Category Archives: Economics

New paper: “Distributional effects of welfare reform for young adults: An unconditional quantile regression approach”

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In the spring of 2015, after having submitted my phd thesis, I attended an applied microeconometics course at the University of Oslo given by Monique de Haan, Tarjei Havnes and Edwin Leuven. I have previously blogged about a paper using the synthetic control method that grew directly out of that course. Now a second paper originating in a presentation in that course has been published:  “Distributional effects of welfare reform for young adults: An unconditional quantile regression approach,” Labour Economics, Volume 65, August 2020. The article is open access.

In the quantile regression class, I presented the paper “Is universal child care leveling the playing field?” by Havnes og Mogstad (Journal of Public Economics, Volume 127, July 2015). That paper uses several non-linear differences-in-differences methods to study the distributional effects of child care. One of their applied methods was the unconditional quantile regression approach of Firpo, Fortin and Lemieux (2009). At the time, I was working on the topic of welfare reform in Norway, and I realized that I could apply the same method to that question. That started a journey that now, 5 years later, has resulted in a published paper.

In the paper, I analyze what happened to earnings when Norwegian municipalities increased their use of conditions for (primarily young) welfare recipients. Of the age group I analyze in the paper (26–30 year olds), 8% received welfare at some time in 1993, the first year of the analysis. Welfare policy affects both those actually receiving welfare as well as a wider population with only a potential connection to the welfare system. I do not know exactly who is impacted, but the fact that changes in welfare policy mainly affect people with a low earning potential suggests going beyond the mean impact and analyzing the effects on the distribution. It is likely that the relatively small average effects mask an effect of higher earnings among low earners and no effects among high earners.

What do I find? Substantial positive effects of increased use of conditions in parts of the lower end of the earnings distribution for women and no or small negative effects for men. For women, earnings at the 20th percentile increase by around 25 percent, or € 2000 per year. As expected, there are no effects in the upper part of the distribution. Below is the key graph:


Fig. 3. Main quantile treatment effect estimates on earnings, 26–30 year olds.

Further, I find that although welfare payments decline, the effect on total income for women is also positive, indicating that they were able to find gainful employment that, overall, improved their financial circumstances.

I conclude that it is important to mention that the reform occurred in a beneficial environment, which may help to explain the good results. First, the reforming municipalities were responsible for undertaking and implementing the changes and therefore likely had a large degree of ownership of the reform and a strategy for implementing it. This may be hard to replicate in the case of changes mandated from a higher authority. Second, the social insurance offices had a large degree of discretion in deciding who should face conditions and what to demand of them. This may be beneficial compared to uniform requirements if caseworkers have relevant information about how to adapt the conditionality policy. Nevertheless, the policy represents a promising avenue to explore for other countries in need of social insurance system reform.

Activation against absenteeism – Evidence from a sickness insurance reform in Norway, published in Journal of Health Economics Volume 62, November 2018, Pages 60-68

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Or why you should take courses that are not for credit and do presentations in class.

In the spring of 2015, I followed a course in microeconometrics at the Department of Economics at the University of Oslo to learn some more econometrics. As part of the course, the students had to present published papers employing the methods from the course. I volunteered to do two such presentations, that both ended up as papers of my own!

For my first presentation, which was on the synthetic control method (SCM), I asked the instructor for that lecture, Tarjei Havnes, if I in stead could present an application of my own. I did not know much about the SCM from before, but in the lecture I noticed that it would fit very well to a recent sickness absence reform in a Norwegian region I had head about from Knut Røed, a colleague at the Frisch Centre. The fact that the seminar schedule was on a few weeks lag from the lectures gave me some time to implement a basic analysis of the reform and put together a presentation. The subsequent positive feedback in the seminar motivated me to develop it into a proper paper, which is now just published in the Journal of Health Economics. The paper if of course much extended since that seminar, but the core remained the same.

