Recent NBER Reports

Recent NBER reports include:

• Separation of Powers and the Budget Process
• On the General Relativity of Fiscal Language
• Artificial States
• A Comparative Analysis of the Labor Market Impact of International Migration: Canada, Mexico, and the United States
• New Evidence on Gender Difference in Promotion Rates: An Empirical Analysis of a Sample of New Hires
• Federal Policy and the Rise in Disability Enrollment: Evidence for the VA's Disability Program

Separation of Powers and the Budget Process
by Gene M. Grossman, Elhanan Helpman

Abstract: We study budget formation in a model featuring separation of powers. In our model, the legislature designs a budget bill that can include a cap on total spending and earmarked allocations to designated public projects.  Each project provides random benefits to one of many interest groups.  The legislature can delegate spending decisions to the executive, who can observe the productivity of all projects before choosing which to fund.  However, the ruling coalition in the legislature and the executive serve different constituencies, so their interests are not perfectly aligned.  We consider settings that differ in terms of the breadth and overlap in the constituencies of the two branches, and associate these with the political systems and circumstances under which they most naturally arise. Earmarks are more likely to occur when the executive serves broad interests, while a binding budget cap arises when the executive's constituency is more narrow than that of the powerful legislators.

On the General Relativity of Fiscal Language
by Laurence J. Kotlikoff, Jerry Green

Abstract: A century ago, everyone thought time and distance were well defined physical concepts.  But neither proved absolute.  Instead, measures/reports of time and distance were found to depend on one's reference point, specifically one's direction and speed of travel, making our apparent physical reality, in Einstein's words, "merely an illusion."

Like time and distance, standard fiscal measures, including deficits, taxes, and transfer payments, depend on one's reference point/reporting procedure/language/labels.  As such, they too represent numbers in search of concepts that provide the illusion of meaning where none exists.

This paper, dedicated to our dear friend, David Bradford, provides a general proof that standard and routinely used fiscal measures, including the deficit, taxes, and transfer payments, are economically ill-defined.  Instead these measures reflect the arbitrary labeling of underlying fiscal conditions.  Analyses based on these and derivative measures, such as disposable income, private assets, and personal saving, represent exercises in linguistics, not economics.

A Comparative Analysis of the Labor Market Impact of International Migration: Canada, Mexico, and the United States
by Abdurrahman Aydemir, George J. Borjas

Abstract: Using data drawn from the Canadian, Mexican, and U.S. Censuses, we find a numerically comparable and statistically significant inverse relation between immigrant-induced shifts in labor supply and wages in each of the three countries:  A 10 percent labor supply shift is associated with a 3 to 4 percent opposite-signed change in wages. Despite the similarity in the wage response, the impact of migration on the wage structure differs significantly across countries. International migration narrowed wage inequality in Canada; increased it in the United States; and reduced the relative wage of workers at the bottom of the skill distribution in Mexico.

Artificial States
by Alberto Alesina, William Easterly, Janina Matuszeski

Abstract: Artificial states are those in which political borders do not coincide with a division of nationalities desired by the people on the ground.  We propose and compute for all countries in the world two new measures how artificial states are.  One is based on measuring how borders split ethnic groups into two separate adjacent countries.  The other one measures how straight land borders are, under the assumption the straight land borders are more likely to be artificial.  We then show that these two measures seem to be highly correlated with several measures of political and economic success.

New Evidence on Gender Difference in Promotion Rates: An Empirical Analysis of a Sample of New Hires
by Francine D. Blau, Jed DeVaro

Abstract: Using a large sample of establishments drawn from the Multi-City Study of Urban Inequality (MCSUI) employer survey, we study gender differences in promotion rates and in the wage gains attached to promotions.  Several unique features of our data distinguish our analysis from the previous literature on this topic.  First, we have information on the wage increases attached to promotions, and relatively few studies on gender differences have considered promotions and wage increases together.  Second, our data include job-specific worker performance ratings, allowing us to control for performance and ability more precisely than through commonly-used skill indicators such as educational attainment or tenure.  Third, in addition to standard information on occupation and industry, we have data on a number of other firm characteristics, enabling us to control for these variables while still relying on a broad, representative sample, as opposed to a single firm or a similarly narrowly-defined population.  Our results indicate that women have lower probabilities of promotion and expected promotion than do men but that there is essentially no gender difference in wage growth with or without promotions.

Federal Policy and the Rise in Disability Enrollment: Evidence for the VA's Disability Program
by Mark Duggan, Robert Rosenheck, Perry Singleton

Abstract: The fraction of non-elderly adults in the U.S. receiving disability benefits from the federal SSDI and/or SSI programs increased from 3.2 to 5.9 percent during the last two decades.  Determining how much of this increase was caused by changes in policy versus other factors is difficult given that the programs are essentially uniform nationwide.  In this study, we shed light on this issue by investigating the impact of a discrete change in the federal government's third largest disability program, the Department of Veterans Affairs' Disability Compensation (DC) program.  In July of 2001, there was an expansion in the medical eligibility criteria for this program that applied only to Vietnam veterans.  This change was motivated by an Institute of Medicine study, which linked exposure to Agent Orange and other herbicides used by the U.S. military in Vietnam, to the onset of diabetes.  Using veterans who served shortly before and after the Vietnam War as our comparison group, we estimate that this policy change increased DC enrollment by 6.7 percentage points among Vietnam veterans.  An additional 2.7 percent experienced an increase in their monthly DC benefit as a result of this policy change.  The expanded eligibility criteria for Vietnam veterans can explain 60 percent of the recent acceleration in DC enrollment growth and increased the present value of DC spending by more than $30 billion. Our results further indicate that the policy change was responsible for an increase in the responsiveness of the program to local economic conditions.  Our findings strongly suggest that even relatively narrow changes in the eligibility criteria for federal disability programs can have a powerful effect on program enrollment and expenditures.