Archive for the ‘Cato Institute’ Category

Analyzing the Labor Market Outcomes of Occupational Licensing

May 25, 2015 Comments off

Analyzing the Labor Market Outcomes of Occupational Licensing
Source: Cato Institute

The study of the regulation of occupations has a long and distinguished tradition in economics. Some economists have viewed such regulation through the prism of rent-seeking behavior and have empirically examined the economic effect of occupational licensing within that framework. In contrast, others have suggested that regulation provides incentives for workers to enhance their human capital through greater investment in their work. Under the first view, occupations can use political institutions to restrict the supply of and raise the wages of licensed practitioners, while under the second, licensing requirements contain elements of acquired general human capital, and then these workers may possibly raise the average skill level in their new occupation. Both imply that wages would go up, but the first implies that the wage gains are economic rents relative to the second.

Is Ridesharing Safe?

April 30, 2015 Comments off

Is Ridesharing Safe?
Source: Cato Institute

Rideshare companies Uber and Lyft are facing predictable complaints as they continue to grow. Many of these complaints concern safety, with some in the taxi industry claiming that ridesharing is less safe than taking a traditional taxicab.

Ridesharing safety worries relate to the well-being of drivers, passengers, and third parties. In each of these cases there is little evidence that the sharing economy services are more dangerous than traditional taxis. In fact, the ridesharing business model offers big safety advantages as far as drivers are concerned. In particular, ridesharing’s cash-free transactions and self-identified customers substantially mitigate one of the worst risks associated with traditional taxis: the risk of violent crime.

An analysis of the safety regulations governing vehicles for hire does not suggest that ridesharing companies ought to be more strictly regulated. It does highlight, however, that in many parts of the country lawmaker sand regulators have not adequately adapted to the rise of ridesharing, which fits awkwardly into existing regulatory frameworks governing taxis. There will be many real and substantive issues to sort out as the rideshare industry continues to develop. In particular, heavily regulated taxi drivers have a valid point when they complain that they have to compete on an unlevel playing field with less regulated rideshare companies. But the appropriate response to this problem is to rationalize and modernize the outdated and heavy-handed restrictions on taxis—not to extend those restrictions to ridesharing.

Long-Run Effects of Free School Choice: College Attainment, Employment, Earnings, and Social Outcomes at Adulthood

April 10, 2015 Comments off

Long-Run Effects of Free School Choice: College Attainment, Employment, Earnings, and Social Outcomes at Adulthood
Source: Cato Institute

search on the effectiveness of educational programs has centered on evaluating shortterm outcomes, such as standardized test scores. Education aims ultimately to improve lifetime well-being, however, so attention has shifted recently to long-term consequences. Outcomes examined in the literature include post-secondary educational attainment, early adult earnings, years of completed schooling, labor market outcomes, young adult crime, and college entry, choice and completion.

My research examines the long-term consequences of free school choice programs offered to primary school students at the transition to secondary school. The main question is whether the effects of free school choice persist beyond high school and lead to long-term enhancements in human capital and well-being.

To address this issue, I examine a school-choice experiment conducted two decades ago in Tel Aviv, Israel. In Lavy (2010) I analyzed the short- and medium-term effects on cognitive outcomes and schooling attainment during middle and high school. With the passage of time, I can now evaluate whether school choice among public schools has a long-term impact on social and economic outcomes. This research provides the first evidence of links between school choice and students’ employment, earnings, and social outcomes at adulthood. I examine the impact on various types of post-secondary schooling that vary by quality, along with the impact on employment, earnings, and welfare-dependency at about age 30. This work thus presents a wide characterization of school choice’s impact at adulthood.

My results show that the school-choice experiment increased a wide range of post-secondary schooling measures. Two decades after students made their school choice at the end of primary school, treated students are 4.7 percentage points more likely to enroll in postsecondary schooling and to complete almost an additional quarter-year of college schooling, in comparison to students in the control group. These gains reflect a 15 percent increase relative to pre-program averages, and they are similar to the program-induced gains in highschool matricualtion outcomes (Lavy 2010).

Categories: Cato Institute, education, K-12

The Political Assimilation of Immigrants and Their Descendants

February 27, 2015 Comments off

The Political Assimilation of Immigrants and Their Descendants
Source: Cato Institute

Many skeptics of immigration reform claim that immigrants and their descendants will not politically assimilate and will consistently vote for bigger government for generations. Political survey data suggest that this fear is unwarranted, as the political differences between immigrants and native-born Americans are small and, in most cases, so small that they are statistically insignificant. In the cases where the differences are significant, the descendants of immigrants rapidly assimilate into America’s political culture by adopting mainstream ideologies, political party identifications, and policy positions held by longer-settled Americans. The policy and political views of immigrants and their descendants are mostly indistinguishable from Americans whose families have been here for at least four generations. As a result of these small differences in opinion and the subsequent rapid assimilation of immigrants, they and their descendants are unlikely to alter America’s aggregate political attitudes.

