Temporary contracts are bad for your cognitive health: Evidence from PIAAC
Antonio Cabrales, Juan Dolado, Ricardo Mora 05 December 2014
The negative consequences of dual labour markets have been extensively documented, but so far little attention has been paid to their effects on workers’ on-the-job training and cognitive skills. This column discusses evidence from PIAAC – an exam for adults designed by the OECD in 2013. Temporary contracts are associated with a reduction of 8–16 percentage points in the probability of receiving on-the-job training, and this training gap can explain up to half of the gap in numeracy scores between permanent and temporary workers.
Starting with the seminal work by Saint-Paul (1996), there has been a large literature documenting the negative consequences of dual labour markets in several EU countries.1 Among them, Spain is often cited as the most extreme example, since its labour market is characterised by a large gap between the firing costs of workers with permanent and temporary contracts, and by lax regulation of the use of temporary contracts.
dual labour markets, labour market regulation, temporary contracts, health, cognitive health, cognitive skills, on-the-job training, training, human capital, firing costs, employment protection, Employment Protection Legislation
High-stakes school testing: New evidence
Victor Lavy, Avraham Ebenstein, Sefi Roth 20 November 2014
Admission to higher education often depends on the results of high-stakes tests, but assessing the consequences of having a ‘bad day’ on such tests is challenging. This column provides evidence from a dataset on Israeli high-school students. Random variations in pollution have measurable effects on exam performance, and these in turn have significant effects on students’ future educational and labour-market outcomes. The authors argue that placing too much weight on high-stakes exams may not be consistent with meritocratic principles.
Although many countries use high-stakes testing to rank students for college admission, the consequences of this policy are largely unknown. Does having a particularly good or bad performance on a high-stakes examination have long-term consequences for test takers, after accounting for a student’s cognitive ability? Insofar as there are permanent wage consequences to variation induced by completely random shocks to student performance, it suggests that the use of high-stakes testing as a primary method for ranking students may be inefficient.
Education Environment Labour markets
testing, tests, standardised testing, standardised tests, exams, SATs, Bagrut, admissions, pollution, Israel, returns to education, human capital, allocative efficiency, meritocracy, pressure
What about increasing unemployment benefits for the young?
Claudio Michelacci, Hernán Ruffo 18 November 2014
Like any insurance mechanism, unemployment benefits involve a trade-off between risk sharing and moral hazard. Whereas previous studies have concluded that unemployment insurance is close to optimal in the US, this column argues that replacement rates should vary over the life cycle. Young people typically have little means to smooth consumption during a spell of unemployment, while the moral hazard problems are minor – regardless of replacement rates, the young want jobs to improve their lifetime career prospects and to build up human capital.
It is well known that workers suffer when they lose their job and experience an unemployment spell – surveys indicate a sharp decrease in happiness, and average consumption falls by around 20% upon job displacement. And much research has studied how to efficiently insure workers against the risk of unemployment. Like any other insurance mechanism, unemployment insurance involves a trade-off between the gains from providing liquidity and insurance to unemployed workers and the cost of the implicit problem of moral hazard.
unemployment, insurance, happiness, Unemployment insurance, unemployment benefits, moral hazard, replacement rates, human capital, life cycle
African growth looking forward
Marco Annunziata 16 August 2014
Africa has generated a lot of enthusiasm lately. The cynical view of the continent as a hopeless basket case has been replaced by the lofty narrative of Africa Rising. This column argues that Africa’s progress is impressive, and there is more to the story than a commodity boom. But Africa is at a crossroads. The opportunities are huge, but the road ahead is long, and will require persistent and patient effort from policymakers as well as business.
Views on Africa’s growth prospects have jumped from utter pessimism to extreme enthusiasm. The latter has been centre-stage with the US–Africa Summit hosted in Washington DC from 4–6 August 2014, with the participation of top political and business leaders. My coauthors Todd Johnson and Shlomi Kramer and I have tried to take a sober assessment of Africa’s progress and prospects, looking beyond the current hype and the inevitable frustration that doing business in the region still generates (Annunziata et al. 2014).
development, growth, Africa, human capital, trade, innovation, infrastructure, commodity boom
The unrecognised benefits of grade inflation
Raphael Boleslavsky, Christopher Cotton 16 August 2014
Grade inflation is widely viewed as detrimental, compromising the quality of education and reducing the information content of student transcripts for employers. This column argues that there may be benefits to allowing grade inflation when universities’ investment decisions are taken into account. With grade inflation, student transcripts convey less information, so employers rely less on transcripts and more on universities’ reputations. This incentivises universities to make costly investments to improve the quality of their education and the average ability of their graduates.
