Earnings Premium Research Articles

Earnings Premium in State Jobs Across Urban China

Using the Chinese Household Income Project (CHIP) data, we find a 30 percent raw differential in earnings in favor of state workers in 2002. We examine the degree to which this differential is a pure premium by using a Heckman two-step selection model, where we instrument workers’ preference for state jobs with family political connections, among other factors. We find that 22 percent of the observed earnings differential is a pure premium to a worker in a state job in urban China. In the absence of a political transition in China, state jobs remained the privileged constituency in a dual-track transition that attracted the best politically connected workers in urban China and offered them a pure earnings premium.

Summary of the General Discussion on “Earnings Premium in State Jobs Across Urban China”

Summary of the General Discussion on “Earnings Premium in State Jobs Across Urban China”

Timing Law School

We investigate whether economic conditions at labor market entry predict long‐term differences in law graduate earnings. We find that unemployment levels at graduation continue to predict law earnings premiums within four years after graduation for earners at the high end and middle of the distribution. However, the relation fades as law graduates gain experience and the difference in lifetime earnings is moderate. Outcomes data available prior to matriculation do not predict unemployment or starting salaries at graduation. Earnings premiums are not predicted by BLS projected job openings. Although changes in cohort size predict changes in the percent of law graduates practicing law, we find little evidence that changes in cohort size predict changes in earnings. This suggests that law graduates who switch to other occupations when law cohort sizes increase are not hurt financially by larger cohorts. For medium‐ to high‐earning graduates, successfully timing law school predicts a higher value of a law degree ex‐post, but simulations show that no strategy for ex‐ante timing is readily available.

Sexual Identity, Same-Sex Relationships, and Labour Market Dynamics: New Evidence from Longitudinal Data in Australia

Using newly collected data on sexual identity from the Household, Income and Labour Dynamics in Australia Survey, this study examines the relationship between sexual identity and labour market outcomes. Our findings show that gay males are: (i) less likely to be continuously employed than their heterosexual counterparts, and (ii) face an annual earnings penalty of 16–21%. There are also important differences in earnings dynamics for men who transition into (or out of) same-sex versus opposite-sex live-in relationships. Individual fixed effects estimates show that opposite-sex partnerships are associated with increased earnings for men, while same-sex partnerships are associated with small declines in earnings that are statistically indistinguishable from zero. For women, we find evidence of an earnings premium for lesbians, driven largely by increased labour supply on the intensive margin.

Not All Education Is Created Equal: How Choice of Academic Major Affects the Racial Salary Gap

Using 48,403 observations from the National Survey of College Graduates, this article examines the racial salary disparity between Black and White college graduates. We find that academic major and first higher education institution influence one’s final occupation, which in turn affects the salary disparity between Blacks and Whites. We suggest that public policy builds awareness among high school students aspiring for college of the importance of preparing for specific academic majors that lead to occupations expected to maintain an earnings premium.

Sources of Displaced Workers' Long-Term Earnings Losses

We estimate the earnings losses of a cohort of workers displaced during the Great Recession and decompose those long-term losses into components attributable to fewer work hours and to reduced hourly wage rates. We also examine the extent to which the reduced earnings, work hours, and wages of these displaced workers can be attributed to factors specific to pre- and post-displacement employers; that is, to employer-specific fixed effects. The analysis is based on employer-employee linked panel data from Washington State assembled from 2002–2014 administrative wage and unemployment insurance (UI) records. Three main findings emerge from the empirical work. First, five years after job loss, the earnings of these displaced workers were 16 percent less than those of comparison groups of non-displaced workers. Second, earnings losses within a year of displacement can be explained almost entirely by lost work hours; however, five years after displacement, the relative earnings deficit of displaced workers can be attributed roughly 40 percent to reduced hourly wages and 60 percent to reduce work hours. Third for the average displaced worker, lost employer-specific premiums account for about 11 percent of long-term earnings losses and nearly 25 percent of lower long-term hourly wages. For workers displaced from employers paying top-quintile earnings premiums (about 60 percent of the displaced workers in the sample), lost employer-specific premiums account for more than half of long-term earnings losses and 83 percent of lower long-term hourly wages.

How Large are Earnings Penalties for Self-Employed and Informal Wage Workers?

