Peter McHenry

The Geographic Distribution of Human Capital: Measurement of Contributing Mechanisms

This paper investigates how the geographic distribution of human capital evolves over time. With U.S. data, I decompose generation-to-generation changes in local human capital into three factors: the previous generation’s human capital, intergenerational transmission of skills from parents to their children, and migration of the children. I find evidence of regression to the mean of local skills at the state level and divergence at the commuting zone level. Labor market size, climate, local colleges, and taxes affect local skill measures. Skills move from urban to rural labor markets through intergenerational transmission but from rural to urban labor markets through migration.

Immigration and the Human Capital of Natives

Large low-skilled immigration flows influence both the distribution of local school resources and also local relative wages, which exert counterbalancing pressures on the local return to schooling. I use the National Education Longitudinal Study (NELS:88) and U.S. Census data to show that low-skilled immigration to an area induces local natives to improve their performance in school, attain more years of schooling, and take jobs that involve communication-intensive tasks for which they (native English speakers) have a comparative advantage. These results point out mechanisms that mitigate the potentially negative effect of immigration on natives’ wages.

The Importance of Cost of Living and Education in Estimates of the Conditional Wage Gap Between Black and White Women

While evidence about discrimination in U.S. labor markets typically implies preferential treatment for whites, recent studies document a substantial wage premium for black women (for example, Fryer 2011). Although differential selection of black and white women into the labor market has been a suggested explanation, we demonstrate that accounting for selection does not eliminate the estimated premium. We then incorporate two additional omitted variables recently documented in the literature: (1) local cost of living and (2) years of education attained, conditional on AFQT score. After controlling for these variables, we find no evidence of a wage premium for black women.

The Economic Impact of Colleges and Universities

This essay describes methodological approaches and pitfalls common to studies of the economic impact of colleges and universities. Such studies often claim local benefits that imply annualized rates of return on local investment exceeding 100 percent. We address problems in these studies pertaining to the specification of the counterfactual, the definition of the local area, the identification of “new” expenditures, the tendency to double-count economic impacts, the role of local taxes, and the omission of local spillover benefits from enhanced human capital created by higher education, and offer several suggestions for improvement. If these economic impact studies were conducted at the level of accuracy most institutions require of faculty research, their claims of local economic benefits would not be so preposterous, and, as a result, trust in and respect for higher education officials would be enhanced.

Import Competition and Internal Migration

We examine the U.S. internal migration response to increased import competition following the granting of Permanent Normal Trade Relations to China in 2001. Using a variety of data sets and empirical approaches, we find that local labor markets most exposed to the policy change experienced a relative reduction in population growth over the following decade. The majority of the effect occurs at a lag of seven to ten years and is most pronounced among young individuals and low-education groups. Such population adjustments should influence the interpretation of evidence in the growing literature on import competition and local labor markets.

A Quality-Preserving Increase in Four-Year College Attendance

We use the National Longitudinal Study of the High School Class of 1972 and the Education Longitudinal Study of 2002 data sets to evaluate changes in the college matching process. Rising attendance rates at 4-year institutions have not decreased average preparedness of college goers or of college graduates, and further attendance gains are possible before diminishing returns set in. We use multinomial logit models to demonstrate that measures of likely success (grade point average) became more predictive of college attendance over time, while other student characteristics such as race and parents’ education became less predictive. Our evidence suggests that schools have become better at sorting while students have efficiently responded to changes in the return to higher education.

Does Labor Force Participation Reduce Informal Caregiving

This paper examines the causal impact of labor force participation on informal caregiving. To address the endogeneity of labor force participation, we exploit local business cycles and instrument for individual labor force participation with state unemployment rates. Using data from the Survey of Income and Program Participation (SIPP), we find that labor force participation significantly reduces informal caregiving. Among women, working an additional 10 hours per week reduces the probability of providing informal care by 12.5 percentage points and reduces the number of care hours by 32 percent. We also find that the effect of labor force participation is stronger among women with low income and wealth, who are the most important target of many welfare policies that promote labor force participation. Our results imply that demographic trends and work-promoting policies have the unintended consequence of reducing informal caregiving in an aging society that faces rising demand for informal care.

Medicare hospital payment adjustments and nursing wages

Despite the importance of the nursing profession for healthcare delivery, costs, and quality, there is relatively little research on how provider payments to hospitals affect the labor market for nurses. This study deals with the hospital wage index (HWI) adjustment to Medicare hospital payments, an area-level adjustment intended to compensate hospitals in high-cost labor markets. Since the HWI adjustment is based on hospital-reported labor costs, some argue that it incentivizes hospitals in concentrated markets to pay higher wages to nurses and other workers (the “circularity” critique). We investigate this critique using market-level data on the relative wages reported by nurses and hospital-level data on the average hourly wage for healthcare workers. For identification, we exploit a 2005 change in the geographic area used to define labor markets, which resulted in exogenous changes in the ability of some hospitals to influence their area’s wage index. We find that worker-reported relative nurse wages and hospital-reported healthcare worker wages are higher in some locations where hospitals experienced increased opportunities to game the circularity of the wage index, but these effects appear to be driven by pre-existing wage growth. Medicare’s HWI adjustment method does not appear to suffer from inefficiency due to circularity.

Does Low Wealth Constrain Long-Distance Migration?

Some families may have too little wealth (or liquidity) to finance a long-distance move, which may involve transportation costs and foregone earnings. Using the National Longitudinal Survey of Youth 1979 (NLSY79) and the Survey of Income and Program Participation (SIPP), the author assesses whether wealth holdings directly influence migration decisions in the United States. The analysis focuses on long-distance migration and shows consistently that migration is common among households with little or negative net worth and that greater wealth does not increase the likelihood of migration. In addition, differential wealth holdings do not explain why minority groups and the less-educated are relatively unlikely to undertake long-distance moves. The author also finds little evidence that wealth holdings influence a person’s migration response to local labor demand shocks.