Pedro Carneiro

The Evidence on Credit Constraints in Post-Secondary Schooling

This paper examines the family income -- college enrollment relationship and the evidence on credit constraints in post-secondary schooling. We distinguish short-run liquidity constraints from the long-term factors that promote cognitive and noncognitive ability. Long-run factors crystallized in ability are the major determinants of the family income -- schooling relationship, although there is some evidence that up to 8% of the U.S. population is credit constrained in a short-run sense. Evidence that IV estimates of the returns to schooling exceed OLS estimates is sometimes claimed to support the existence of substantial credit constraints. This argument is critically examined.

Labor Market Discrimination and Racial Differences in Premarket Factors

This paper investigates the relative significance of differences in cognitive skills and discrimination in explaining racial/ethnic wage gaps. We show that cognitive test scores for exams taken prior to entering the labor market are influenced by schooling. Adjusting the scores for racial/ethnic differences in education at the time the test is taken reduces their role in accounting for the wage gaps. We also consider evidence on parental and child expectations about education and on stereotype threat effects. We find both factors to be implausible alternative explanations for the gaps we observe. We argue that policies need to address the sources of early skill gaps and to seek to influence the more malleable behavioral abilities in addition to their cognitive counterparts. Such policies are far more likely to be effective in promoting racial and ethnic equality for most groups than are additional civil rights and affirmative action policies targeted at the workplace.

A Flying Start? Maternity Leave Benefits and Long-Run Outcomes of Children

We study a change in maternity leave entitlements in Norway. Mothers giving birth before July 1, 1977, were eligible for 12 weeks of unpaid leave, while those giving birth after that date were entitled to 4 months of paid leave and 12 months of unpaid leave. The increased time spent with the child led to a 2 percentage point decline in high school dropout rates and a 5 percent increase in wages at age 30. These effects were larger for the children of mothers who, in the absence of the reform, would have taken very low levels of unpaid leave.

Evaluating Marginal Policy Changes and the Average Effect of Treatment for Individuals at the Margin

This paper develops methods for evaluating marginal policy changes. We characterize how the effects of marginal policy changes depend on the direction of the policy change, and show that marginal policy effects are fundamentally easier to identify and to estimate than conventional treatment parameters. We develop the connection between marginal policy effects and the average effect of treatment for persons on the margin of indifference between participation in treatment and nonparticipation, and use this connection to analyze both parameters. We apply our analysis to estimate the effect of marginal changes in tuition on the return to going to college.

Enforcement of Regulation, Informal Labor and Firm Performance

This paper investigates how enforcement of labor regulation affects the firms use of informal employment and its impact on firm performance. Using firm level data on informal employment and firm performance, and administrative data on enforcement of regulation at the city level, the authors show that in areas where law enforcement is stricter firms employ a smaller amount of informal employment. Furthermore, by reducing the firms access to unregulated labor, stricter enforcement also decreases average wages, productivity, and investment. The results are robust to several specification changes, and to instrumenting enforcement with (1) measures of access of labor inspectors to firms, and (2) measures of general law enforcement in the area where the firm is located.

Inequality and Employment in a Dual Economy: Enforcement of Labor Regulation in Brazil

This paper studies the impact of an increase in the enforcement of labor regulations on unemployment and inequality, using city level data from Brazil. We find that stricter enforcement (affecting the payment of mandated benefits to formal workers) leads to: higher unemployment, less income inequality, a higher proportion of formal employment, and a lower formal wage premium. Our results are consistent with a model where stricter enforcement causes a contraction in labor demand in the formal sector; and where workers value mandated benefits highly, so that there is an increase in the formal sector labor supply, an increase in the willingness to become unemployed to search for a formal sector job, and a decrease in labor supply to the informal sector.

Mandated benefits, employment, and inequality in a dual economy

This paper studies the effect of enforcing labor regulation in an economy with a dual labor market. The analysis uses data from Brazil, a country with a large informal sector and strict labor law, where enforcement affects mainly the degree of compliance with mandated benefits (severance pay and health and safety conditions) in the formal sector, and the registration of informal workers. The authors find that stricter enforcement leads to higher unemployment but lower income inequality. They also show that, at the top of the formal wage distribution, workers bear the cost of mandated benefits by receiving lower wages. Wage rigidity (due, say, to the minimum wage) prevents this downward adjustment at the bottom of the income distribution. As a result, formal sector jobs at the bottom of the wage distribution become more attractive, inducing the low-skilled self-employed to search for formal jobs.

The Return to the Firm Investment in Human Capital

In this paper we estimate the rate of return to firm investments in human capital in the form of formal job training. We use a panel of large firms with unusually detailed information on the duration of training, the direct costs of training, and several firm characteristics such as their output, workforce characteristics and capital stock. Our estimates of the return to training vary substantially across firms. On average it is -7% for firms not providing training and 24% for those providing training. Formal job training is a good investment for many firms and the economy, possibly yielding higher returns than either investments in physical capital or investments in schooling. In spite of this, observed amounts of formal training are very small.

Understanding the Sources of Ethnic and Racial Wage Gaps and Their Implications for Policy

Previous studies show that controlling for ability measured in the teenage years eliminates young adult wage gaps for all groups except Black males, for whom the gap is reduced by approximately three-fourths. This suggests that disparity in skills, rather than the differential treatment of such skills in the market, produces racial and ethnic wage differentials. However, minority children and their parents may have pessimistic expectations about receiving fair rewards for their skills in the labor market and so they may invest less in skill formation. Poor schools may also depress cognitive achievement, even in the absence of any discrimination.

Evaluating indoor residual spray for reducing malaria infection prevalence in Eritrea: Results from a community randomized control trial

This paper examines the relationship between indoor residual spray (IRS) and malaria parasite infection in Gash Barka Zone, Eritrea, an area with near universal coverage of insecticide treated bednets (ITN) and already low malaria parasite prevalence. A community randomized control trial was conducted in 2009. Malaria parasite infection prevalence was 0.5% [95% confidence interval (CI): 0.37-0.78%], with no significant difference detected between treatment and control areas. ITN possession remains high, with over 70% of households reporting ITN ownership [95% CI: 68.4-72.9]. ITN use among individuals within ITN-owning households was just under half [46.7% (95% CI: 45.4-48.0)]. Slight differences in ITN possession and use were detected between treatment and control areas. There was no significant difference in malaria parasite infection prevalence among individuals in households with ≥1 ITN compared to those in households without ITNs, nor among individuals reporting ITN use. Among individuals in ITN-owning households, sleeping under an ITN offered no statistically significant protection from malaria parasite infection. Community participation in environmental and larval habitat management activities was low: 17.9% (95% CI: 16.0-19.7). It is likely that IRS, larval habitat management and ITN distribution alone may be insufficient to interrupt transmission without corresponding high ITN use, sustained IRS application in areas where infections are clustered, and promptly seeking laboratory diagnosis and treatment of all fevers. Eritrea is ready for elimination, irrespective of inconclusive impact evaluation results.