The reform in question was a program undertaken by the Norwegian region of Hedmark in 2013. It was aimed at strictly enforcing a requirement that people on long-term sick leave be partly back at work unless explicitly defined as an exception. I found that the reform reduced sickness absenteeism by 12% in the reform region compared to a comparison unit created by a weighted average of similar regions. Thus, making use of the partial work capacity of temporary disabled workers has the potential to reduce long-term absenteeism and bring down social security costs. 

A key graph is below, showing how actual absenteeism in Hedmark (solid line) after the reform diverged from the estimate of absenteeism in the absence of reform (dashed line): 

Fig. 1. Trends in the sickness absence rate in Hedmark and the synthetic control region. Note: The dotted line at the fourth quarter of 2011 indicates the final quarter of the matching period. The dashed line at the second quarter of 2013 indicates the period in which the activation program was introduced.

    The effect is driven by both increased part-time presence of temporary disabled workers and accelerated recovery. Musculoskeletal disorders was the diagnosis group declining the most. I conclude that such an activation strategy represents an alternative to traditional attempts at welfare reform involving stricter screening or reductions in generosity, and may be more compatible with already existing legislation and obligations, as well as easier to find support for across political priorities.

    The paper is freely available for a month here.

    Make a reverse Advent calendar for your kids (or anyone) #2

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    Lessons from last year

    Last year I wrote about making a reverse Advent calendar, based on giving rather than receiving. In terms of my kids’ enthusiasm, I would call it a measured success, however I still love the idea, and decided to make one this year also. What did I learn from last year?

    • Most importantly, the presentation of the gifts was a little dry, being basically fact-sheets about disease prevention, etc., with some very simple illustrations. I was aware of this last year, but accepted it in order to actually get it done. This year, starting from a base, it should be easier to do a little better.
    • The causes themselves probably seemed a bit distant from the children’s daily life, contributing to less than top-level engagement. That is an unavoidable problem with the causes I am most inclined to donate to, however, this year I also included tasks involving actually engaging in kind behavior on a more personal level.

    Last year, the calendar had a gift only every other day. This year I kept that format for the monetary gifts, but filled in the rest of the days with more personal good deeds.

    Monetary gifts

    I wanted to employ the same effective giving strategy as last year, and since GiveWell have not changed their recommendations, that also saved me a lot of work. For further details about which charities to include and how to allocate between them, see last year’s post. The final list this year is as follows:

    1. Against Malaria Foundation (AMF)
    2. Schistosomiasis Control Initiative (SCI), END Fund for work on deworming, Sightsavers for work on deworming and Deworm the World Initiative
    3. GiveDirectly
    4.  Malaria Consortium for work on seasonal malaria chemoprevention
    5. Development Media International produces mass media to promote improved health behaviors in developing countries.
    6. Food Fortification Initiative and Project Healthy Children work to reduce micronutrient deficiencies through food fortification programs.
    7. The Global Alliance for Improved Nutrition (GAIN)’s Universal Salt Iodization program and Iodine Global Network (IGN) aid salt iodization programs in developing countries.
    8. Living Goods supports a network of community health promoters in sub-Saharan Africa.
    9. Helen Keller International (HKI) – Vitamin A Supplementation (VAS) program
    10. Red Cross
    11. Doctors without borders
    12. Amnesty Internationalxmascalendar_giftletters

    I am currently working on making the documents presenting the charities a little more appealing than last year. To the right is how it looked then. Could probably do with some colors and perhaps a few personal stories and small cartoons.

    Good deeds

    This one was harder, as I had to come up with new items. I found some good ideas online, e.g. here. I tried to find activities that required some personal interaction, were quite easy, and could be a little fun. This is the final list, in no particular order:

    1. offer your help to 2 people
    2. leave a positive comment for someone on a mirror/wall/etc.
    3. ask someone who looks like they might be down if they are ok
    4. hug 3 people
    5. compliment a stranger on something
    6. say merry Christmas to 3 strangers, e.g. shop assistants
    7. send a postcard to someone
    8. send a message to a former teacher, etc. about something you appreciated with them
    9. give a compliment to 3 persons
    10. give a gift/gift donation or a general donation to the local poor house
    11. surprise a friend with a small treat
    12. when playing sports, compliment at least one person on something well done, even if it did not result in a goal, etc.