This paper examines the earnings penalties and premiums associated with different types of employment in 73 countries. Workers are divided into four categories: non-professional own-account workers, employers and own-account professionals, informal wage employees, and formal wage employees. Approximately half of the workers in low income countries are non-professional own-account workers, and the majority of the rest are informal employees. Fewer than 10 percent are formal employees, and only 2 percent of workers in low income countries are employers or own-account professionals. As per capita gross domestic product increases across countries, there are large net shifts from non-professional own-account work into formal wage employment. Across all regions and income levels, non-professional own-account workers and informal wage employees face an earnings penalty compared with formal wage employees. But in low income countries, this earnings penalty is small, and non-professional own-account workers earn a positive premium relative to all wage employees. Earnings penalties for non-professional own-account workers tend to increase with gross domestic product and are largest for female workers in high income countries. On average, employers and own-account professionals earn a premium compared to employees, although there are important differences across countries and between men and women. In terms of regional differences, earnings premiums for employers and professionals are largest for men in middle income Latin American countries. On the other hand, women employers and professionals do not earn a statistically significant premium compared to employees in any region of the world. These results are consistent with compensating wage differentials and firm quasi-rents playing important roles in explaining cross-country variation in earnings penalties, and raise questions about the extent to which the unskilled self-employed are rationed out of formal wage work in low income countries.

Youth Unemployment and Earnings in Africa: Evidence from Tanzanian Retrospective Data

We exploit a unique data set of individual labour market histories in urban Tanzania to estimate the effect of early labour market experiences on adult labour market outcomes. We consider four labour market entry states—wage employment, self-employment, unpaid worker in the family business and unemployed job-seeker—and estimate how final earnings are associated with each entry state. The findings suggest that how individuals enter the labour market does matter for final earnings. We find that an initial period spent in wage employment is associated with an important earnings premium. We interpret this finding as evidence of the entrapment hypothesis, in that, people who enter the labour market in more disadvantaged positions, such as in the household enterprise, either as self-employed or as unpaid family workers, suffer a penalty in their future earnings. These findings persist after controlling for family specific fixed effects.

Degrees of Poverty: Family Income Background and the College Earnings Premium

Degrees of Poverty: Family Income Background and the College Earnings Premium

Value of a Law Degree by College Major

We estimate the increase in earnings from a law degree relative to a bachelor’s degree for graduates who majored in different fields in college. Students with humanities and social sciences majors comprise approximately 47 percent of law degree holders compared to 23 percent of terminal bachelor’s. Law degree earnings premiums are highest for humanities and social sciences majors and lowest for STEM majors. On the other hand, among those with law degrees, overall earnings are highest for STEM and Business Majors. This effect is fairly small at the low end of the earnings distribution, but quite large at the top end. The median annual law degree earnings premium ranges from approximately $29,000 for STEM majors to $45,000 for humanities majors.

Accounting for the Rise in College Tuition

We develop a quantitative model of higher education to test explanations for the steep rise in college tuition between 1987 and 2010. The framework extends the quality maximizing college paradigm of Epple, Romano, Sarpca, and Sieg (2013) and embeds it in an incomplete markets, life-cycle environment. We measure how much changes in underlying costs, reforms to the Federal Student Loan Program (FSLP), and changes in the college earnings premium have caused tuition to increase. All these changes combined generate a 106% rise in net tuition between 1987 and 2010, which more than accounts for the 78% increase seen in the data. Changes in the FSLP alone generate a 102% tuition increase, and changes in the college premium generate a 24% increase. Our ?ndings cast doubt on Baumol’s cost disease as a driver of higher tuition.

Reassessing the economic value of advanced level mathematics

In the late 1990s, the economic return to Advanced level (A‐level) mathematics was examined. The analysis was based upon a series of log‐linear models of earnings in the 1958 National Child Development Survey (NCDS) and the National Survey of 1980 Graduates and Diplomates. The core finding was that A‐level mathematics had a unique earnings premium of 7–10% at age 33. In recent years, this finding has contributed to the government's agenda of increasing participation in post‐16 study of advanced mathematics in England. Given that the 1958 NCDS participants are now 57 years old, this paper repeats this important work using the 1970 British Cohort Study (BCS). Updated models are used to investigate whether the A‐level mathematics premium also existed at age 34 for the 1970 BCS participants. There does appear to be a return of approximately 11% when replicating the original model closely but the robustness of this result depends on the model specification, sample size and the handling of missing data. We consider theoretical explanations of these findings and their implications for policy and future research.

