Kata Mihaly

Single Women's Labor Supply Elasticities: Trends and Policy Implications

This paper uses CPS data to examine changes in single womens labor supply elasticities in recent decades. Specifically, the authors investigate trends in how single womens hours of work and labor force participation rates responded to both wages and income over the years 1979–2003. Results from the base specification suggest that over the observation period, hours wage elasticities decreased by 82%, participation wage elasticities by 36%, and participation income elasticities by 57%. These results imply that changes in tax policy had a much larger effect on the labor supply and labor force participation behavior of women in this subpopulation in the early 1980s than in recent years.

Where You Come from or Where You Go? Distinguishing between School Quality and the Effectiveness of Teacher Preparation Program Graduates

In this paper we consider the challenges involved in evaluating teacher preparation programs when controlling for school contextual bias. Including school fixed effects in the achievement models used to estimate preparation program effects controls for school environment by relying on differences among student outcomes within the same schools to identify the program effects. However, identification of preparation program effects using school fixed effects requires teachers from different programs to teach in the same school. Even if program effects are identified, the precision of the estimated effects will depend on the degree to which graduates from different programs overlap across schools. In addition, if the connections between preparation programs result from the overlap of atypical graduates or from graduates teaching in atypical school environments, use of school effects could produce bias. Using statewide data from Florida, we show that teachers tend to teach in schools near the programs in which they received their training, but there is still sufficient overlap across schools to identify preparation program effects. We show that the ranking of preparation programs varies significantly depending on whether or not school environment is taken into account via school fixed effects. We find that schools and teachers that are integral to connecting preparation programs are atypical, with disproportionately high percentages of Hispanic teachers and students compared to the state averages. Finally, we find significant variance inflation in the estimated program effects when controlling for school fixed effects, and that the size of the variance inflation factor depends crucially on the length of the window used to compare graduates teaching in the same schools.

Building Up, Spending Down: Financial Literacy, Retirement Savings Management, and Decumulation

As employer-provided pension plans have largely shifted from defined benefit (DB) to defined contribution (DC) pension plans, responsibility for plan investments and the accompanying risks have also shifted from the provider to the employee. Employees have to decide how much to contribute to their plans, how to allocate their retirement accounts between various investment options, and how they will spend down or decumulate their retirement funds during retirement. This raises the question of whether most employees are well-equipped to make such decisions. Empirical research suggests that large segments of the United States population do not feel financially well-prepared for retirement, and suboptimal financial decisions have been attributed to lack of financial literacy. The authors investigate this hypothesis by constructing multidimensional financial literacy indices using modern psychometric methods. They assess the relationships between a wide array of DC contribution, investment and (planned) decumulation behaviors on the one hand and these financial literacy indices on the other hand, controlling for other socio-economic and demographic determinants. Their indices measure financial literacy well, but the dimensions that they represent (objective and self-assessed financial literacy, broken down by topics) are very highly correlated, so that the multidimensional nature does not offer much additional explanatory power over a simpler one-dimensional index. Consistent with earlier empirical findings, they find large fractions of “investment mistakes”. Surprisingly, however, the relationships between investment behavior and financial literacy are often weak and nonsignificant. They do find that financial literacy is related to retirement planning, but not to retirement preparedness.

Do More Friends Mean Better Grades?: Student Popularity and Academic Achievement

Peer interactions have been argued to play a major role in student academic achievement. Recent work has focused on measuring the structure of peer interactions with the location of the student in their social network and has found a positive relationship between student popularity and academic achievement. Here the author ascertains the robustness of previous findings to controls for endogenous friendship formation. The results indicate that popularity influences academic achievement positively in the baseline model, a finding which is consistent with the literature. However, controlling for endogenous friendship formation results in a large drop in the effect of popularity, with a significantly negative coefficient in all of the specifications. These results point to a negative short term effect of social capital accumulation, lending support to the theory that social interactions crowd out activities that improve academic performance.

Financial Literacy, Social Perception and Strategic Default

As a result of sustained housing market fragility, a growing number of borrowers are walking away from their underwater homes even though they have the ability to pay. Despite recent advances, questions remain about what influences this decision. In this paper, the authors use survey data to examine the role of social expectations, financial literacy and knowledge of default consequences. They find that homeowners who believe that others are likely to strategically default in the future are more willing to walk away as they anticipate reduced social stigma. Financially literate borrowers appear better able to calculate the benefits of strategically defaulting and are more willing to walk away at high levels of shortfall. They also find evidence that those who better understand the consequences of default, particularly that a defaults impact on ones credit score weakens over time, have a higher willingness to walk away. Their results suggest that policies that help shape expectations about future strategic defaults may influence present foreclosures.