Essays in applied microeconomics

Abstract

This thesis consists of four essays in applied microeconomics. Chapter 1 studies the effects of parental job loss on various outcomes of children and provides new evidence on the heterogeneity of these effects along the cognitive ability distribution of children. I find that higher intelligence score protects children from the negative effects, but only in the long run. In the shorter term, instead of protecting, high intelligence exacerbates the cost of parental unemployment in terms of educational outcomes. This forces high-intelligence children with unemployed parents to start their careers at lower-paying jobs. Nevertheless, they can prove themselves via work performance and switch to better-paying jobs. I also provide suggestive evidence that their lifetime earnings could be higher had they continued their education. Chapter 2, joint with Michele Boldrin and Aldo Rustichini, studies the relationship between fertility decisions and intelligence. We document that fertility may be negatively associated, at least in advanced societies, with higher intelligence. A possible explanation of the finding is provided in models describing the choice of individuals (in particular women) facing a trade-off between parenthood and career concerns. With positive complementarity between intelligence and effort in education and career advancement, higher intelligence individuals, particularly women, will sacrifice parenthood to education. Thus, current education and labor market policies may be imposing an uneven penalty on more talented women. We test and find support for the model in a large data set for the UK (Understanding Society), using several alternative measures of fertility. Our results provide a new interpretation of the well documented fact in demographic studies that education is negatively associated with fertility: it is not education as an outcome, but as an aspiration that reduces fertility. Chapter 3 investigates the joint effect of local economic conditions on educational decisions and subsequent labour market outcomes using the instrumental variable approach. I find that adverse economic conditions at age 14 reduce educational attainment, except for the children aiming at university degrees. Second, exposure to a higher unemployment rate at age 14 permanently reduces real hourly wages over the life cycle. The IV estimator suggests that a year of education lost due to initial economic conditions corresponds to about 8% lower wages at ages 26-30 and 6% lower wages at ages 41-45. Chapter 4, joint with Johanna Reuter, attempts to differentiate the degree attainment in the UK by type of higher education institutions. Historically higher education in the UK has been shaped by a dual system: elite universities on the one hand and polytechnics and other higher education institutions on the other. Despite the formal equivalence of both degrees, the two institution types faced different financing, target populations, admission procedures and subjects taught. Nevertheless, in survey data they are often indistinguishable. We overcome this problem using a multiple imputation technique in the UKHLS and BHPS datasets. We examine the validity of inference based on imputed values using Monte Carlo simulations. We also verify that the imputed values are consistent with university graduation rates computed using the universe of undergraduate students in the UK.