Are Public-Sector Jobs Recession Proof? Were They Ever?

January 27, 2015 Comments off

Are Public-Sector Jobs Recession Proof? Were They Ever?
Source: Cato Institute

As government budgets have tightened in the aftermath of the Great Recession, increased scrutiny has been placed upon the compensation received by public-sector workers. Commentators such as Zuckerman (2010) have suggested that public-sector workers are overpaid, while others such as Allegretto and Keefe (2010) have argued that their compensation packages are appropriate, particularly because they tend to have more education than their private-sector counterparts. Most of the focus has been on wage and salary differentials, although pension benefits have also received some attention (Bewerunge and Rosen 2012). However, a compensation package consists of nonpecuniary as well as pecuniary components. An important nonpecuniary benefit is job security. Assuming that workers are risk averse, jobs that offer more security are worth more than those that offer less, ceteris paribus.

It has been argued that government employment has a sizable advantage over private sector employment in this respect. Thus, for example, according to Richwine and Biggs (2012), “It is well known that government employees enjoy considerably more job security than private workers,” and Goldberg (2014) asserts that “government employees are essentially unfireable.” In the popular press, several commentators have stated that even during the Great Recession, government jobs were secure. At the beginning of a piece on this topic, Kittle (2012) asks and answers a question: “Looking for job security in economically trying times? Go government.” Similarly, Curry (2011) characterizes federal employment as being “recession proof.”

However, others assert that while public-sector workers enjoyed more job security than private-sector workers in the past, this advantage decreased in the Great Recession: “The public sector looks far, far worse now than it did then… . Local government employment actually grew in the past two recessions by 7.7 percent and 5.2 percent for each respective period. This time around, it’s hemorrhaging jobs” (Covert 2012). Similarly, Polak and Schott (2012) write in the New York Times, “In the past, local government employment has been almost recession-proof. This time it’s not.”

Medical Marijuana Laws and Teen Marijuana Use

January 7, 2015 Comments off

Medical Marijuana Laws and Teen Marijuana Use
Source: Cato Institute

Medical marijuana is popular with the general public. A recent Gallup poll found that 70 percent of Americans say they favor making marijuana legally available for doctors to prescribe in order to reduce pain and suffering (Mendes 2010).

Given this level of support, it could be viewed as surprising that approximately half of the states still have not legalized medical marijuana. Opponents of medical marijuana, however, have employed a number of arguments, several of which focus on marijuana use by teenagers. For instance, Montana state senator Jeff Essmann was quoted in 2011 as saying, “The number one goal is to reduce access and availability to the young people of this state that are being sent an incorrect message that this is an acceptable product for them to be using” (Florio 2011).

Does Financing Spur Small Business Productivity?

December 19, 2014 Comments off

Does Financing Spur Small Business Productivity?
Source: Cato Institute

cess to adequate financing is an important issue for firms, particularly younger and smaller ones. Given the role these firms play in the process of creative destruction, alleviating financial constraints for start-ups and small businesses is an important concern around the world. More recently, the financial crisis of 2008 demonstrated the critical role of bank financing, at both the firm and economy wide levels. While prior studies have examined how financing affects entrepreneurial firm starts and closures (e.g., Black and Strahan, 2002; Kerr and Nanda, 2009), no study has directly analyzed the link between bank financing and firm productivity, particularly for smaller firms where access to financing is critical. This is important given that most start-ups appear to rely on bankdebt financing (Robb and Robinson, 2013).

Determining the relation between bank financing and firm productivity is difficult because of the possibility of reverse causality. A positive correlation between bank financing and productivity might mean that more productive firms seek additional bank financing, or that increased access to bank financing enhances productivity. Yet another possibility is that unobserved factors affect both access to financing and productivity.

Our research addresses reverse causality by exploiting an exogenous shift in firms’ access to bank financing due to deregulation of interstate bank branching. During the 1990s, states began allowing out-of-state banks to set up and acquire local branches. This increased interstate banking and thus allowed greater access to financing for firms. Consistent with prior literature, we show that deregulations were not driven by prior productivity of firms. The key question is whether this increased access to cheaper financing is dissipated by firms taking on unproductive or less productive pet projects or whether it increases firms’ ability to undertake additional productive projects.


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