    The final calendar

    Below is a picture of how the calendar looked last year. I have not finished this year’s calendar yet, but I wanted to blog about it now in case I could inspire others to do something similar. Let me know if you want tips or some of my material to make a reverse Advent calendar yourself.

     

    Television, Cognitive Ability, and High School Completion, forthcoming in The Journal of Human Resources

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    One and a half years ago, I blogged about a working paper by Simen Markussen, Knut Røed and myself showing that access to commercial television channels during childhood and adolescence reduced cognitive ability scores and high school graduation rates of Norwegian men. Now, a substantially revised version is forthcoming in The Journal of Human Resources. (Preprint here.) The effects appear to be driven by consumption of light television entertainment crowding out more cognitively stimulating activities.

    Bears repeating: Pat Sharp tweets an apology (thanks to @JFiva).

    Can Welfare Conditionality Combat High School Dropout? Forthcoming in Labour Economics

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    Two years ago, I blogged about a working paper on conditions for welfare and high school completion by Simen Markussen, Knut Røed and myself. The paper is now finally accepted for publication and is forthcoming in Labour Economics. The final version is here, freely downloadable until the beginning of October. An updated working paper version can be found here.

    Make a reverse Advent calendar for your kids

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    SOS Children’s Villages Norway have a project for schools that they call a reverse Advent xmascalendar_giftletters2calendar, in which pupils collect funds every day and learn about the organisation’s projects. I think that is a great concept, combining doing some good, letting kids join in the do-gooding, and teaching them something about the world at the same time. I wanted something to implement at home for my 8-year old, however, and when I did not find anything, I decided to make my own.

    I felt that to prepare something for all the 24 days before Christmas eve would probably require too much work to do it properly, and would also risk turning the reverse calendar into a chore, so I decided to go for every other day. I wholeheartedly support the thinking behind GiveWell’s strategy of efficient giving, and therefore took as a basis the seven top charities from GiveWell, combining three of those working on deworming to create three groups:

    1. Against Malaria Foundation (AMF)
    2. Schistosomiasis Control Initiative (SCI)
    3. END Fund for work on deworming, Sightsavers for work on deworming and Deworm the World Initiative
    4. GiveDirectly
    5.  Malaria Consortium for work on seasonal malaria chemoprevention

    I added four groups from their six Other Standout Charities (GiveWell’s descriptions):

    6. Development Media International produces mass media to promote improved health behaviors in developing countries.
    7. Food Fortification Initiative and Project Healthy Children work to reduce micronutrient deficiencies through food fortification programs.
    8. The Global Alliance for Improved Nutrition (GAIN)’s Universal Salt Iodization program and Iodine Global Network (IGN) aid salt iodization programs in developing countries.
    9. Living Goods supports a network of community health promoters in sub-Saharan Africa.

    That made 9 charities in total. I also wanted to have represented some well-established charities that my son might have heard of or come across himself, and that I believe do important work but that for various reasons are not able to cut it in the kind of evaluation that GiveWell performs. Thus for the final three I chose:

    10. Red Cross
    11. Doctors without borders
    12. Amnesty International

    For each charity, I prepared a one-page document presenting some of the charity’s work xmascalendar_giftlettersin simple language and with some illustrations. (Tip: The organisation Effektiv altruisme, which bases its recommendations on GiveWell, has material available in Norwegian about some of the top charities.) I wanted each donation to be presentable as a round number, and since giving NOK 100 per day had some salience, I settled for an average of NOK 200 (€22) per gift. I ended each document with the words “We give X kroner to cause/charity”.

    GiveWell recommends prioritizing the Against Malaria Foundation because they have the most valuable current funding gap, so I decided to allocate 900 NOK to them, 200 to the other four of the top five, and 100 to the rest.

    All the envelopes were with Christmas stickers and hung from the curtain pole. The first picture above shows how it looked in the end.

