Mette Ejrnæs

Birth Order and the Intrahousehold Allocation of Time and Education

A potential determinant of intrahousehold distribution is the birth order of children. While a number of studies have analysed birth order effects in developed countries there are still only a few dealing with developing countries. This paper develops a model of intrahousehold allocation with endogenous fertility, which captures the relation between birth order and investment in children and shows that a birth order effect in intrahousehold allocation can arise even without assumptions about parental preferences for specific birth order children or genetic endowments varying by birth order. The important contribution is that fertility is treated as endogenous, something which other models of intrahousehold allocation have ignored despite the large literature on determinants of fertility. The implications of the model are that children with higher birth orders have an advantage over siblings with lower birth orders and that parents who are inequality averse will not have more than one child. The model furthermore shows that not taking account of the endogeneity of fertility when analysing intrahousehold allocation may seriously bias the results. The effects of a child’s birth order on its human capital accumulation are analysed using a longitudinal data set from the Philippines. Contrary to most longitudinal data sets this data set covers a very long period. We are, therefore, able to examine the effects of birth order on both number of hours in school during education and completed education. The results for both are consistent with the predictions of the model.

Consumption and Children

Consumption by couples rises sharply in the beginning and falls later in life; the causes of the early rise are hotly contested. Among the suggestions are rule of thumb behavior, demographics, liquidity constraints, the precautionary motive, and nonseparabilities between consumption and labor supply. We develop two tests of the extreme hypothesis that only changes in family structure matter. We estimate effects of the numbers and ages of children on consumption. These estimates allow us to rationalize all of the increase in consumption without recourse to any of the causal mechanisms. Our estimates can be interpreted either as giving upper bounds on the effects of children or as evidence that the other causes are not important.

The Gains from Improved Market Efficiency: Trade Before and After the Transatlantic Telegraph

This article looks at the gains from improved market efficiency in long-distance grain trade in the second half of the nineteenth century, when violations of the law of one price were reduced due to improved information transmission. Two markets, a major export centre, Chicago, and a major importer, Liverpool, are analysed. We show that the law of one price equilibrium was an ‘attractor equilibrium’. The implication is that prices converged to that equilibrium in a tâtonnement process. Because of asymmetrically timed information between markets separated by long distances there were periods of excess demand as well as excess supply, which triggered off the tâtonnement process. Over time, adjustments to equilibrium, as measured by the half-life of a shock, became faster and violations of the law of one price become smaller. There were significant gains from improved market efficiency, which took place after the information ‘regime’ shifted from pre-telegraphic communication to a regime with swift transmission of information in an era that saw the development of a sophisticated commercial press and telegraphic communication. This article is the first attempt to actually measure the gains from improved market efficiency and it demonstrates that improved market efficiency probably stimulated trade more than falling transatlantic transport costs. Deadweight losses decline significantly as markets became more efficient. The conventional view that Harberger triangles are almost always insignificant is challenged.

Feeding the British: Convergence and Market Efficiency in the Nineteenth-Century Grain Trade

This paper traces the evolution of the international market for wheat, from an emerging market structure after the repeal of the corn laws to a mature market characterized by efficient arbitrage after the introduction of the transatlantic telegraph and the growth of trade. Efficiency is documented using traditional price gap accounting as well as error correction modelling. Markets which traded directly with each other as well as markets which did not trade with each other were integrated. The traditional bilateral focus in market integration studies has been extended to a multivariate approach, which generates new insights into the pattern of diffusion of price shocks in the international economy. Shocks in the major importing nation, Britain, dominated in the emerging market phase, while shocks in the major exporting economy, the United States, dominated international price movements at the end of the nineteenth century.

Self-Employment among Immigrants: A Last Resort?

Based on unique register data of male immigrants in Denmark, we investigate whether self-employment is used as a last resort. To identify self-employment as a last resort, we define different types of immigrants as a function of transition probabilities between wage-employment, non-employment and self-employment. The transition probabilities are estimated using discrete competing risks models controlling for unobserved heterogeneity and duration dependence. We find that for certain groups of immigrants a large fraction can be characterized as using self-employment as a last resort.

The persistent–transitory representation for earnings processes

We consider the decomposition of shocks to a dynamic process into a persistent and a transitory component. Without additional assumptions (such as zero correlation) the decomposition of shocks into a persistent and transitory component is indeterminate. The assumption that is conventional in the earnings literature is that there is no correlation. The Beveridge–Nelson decomposition that is widely used in time series analysis assumes a perfect correlation. Without restrictions on the correlation, the persistent‐transitory decomposition is only set‐identified. For reasonable autoregressive moving average (ARMA) parameters the bounds for widely used objects of interest are very wide. We illustrate that these disquieting findings are of considerable practical importance, using a sample of male workers drawn from the Panel Study of Income Dynamics (PSID).

Comparing Fixed Effects and Covariance Structure Estimators for Panel Data

In this article, the authors compare the traditional econometric fixed effect estimator with the maximum likelihood estimator implied by covariance structure models for panel data. Their findings are that the maximum like lipoid estimator is remarkably robust to certain types of misspecifications (e.g., deviation from the assumption of an underlying normal distribution). However, with other types of misspecification, the fixed estimator is pre ferable. Furthermore, the authors suggest that the Hausman specification test may be used as a test of the consistency of the maximum likelihood estimator.

Labor market conditions and self-employment: a Denmark-Spain comparison

Among the OECD countries, Spain faces one of the highest rates of self-employment and Denmark one of the lowest, being the difference specially relevant among women. These two countries present important differences in their labor market conditions in terms of labor market flexibility, generosity of the unemployment benefits system, child care policies, and barriers to start and operate a business. In this paper we analyze if the different institutional environment and employment conditions in both countries can help to interpret the different incidence of self-employment rates. The study is carried out for men and women separately using a strictly comparable panel data set. The results indicate that in Spain self-employment seems to offer individuals who normally are considered as marginalized in the labor market a beneficial alternative to wage employment, while this pattern is not so clear in Denmark. Specifically, in Spain those individuals in the bottom part of the wage distribution and non-employees, particularly unemployed without unemployment benefits and mothers with small children, start more often their own business than in Denmark.JEL codesJ15, J81, J61E64, J18, J38, J58, J24, J44, J62

Income and Consumption: A Micro Semistructural Analysis with Pervasive Heterogeneity

We develop a model of consumption and income that allows for pervasive heterogeneity in the parameters of both processes. Introducing codependence between household income parameters and preference parameters, we also allow for heterogeneity in the impact of income shocks on consumption. We estimate the parameters of the model using a sample from the Panel Study of Income Dynamics, covering the period 1968–2009. We find considerable codependent heterogeneity in the parameters governing income and consumption processes. Our results suggest a great deal of heterogeneity in the reaction of consumption to income shocks, highlighting the heterogeneity in the self-insurance available to households.