HIP, RIP, and the Robustness of Empirical Earnings Processes
Florian Hoffmann
Quantitative Economics,
Nr. 3,
2019
Abstract
The dispersion of individual returns to experience, often referred to as heterogeneity of income profiles (HIP), is a key parameter in empirical human capital models, in studies of life‐cycle income inequality, and in heterogeneous agent models of life‐cycle labor market dynamics. It is commonly estimated from age variation in the covariance structure of earnings. In this study, I show that this approach is invalid and tends to deliver estimates of HIP that are biased upward. The reason is that any age variation in covariance structures can be rationalized by age‐dependent heteroscedasticity in the distribution of earnings shocks. Once one models such age effects flexibly the remaining identifying variation for HIP is the shape of the tails of lag profiles. Credible estimation of HIP thus imposes strong demands on the data since one requires many earnings observations per individual and a low rate of sample attrition. To investigate empirically whether the bias in estimates of HIP from omitting age effects is quantitatively important, I thus rely on administrative data from Germany on quarterly earnings that follow workers from labor market entry until 27 years into their career. To strengthen external validity, I focus my analysis on an education group that displays a covariance structure with qualitatively similar properties like its North American counterpart. I find that a HIP model with age effects in transitory, persistent and permanent shocks fits the covariance structure almost perfectly and delivers small and insignificant estimates for the HIP component. In sharp contrast, once I estimate a standard HIP model without age‐effects the estimated slope heterogeneity increases by a factor of thirteen and becomes highly significant, with a dramatic deterioration of model fit. I reach the same conclusions from estimating the two models on a different covariance structure and from conducting a Monte Carlo analysis, suggesting that my quantitative results are not an artifact of one particular sample.
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Trust in Banks
Zuzana Fungáčová, Iftekhar Hasan, Laurent Weill
Journal of Economic Behavior and Organization,
2019
Abstract
Trust in banks is considered essential for an effective financial system, yet little is known about what determines trust in banks. Only a handful of single-country studies discuss the topic, so this paper aims to fill the gap by providing a cross-country analysis on the level and determinants of trust in banks. Using World Values Survey data covering 52 countries during the period 2010–2014, we observe large cross-country differences in trust in banks and confirm the influence of several sociodemographic indicators. Our main findings include: women tend to trust banks more than men; trust in banks tends to increase with income, but decrease with age and education; and access to television enhances trust, while internet access erodes trust. Additionally, religious, political, and economic values affect trust in banks. Notably, religious individuals tend to put greater trust in banks, but differences are observed across denominations. The holding of pro-market economic views is also associated with greater trust in banks.
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The Social Origins of Inventors
Philippe Aghion, Ufuk Akcigit, Ari Hyytinen, Otto Toivanen
NBER Working Paper,
Nr. 24110,
2017
Abstract
In this paper we merge three datasets - individual income data, patenting data, and IQ data - to analyze the determinants of an individual's probability of inventing. We find that: (i) parental income matters even after controlling for other background variables and for IQ, yet the estimated impact of parental income is greatly diminished once parental education and the individual's IQ are controlled for; (ii) IQ has both a direct effect on the probability of inventing an indirect impact through education. The effect of IQ is larger for inventors than for medical doctors or lawyers. The impact of IQ is robust to controlling for unobserved family characteristics by focusing on potential inventors with brothers close in age. We also provide evidence on the importance of social family interactions, by looking at biological versus non-biological parents. Finally, we find a positive and significant interaction effect between IQ and father income, which suggests a misallocation of talents to innovation.
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Imputation Rules for the Implementation of the Pre-unification Education Variable in the BASiD Data Set
André Diegmann
Journal for Labour Market Research,
2017
Abstract
Using combined data from the German Pension Insurance and the Federal Employment Agency (BASiD), this study proposes different procedures for imputing the pre-unification education variable in the BASiD data. To do so, we exploit information on education-related periods that are creditable for the Pension Insurance. Combining these periods with information on the educational system in the former GDR, we propose three different imputation procedures, which we validate using external GDR census data for selected age groups. A common result from all procedures is that they tend to underpredict (overpredict) the share of high-skilled (low-skilled) for the oldest age groups. Comparing our imputed education variable with information on educational attainment from the Integrated Employment Biographies (IEB) reveals that the best match is obtained for the vocational training degree. Although regressions show that misclassification with respect to IEB information is clearly related to observables, we do not find any systematic pattern across skill groups.
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Economic Failure and the Role of Plant Age and Size
Steffen Müller, Jens Stegmaier
Small Business Economics,
Nr. 3,
2015
Abstract
This paper introduces a large-scale administrative panel data set on corporate bankruptcy in Germany that allows for an econometric analysis of involuntary exits where previous studies mixed voluntary and involuntary exits. Approximately 83 % of all bankruptcies occur in plants with not more than 10 employees, and 61 % of all bankrupt plants are not older than 5 years. The descriptive statistics and regression analysis indicate substantial negative age dependence with respect to bankruptcy risk but confirm negative size dependence for mature plants only. Our results corroborate hypotheses stressing increasing capabilities and positional advantage, both predicting negative age dependence with respect to bankruptcy risk due to productivity improvements. The results are not consistent with the theories explaining age dependence via imprinting or structural inertia.
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Establishment Exits in Germany: The Role of Size and Age
Daniel Fackler, Claus Schnabel, J. Wagner
Small Business Economics,
Nr. 3,
2013
Abstract
Using comprehensive data for West Germany, this paper investigates the determinants of establishment exit. We find that between 1975 and 2006 the average exit rate has risen considerably. In order to test various “liabilities” of establishment survival identified in the literature, we analyzed the impact of establishment size and put a special focus on differences between young and mature establishments. Our empirical analysis shows that the mortality risk falls with establishment size, which confirms the liability of smallness. The probability of exit is substantially higher for young establishments which are not more than 5 years old, thus confirming the liability of newness. There also exists a liability of aging since exit rates first decline over time, reaching a minimum at ages 15–18, and then rise again somewhat. The determinants of exit differ substantially between young and mature establishments, suggesting that young establishments are more vulnerable in a number of ways.
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How Firms Respond to Business Cycles: The Role of Firm Age and Firm Size
Teresa C. Fort, John Haltiwanger, Ron S. Jarmin, Javier Miranda
IMF Economic Review,
Nr. 3,
2013
Abstract
There remains considerable debate in the theoretical and empirical literature about the differences in the cyclical dynamics of firms by firm size. This paper contributes to the debate in two ways. First, the key distinction between firm size and firm age is introduced. The evidence presented in this paper shows that young businesses (that are typically small) exhibit very different cyclical dynamics than small/older businesses. The second contribution is to present evidence and explore explanations for the finding that young/small businesses were hit especially hard in the Great Recession. The collapse in housing prices accounts for a significant part of the large decline of young/small businesses in the Great Recession.
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