program led to a substantial increase in citations. Lower access costs were a major determinant of this effect: A 10-percent decline in the price of a BRP book led to a 43-percent increase in citations. An empirical analysis of library holdings and the location of citations shows that lower prices helped distribute books to less affluent institutions, allowing a new group of researchers to use these books in their research. These results are confirmed by two alternative measures of scientific output: new PhDs and patents.
Career Effects of Mental Health (with Michael Dahl and Petra Moser) [SSRN]
Press coverage: Business Insider, 7/16/2015
One in twelve Americans is affected by a mental health disorder. This paper examines the effects of such disorders and treatment, using individual-level registry data on mental health diagnoses. We find that mental health conditions carry immense earnings penalties: Compared with the population, people with depression earn 32 percent less, people with bipolar disorder earn 36 percent less, and people with schizophrenia earn 74 percent less. Even compared with their siblings, they earn 35, 28, and 74 percent less, respectively. People with mental health disorders also face substantially higher risks of zero earnings and disability. To investigate the causal effects of treatments and changes in mental health we examine the approval of lithium as a treatment for bipolar disorder (BD) in 1976. Baseline estimates compare career outcomes for people with and without access to treatment in their early 20s, the typical age of onset for BD. We find that access to treatment eliminates one third of the earnings penalty from BD, reduces the risk of zero earnings by more than one third, and reduces the risk of disability by nearly two thirds. Notably, not only the costs of mental health disorders, but also the benefits from treatments are strongest in the bottom quantiles of earnings. These findings indicate that access to treatment has important implications for economic inequality.
Retirement Age Effects of Pension and Salary Reforms: Evidence from Wisconsin Teachers [new draft coming soon]
Public sector employees in the US receive a large part of their lifetime compensation in the form of defined benefit pensions, financed in part with employees’ salary contributions. Combined with different wage structures, these pension plans can affect workers’ decisions on the optimal retirement age and, in turn, the composition of the workforce. In this paper I study the retirement effects of a reform which increased all Wisconsin teachers’ contribution to the pension fund, and at the same time changed the structure of their salaries in some districts, away from a lock- step schedule and towards individually-based salaries. I first show that the reform increased the retirement age of high-quality teachers working in individual-salaries districts more compared with lower quality teachers. I then build and estimate a life-cycle model of consumption and retirement, and I use it to show that a) the reform reduced welfare of all teachers, and b) an alternative budget-cutting policy which, instead of increasing contributions, reduces pension benefits by an equal amount, increases welfare for all teachers and induces higher-quality teachers to remain longer in the labor force.
