Working Papers

Returns to Experience and the Elasticity of Labor Supply (with Scott French)

Under Review

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Abstract

When wages grow with work experience, the marginal return to work is not simply equal to the wage. It also includes the marginal increase in the present value of all future earnings associated with the increase in work experience. This implies that estimation of standard labor supply models that assume exogenous wage formation suffers from omitted variable bias and produces downward-biased estimates of the intertemporal elasticity of substitution (IES). We test a labor supply model with endogenous wage formation due to learning by doing in a novel way. Using a large data set of the daily labor supply decisions of Florida lobster fishermen, we identify a sample of highly experience fishermen who are within a few months of retiring, for whom we argue the returns to experience are negligible. This implies that the standard model closely approximates their behavior, allowing us to consistently estimate the IES without having to specify the wage determination process. Using this sample, we estimate an IES of 2.7, which is an order of magnitude larger than typical micro-based estimates of the IES and more than twice the value we obtain by estimating a standard model using our full sample of fishermen who have varying degrees of experience and who are different stages of their life cycle. (JEL D91, E24, J22, J24, J31)

Publications

Accounting for Outside Options in Discrete Choice Models: An Application to Commercial Fishing Effort

Journal of Environmental Economics and Management, forthcoming

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Abstract

Discrete choice models often feature a generic outside option that combines all alternatives other than those of particular interest to the researcher, which allows overall demand for the alternatives of interest to be captured. I demonstrate that combining diverse alternatives into a single outside option can result in distorted parameter estimates and misleading predictions. To evaluate the practical importance of how outside options are treated, I use data on the Florida spiny lobster and stone crab fisheries to compare a discrete choice model that explicitly accounts for individuals’ ability to target both species with one that includes stone crab alternatives in the generic outside option. I find that parameter estimates and predictions for the lobster fishery depend heavily upon whether stone crab alternatives are explicitly accounted for. In addition, I conduct a series of Monte Carlo experiments, which demonstrate that the sign and magnitude of differences in predictions between models are complex functions of the characteristics of the empirical environment. Together, these results highlight the importance of carefully considering the composition of outside options when estimating discrete choice models and making predictions based on the estimates. (JEL Q22, C23, and C25)

What Do Fishermen Tell Us That Taxi Drivers Don’t? An Empirical Investigation of Labor Supply

Journal of Labor Economics, 2015, vol. 33, no. 3, pt. 1, p. 683-710.

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Abstract

Recent empirical findings have cast doubt on the neoclassical model of labor supply.  However, estimation issues, and not workers’ behavior, may be responsible for these findings. This paper investigates this possibility by examining daily labor supply of Florida lobster fishermen. I invariably find that fishermen work more when earnings are temporarily high, behavior that is consistent with a neoclassical model of labor supply. Furthermore, methods that do not control for measurement error and endogeneity of the wage not only produce downward biased estimates of labor supply elasticities, but actually generate a spurious negative and significant elasticity of daily hours. (JEL J22, J31)

Indoor Air Quality and Academic Performance

Journal of Environmental Economics and Management, 2015, vol. 70, p. 34-50.

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Abstract

I examine the effect of school indoor air quality (IAQ) on academic outcomes.  I utilize a quasi-natural experiment, in which IAQ-renovations were completed at virtually every school in a single Texas school district at different points in time, combined with a panel of student-level data to control for many confounding factors and thereby uncover the causal effect of IAQ-renovations on academic outcomes.  Results indicate that performance on standardized tests significantly improves while attendance is unresponsive to improvements in IAQ.  Rough calculations suggest that IAQ-renovations may be a more cost-effective way to improve standardized test scores than class size reductions.