Mar 20, 2011

Undergraduate education, stimulus package, and the airline industry (from NBER)

Why Is an Elite Undergraduate Education Valuable? Evidence from Israel

In this paper we compare the labor market performance of Israeli students who graduated from one of the leading universities, Hebrew University (HU), with those who graduated from a professional undergraduate college, College of Management Academic Studies (COMAS). Our results support a model in which employers have good information about the quality of HU graduates and pay them according to their ability, but in which the market has relatively little information about COMAS graduates. Hence, high-skill COMAS graduates are initially treated as if they were the average COMAS graduate, who is weaker than a HU graduate, consequently earning less than UH graduates. However, over time the market differentiates among them so that after several years of experience, COMAS and HU graduates with similar entry scores have similar earnings. Our results are therefore consistent with the view that employers use education information to screen workers but that the market acquires information fairly rapidly.
We find that the market knows a great deal about HU graduates entering the market at least in the sense that pre-entry information is captured in their wages. This is consistent with the Arcidiacono, Bayer and Hizmo (2008) finding that the U.S. labor market “knows” the AFQT of college graduates. However, it takes the market about seven years to fully acquire this information about COMAS graduates. 

Did the Stimulus Stimulate? Real Time Estimates of the Effects of the American Recovery and Reinvestment Act

We use state and county level variation to examine the impact of the American Recovery and Reinvestment Act on employment. A cross state analysis suggests that one additional job was created by each $170,000 in stimulus spending. Time series analysis at the state level suggests a smaller response with a per job cost of about $400,000. These results imply Keynesian multipliers between 0.5 and 1.0, somewhat lower than those assumed by the administration. However, the overall results mask considerable variation for different types of spending. Grants to states for education do not appear to have created any additional jobs. Support programs for low income households and infrastructure spending are found to be highly expansionary. Estimates excluding education spending suggest fiscal policy multipliers of about 2.0 with per job cost of under $100,000.
On the Persistent Financial Losses of U.S. Airlines: A Preliminary Exploration
U.S. airlines have lost nearly $60 billion (2009 dollars) in domestic markets since deregulation, most of it in the last decade. More than 30 years after domestic airline markets were deregulated, the dismal financial record is a puzzle that challenges the economics of deregulation. I examine some of the most common explanations among industry participants, analysts, and researchers -- including high taxes and fuel costs, weak demand, and competition from lower-cost airlines. Descriptive statistics suggest that high taxes have been at most a minor factor and fuel costs shocks played a role only in the last few years. Major drivers seem to be the severe demand downturn after 9/11 -- demand remained much weaker in 2009 than it was in 2000 -- and the large cost differential between legacy airlines and the low-cost carriers, which has persisted even as their price differentials have greatly declined. 

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