Earnings Premiums and Penalties for Self-Employment and Informal Employees Around the World

This paper examines the earnings premiums associated with different types of employment in 73 countries. Workers are divided into four categories: non-professional own-account workers, employers and own-account professionals, informal wage employees, and formal wage employees. Approximately half of the workers in low-income countries are non-professional own-account workers and the majority of the rest are informal employees. Fewer than 10 percent are formal employees, and only 2 percent of workers in low-income countries are employers or own-account professionals. As per capita gross domestic product increases, there are large net shifts from non-professional own-account work into formal wage employment. Across all regions and income levels, non-professional own-account workers and informal wage employees face an earnings penalty compared with formal wage employees. But in low-income countries this earnings penalty is small, and non-professional own-account workers earn a positive premium relative to all wage employees. Earnings penalties for non-professional own-account workers tend to increase with gross domestic product and are largest for female workers in high-income countries. Men earn greater premiums than women for being employers or own-account professionals. These results are consistent with compensating wage differentials and firm quasi-rents playing important roles in explaining cross-country variation in earnings penalties, and raise questions about the extent to which the unskilled self-employed are rationed out of formal wage work in low-income countries.

EXERCISING WILLPOWER: DIFFERENCES IN WILLPOWER DEPLETION AMONG ATHLETES AND NONATHLETES

the absence of willpower the most complete collection of virtues and talents is wholly worthless. --Aleister Crowley I. INTRODUCTION Participation in high school and college athletics has been linked to an earnings premium of between 4% and 10% (Barron, Ewing, and Waddell 2000; Cabane and Lechner 2014; Ewing 1998, 2007; Lechner 2009; Lechner and Downward 2013; Lechner and Sari 2014; Long and Caudill 1991; McCormick and Tinsley 1987; Rehberg and Schafer 1968; Rooth 2011; Spreitzerand Pugh 1973; Stevenson 2010). Stevenson (2010) identified a causal link between athletic participation and greater labor force participation and higher wages among women. What remains unclear, however, is the avenue through which this wage premium for athletes occurs. If the wage premium exists, holding constant measurable skills such as grade point average (GPA) and standardized test scores, do athletes possess other noncognitive skills that are valued by the market such as willpower, determination, competitiveness, and teamwork? In this study, we consider athletes and willpower. Based on Stevenson's findings, it is plausible that an athlete's willpower reserves could be an important source of their earnings premium. The significance of willpower as an important noncognitive skill was first recognized by Walter Mischel (1958) with his famous marshmallow experiments in which he linked the ability to stave off immediate gratification among small children to larger rewards later in life such as higher grades, greater graduation rates and, ultimately, higher earnings. Recent research (Baumeister, Heatherton, and Tice 1994; Baumeister et al. 1998; Muraven, Tice, and Baumeister 1998) has established that individuals have a limited supply of willpower that can be depleted. Hence, willpower is like a muscle that becomes exhausted with use. One can, however, strengthen this muscle with exercise, and develop an ability to diminish willpower depletion. (1) Based on the sports earnings premium literature, we hypothesize that athletes, by their participation in formal physical activities over many years, have developed and strengthened their willpower muscle, (2) and when tested, will exhibit less depletion as compared to nonathletes. In order to test this, we conduct a laboratory experiment based on the procedure laid out by Muraven, Tice, and Baumeister (1998) in which participants are timed while attempting to solve an unsolvable puzzle. Participants in treatment groups underwent a willpower-draining task of restraining from expressing emotions while watching an emotionally provocative video before attempting the puzzle, while control group participants watched the same video but were able to express emotions. We randomly assigned athletes and nonathletes into control and treatment groups, resulting in four separate experimental groups: athlete-treatment, athlete-control, nonathlete-treatment, and nonathlete-control. We hypothesized that athletes in the treatment group would spend more time on the puzzle, thereby exhibiting less willpower depletion. We found that treated athletes worked significantly longer on the difficult task than nonathletes. Because of the random assignment of treatment group and control group participants, we interpret this finding as causal evidence that after expending some self-control, athletes experience less willpower depletion than nonathletes in subsequent tasks. This article proceeds as follows: Section II describes the previous literature results on both the links between participation in athletics and an earnings premium as well as the literature on willpower and willpower depletion. Section III describes the experiment, Section IV describes the model and the results, and Section V concludes the article. II. LITERATURE REVIEW High school and college athletes earn more in labor markets (Barron, Ewing, and Waddell 2000; Cabane and Lechner 2014; Ewing 1998, 2007; Lechner 2009; Lechner and Downward 2013; Lechner and Sari 2014; Long and Caudill 1991; McCormick and Tinsley 1987; Rehberg and Schafer 1968; Rooth 2011; Spreitzer and Pugh 1973; Stevenson 2010). …

Does intermarriage promote economic assimilation among immigrants in the United States?