     

    “Is there really an empirical turn in economics?”

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    The recent “empirical” turn in economics should be known as an “applied” one and it is just one in a long series of related developments. Moreover, it is a move towards the historical roots of the discipline. Those are some lessons from Beatrice Cherrier‘s essay “Is there really an empirical turn in economics?“. Based on research conducted together with Roger Backhouse, she takes issue with the idea that there has been a revolution in economic research involving empirics. Some points I liked:

    • Empirical work has been live and well, what has changed is its recent larger role in top journals. Besides, the view of theory as dominating in economics is based on looking only at the last 50 years – pre- and immediate post-war economics used to be a lot more empirical.
    • Much theory has become more applied, often involving data. And John Bates Clark medal citations stress “applied,” often taken consisting of a mix of theory and empirics.
    • Increasing availablity of data is a development that has been ongoing since at least the 1960’s. Hype around and criticism of new, large sources of data were the same in the 1970’s as today.
    • Computerization is overrated, much modern empirical work is computationally and numerically very simple.
    • Oscar Morgenstern (of von Neumann and Morgenstern‘s Theory of Games and Economic Behavior fame) proposed that to become a fellow of the Econometric Society, it should be a requirement to “have done some econometric work in the strictest sense” and be “in actual contact with data they have explored and exploited for which purpose they may have even developed new methods.”

    H/t: Erwin Dekker.

    Television, Cognitive Ability, and High School Completion

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    That is the title of a just released working paper by Simen Markussen, Knut Røed, and myself. We show that access to commercial television channels during childhood and adolescence from the 1980’s onwards in Norway reduced cognitive ability scores and high school graduation rates of young men.

    In a comment, Pat Sharp apologizes (true story! thanks to @JFiva).

    “Can welfare conditionality combat high school dropout?”

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    I have a new working paper out, joint work with Simen Markussen and Knut Røed. Simen has written provocatively about the paper in the today’s Dagens Næringsliv, which is also running a companion piece. These are only in Norwegian (and behind a paywall), however, so here is a brief summary in English:

    We investigate what happens when Norwegian social insurance offices increase their use of conditions would-be welfare recipients need to satisfy in order to receive welfare. Using the staggered introduction of this program and based on double and triple difference models, we find that such conditionality reduces the number of young people that receive welfare, and more importantly, increases the high school graduation rate. For young people from disadvantaged backgrounds, we find substantial and precise effects, whereas we find no effects on youth from more resourceful backgrounds, as expected. A few years later, we find that those who were exposed to new regime have more education, earn more, and are more likely to be employed. Thus even though activating these people may cost something upfront, it pays off in the long run.

    The newspaper has an interview with a guy who got on track and gets some work experience through this system. Here is the abstract of the research paper:

    Based on administrative data, we analyze empirically the effects of stricter conditionality for social assistance receipt on welfare dependency and high school completion rates among Norwegian youths. Our evaluation strategy exploits a geographically differentiated implementation of conditionality. The causal effects are identified on the basis of larger-thanexpected within-municipality changes in outcomes that not only coincide with the local timing of conditionality implementation, but do so in a way that correlates with individual ex ante predicted probabilities of becoming a social assistance claimant. We find that stricter conditionality significantly reduces welfare claims and increases high school completion rates.

    Basic income pilot in Finland, headed by top economist

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    Via MarginalRevolution’s assorted links and others, a short BBC article about a pilot project in Finland on universal, basic income. Economist Ohto Kanninen, coincidentally a fellow student of mine from graduate school, describes the project:

    The prime minister has expressed support for a limited, geographical experiment. Participants would be selected from a variety of residential areas.

    Mr Kanninen proposes testing the idea by paying 8,000 people from low income groups four different monthly amounts, perhaps from €400 to €700.

    They also have the Prime Minister on board:

    Prime Minister Juha Sipila has praised the idea. “For me, a basic income means simplifying the social security system,” he said.

    This sounds really exciting, and I cannot wait to see the working paper.