Since the early 1980s, the mean grade point average at American colleges and universities has risen at a rate of between 0.1 and 0.15 points per decade. Most of this increase can be attributed to an increase in the share of As assigned (which now comprise nearly half of all grades), with significant drops in the assignment of lower grades (Rojstaczer 2011 and Rojstaczer and Healy 2012).
Education Labour markets
education, human capital, investment, grade inflation
Knowledge elites, enlightenment, and industrialisation
Nico Voigtländer, Mara Squicciarini 13 July 2014
Although studies of contemporary economies find robust associations between human capital and growth, past research has found no link between worker skills and the onset of industrialisation. This column resolves the puzzle by focusing on the upper tail of the skill distribution, which is strongly associated with industrial development in 18th-century France.
Much has been written about the ‘knowledge economy’, and a large literature in economics has highlighted the importance of human capital for economic development in the modern world. Schooling is a strong predictor of per capita income and growth across countries – a pattern that emerges because skills facilitate technology adoption and innovation (Nelson and Phelps 1966, Benhabib and Spiegel 1994, Caselli and Coleman 2006). In contrast, the importance of human capital during the Industrial Revolution has typically been described as minor.
Development Economic history Education
human capital, Industrial Revolution, industrialisation
Human capital and income inequality: Some facts and some puzzles
Amparo Castelló-Climent, Rafael Doménech 23 April 2014
Most developing countries have made a great effort to eradicate illiteracy. As a result, the inequality in the distribution of education has been reduced by more than half from 1950 to 2010. However, inequality in the distribution of income has hardly changed. This column presents evidence from a new dataset on human capital inequality. The authors find that increasing returns to education, globalisation, and skill-biased technological change can explain why the fall in human capital inequality has not been sufficient to reduce income inequality.
The rise of income inequality in many countries from 1985 onwards, and particularly during the recent crisis, has prompted a current debate on the causes and consequences of higher inequality and its effects on future growth (see, for example, OECD 2011, IMF 2014, or Ostry et al. 2014). As a result, and despite the slight reduction from 1960 to 1985, the average income Gini coefficient for developing countries was almost the same in 1960 (0.42) as it was in 2005 (0.41).
Development Education Poverty and income inequality
education, globalisation, human capital, Inequality, skill-biased technological change
Get together for the kids
Shelly Lundberg, Robert A. Pollak 29 October 2013
Marriage patterns have changed in the last 50 years as fertility rates declined and cohabitation became more widespread. These trends can be explained by a shift in the gains from marriage away from specialisation and towards investment in children. This column argues that different patterns in childrearing are key to understanding class differences in marriage and parenthood. Heterogeneity in preferences for – or ability to invest in – child human capital explain marriage and fertility patterns across socioeconomic groups.
The US has experienced dramatic changes in patterns of marriage, cohabitation, and childbearing since 1950. Non-marital births have increased from 4% of all births in 1950 to 41% in 2010, and a majority (52%) of non-marital births now occur within cohabiting unions (Manlove et al. 2010). Much of this change can be accounted for by a reduction in 'shotgun' marriages (Akerlof, Yellen, Katz, 1996).
Education Poverty and income inequality
human capital, gender wage gap, fertility, marriage
Income and schooling
Markus Brückner, Mark Gradstein 04 April 2013
Average income per capita is strongly correlated with more schooling, but this relationship is more complex than it appears. This column presents new research showing that a large part of the correlation is attributed to the causal effect of economic prosperity on the formation of human capital via schooling.
Countries’ average income per capita is strongly correlated with more schooling. This can be seen both by looking at the relationship between them across countries (Figure 1), and by considering their evolution over time in particular countries. For example, the percentage of the population in the US with at least a college degree rose from around 10% in the early 1960s to almost 30% in the early 2000s, while annual real GDP per capita in the same period grew from under $20,000 to over $40,0001.
Figure 1. Income and schooling
human capital, income
Child health and the intergenerational transmission of human capital
Janet Currie 19 July 2008
What explains the poverty trap? This column summarises a vast array of evidence on the relationship between parents’ socioeconomic status, children’s health, and children’s future socioeconomic outcomes. Poverty worsens childhood health, which leads to adulthood poverty. Focusing on young mothers’ health and wellbeing could break the cycle.
When economists think of “human capital,” they usually mean education. Investments in education pay off in the form of higher future earnings and many other positive outcomes. But what determines a child’s educational success?
Health economics Poverty and income inequality
human capital, socioeconomic status, maternal education, poverty trap, child health