Purpose– The purpose of this paper is to investigate whether immigrants in the USA receive an earnings premium associated with marrying a native.Design/methodology/approach– The raw premium revealed by the 2000 US Census data is suspect due to possible endogeneity and selection bias. Instrumental variables estimation, a sample selection model, and a counterfactual construction method are used to address these issues.Findings– Results suggest a positive and modest intermarriage premium, although the magnitude varies with the estimation technique. The evidence is particularly strong for immigrants with high English proficiency, college graduates, and immigrants older than 12 upon arrival in the USA.Originality/value– It is shown that the size of intermarriage premiums varies significantly across different immigrant groups. The empirical results provide insights into the economic assimilation process and mechanisms through which intermarriage influences the labor market outcomes of immigrants.

The Portability of New Immigrants’ Human Capital: Language, Education, and Occupational Skills

Given the declining returns to pre-migration labour market experience, human capital portability is explored for new immigrants focusing on pre- and post-immigration occupational matching, and its interactions with education and language. New immigrants who match occupations obtain an earnings premium, but surprisingly, on average, even they obtain no return to their pre-migration labour market experience. Only males with substantial English proficiency who also match occupations receive any return to such experience. Moreover, occupational matching and English skills are also seen to interact with education in an unexpected way. For both sexes, only those with a match and/or strong English proficiency obtain a positive return to their schooling. The commonly observed low rate of return to education for new immigrants appears to be a combination of zero for some and a large return for others. Of the varieties of human capital studied, only English language skills are universally rewarded.

Timing Law School (Presentation Slides)

This is a powerpoint presentation of Timing Law School. A draft version of the article is available at http://ssrn.com/abstract=2574587.We investigate whether economic conditions at labor market entry have persistent effects on law graduate earnings. We find that unemployment levels at graduation continue to affect law earnings premiums within 4 years after graduation. For law graduates entering the labor market in strong economies, early outcomes are particularly good. However, the effect quickly fades as law graduates gain experience and the impact on lifetime earnings is relatively small. Outcomes data available prior to matriculation do not predict unemployment or starting salaries at graduation. Earnings premiums are not predicted by either cohort size or projected job openings. Even an effective “timing” strategy would likely be outweighed by the opportunity cost of a two-year delay in law school completion.

Returns to Foreign Language Skills in a Developing Country: The Case of Turkey

This paper analyses the economic value of foreign languages in Turkey using data on some 6000 adult male wage-earners in 2007. We find positive earnings returns to proficiency in English and Russian, which increase with the level of competence. French and German skills are also positively rewarded, although their return seems mostly linked to the likelihood to hold specific occupations. In contrast, knowing Arabic does not generate an earnings premium. Focusing on English, we check for heterogeneous returns along the conditional earnings distribution. The results are qualitatively invariant when we account for misclassification errors in self-reported English skills.

Sexual Identity, Earnings, and Labour Market Dynamics: New Evidence from Longitudinal Data in Australia

Using newly collected data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey, this study presents new estimates of the earnings effects of sexual orientation in Australia and offers the first empirical investigation of the labour market trajectories of lesbian/gay/bisexual individuals. Our results show that gay males are: (i) less likely to be continuously employed than their heterosexual counterparts, and (ii) face an earnings penalty of approximately 20 percent, driven, in part, by a longer-run earnings growth penalty relative to heterosexuals. Individual fixed effects estimates show that males entering into same-sex partnerships experience earnings declines relative to those entering into opposite-sex partnerships. For lesbians, we find evidence of an earnings premium, explained largely by increased labour supply on the intensive margin and, to a lesser extent, greater earnings growth over time.

The earnings returns to graduating with honors — Evidence from law graduates

This paper aims at studying the causal effects of graduating from a university with an honors degree on subsequent earnings. While a rich body of literature has focused on estimating returns to human capital, few studies have analyzed returns at the very top of the education distribution. We highlight the importance of honors degrees for future labor market success in the context of German law graduates. Using a difference-in-differences research design combined with entropy balancing, we find that graduates of law who passed the state bar exam with an honors degree receive a significant earnings premium of about 14%. The results are robust to various sensitivity analyses.