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Cohort Effects: Sources and Implications

Paper Session

Sunday, Jan. 7, 2018 10:15 AM - 12:15 PM

Marriott Philadelphia Downtown, Meeting Room 306
Hosted By: American Economic Association
  • Chair: Wenlan Qian, National University of Singapore

Dragon Babies

Sumit Agarwal
,
Georgetown University
Wenlan Qian
,
National University of Singapore
Tien Foo Sing
,
National University of Singapore
Poh Lin Tan
,
National University of Singapore

Abstract

Using multiple sources of individual-level administrative data from the multicultural city-state of Singapore, we study the life outcomes of large birth cohorts created by the Chinese superstitious practice of zodiac birth timing, where parents prefer to give birth in the year of the Dragon. This practice is followed exclusively by the Chinese majority—between 1960 and 2007 the average number of births jumps by 9.3% in Dragon years among the Chinese majority, with no similar patterns detected among non-Chinese minorities. Chinese Dragon babies earn significantly lower income than other Chinese cohorts after entering the labor market (by 6.0%), relative to the income difference between Dragons and non-Dragons within the non-Chinese subpopulation. The adverse labor market outcome is unlikely to be the result of self-selection; rather it reflects the aggregate resource implications of substantially larger cohort sizes. We find a significant negative income effect for the non-Chinese born in Dragon years as well as other birth cohorts who happen to enter college (and labor market) at the same time as Chinese Dragons. The negative income effect partly arises from the rather inelastic labor demand. Despite the government’s efforts to increase public educational resources, Dragon babies have lower admission chances to local national universities, suggesting limited capacity of such measures to accommodate the surge in demand for resources associated with larger birth cohorts. Finally, we also find evidence that the superstition-induced birth timing implicates consumption and saving choices.

The Making of Hawks and Doves: Inflation Experiences on the FOMC

Ulrike Malmendier
,
University of California-Berkeley, NBER, and CEPR
Stefan Nagel
,
University of Michigan, NBER, and CEPR
Zhen Yan
,
University of Michigan

Abstract

We show that personal experiences of inflation strongly influence the hawkish or dovish leanings of central bankers. For all members of the Federal Open Market Committee (FOMC) since 1951, we estimate an adaptive learning rule based on their lifetime inflation data. The resulting experience-based forecasts have significant predictive power for members’ FOMC voting decisions, the hawkishness of the tone of their speeches, as well as the heterogeneity in their semi-annual inflation projections. Averaging over all FOMC members present at a meeting, inflation experiences also help to explain the federal funds target rate, over and above conventional Taylor rule components.

Who Needs a Fracking Education? The Educational Response to Biased Technological Change

Elizabeth U. Cascio
,
Dartmouth College and NBER
Ayushi Narayan
,
Harvard University

Abstract

We explore the educational response to fracking, a recent technological breakthrough in the oil and gas industry, taking advantage of the timing of its diffusion and spatial variation in shale reserves. We show that fracking has significantly increased demand for less-educated male labor and high school dropout rates of male teens, both overall and relative to females. Our estimates imply that, absent fracking, the male-female gap in teen dropout rates in affected states would have narrowed by nearly 40% between 2000 and 2013 instead of by only a tenth. Fracking did not reduce the return to high school for men by enough to plausibly explain the full effects, suggesting the importance of a rising opportunity cost of enrollment for the findings. Other explanations, like changes in school inputs or family income, receive less empirical support.

The Effect of Superstar Firms on College Major Choice

Darwin Choi
,
Chinese University of Hong Kong
Dong Lou
,
London School of Economics and CEPR
Abhiroop Mukherjee
,
Hong Kong University of Science and Technology

Abstract

We study the effect of superstar firms on an important human capital decision -- college students’ choice of major. Past salient, extreme events in an industry, as proxied by cross-sectional skewness in stock returns (or in favorable news coverage), are associated with a disproportionately larger number of college students choosing to major in related fields, even after controlling for the average industry return. This tendency to follow the superstars, however, results in a temporary over-supply of human capital. Specifically, we provide evidence that the additional labor supply due to salient, extreme events lowers the average wage earned by entry-level employees when students enter the job market. At the same time, employment size and employee turnover stay roughly constant in related industries, consistent with the view that labor demand is relatively inelastic in the short run. In the longer term, firms cope with the supply increase by gradually expanding the number of positions that require prior experience.
Discussant(s)
James Choi
,
Yale University and NBER
Scott Baker
,
Northwestern University
Na'ama Shenhav
,
Dartmouth College
Kelly Shue
,
University of Chicago and NBER
JEL Classifications
  • A1 - General Economics
  • J0 - General