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Affirmative Action, Occupational Licensing And Early Retirement

inthepapersEvery Monday, the National Bureau of Economic Research, a nonprofit organization made up of some of North America’s most respected economists, releases its latest batch of working papers. The papers aren’t peer-reviewed, so their conclusions are preliminary (and occasionally flat-out wrong). But they offer an early peek into some of the research that will shape economic thinking in the years ahead. Here are a few of this week’s most interesting papers.

Title: “Affirmative Action and the Quality-Fit Tradeoff”

Authors: Peter Arcidiacono, Michael Lovenheim

What they found: Affirmative action policies in higher education might contribute to worse educational and economic outcomes for students who are unprepared for the academic rigor of selective colleges and law schools — so much so that reallocating those students to less-selective schools might help their careers.

Why it matters: Affirmative action policies aim to increase the diversity of a student body by giving preference in admissions to under-represented minorities, particularly African-Americans. Most minority students attending a selective college or law school will reap positive economic benefits (called “quality effects”), but some of the least academically prepared could be “mismatched.” According to this theory, students attending a school that is the wrong “fit” could have worse outcomes, like lower graduation rates, than if they attended a less-selective school that was a better fit. This paper surveys the contentious literature on affirmative action and the “mismatch” hypothesis, drawing from multiple studies. Evidence for mismatch effects was found for minority undergraduate students majoring in STEM (science, technology, engineering and math) subjects. For instance, a student who scores relatively low on the SAT and is interested in science is more likely to graduate with a STEM degree from the University of California, Riverside, than a similar student enrolled at the more-selective University of California, Berkeley. Mismatch effects were also found among law school graduates: Some students from selective schools had a harder time passing the bar exam on the first try than similar students from less-selective ones. It is not clear whether the negative mismatch effects outweigh the positive quality effects, for which there is ample evidence.

Key quote: “The evidence suggests that racial preferences are so aggressive that reshuffling some African American students to less-selective schools would improve some outcomes due to match effects dominating quality effects. The existing evidence indicates that such match effects may be particularly relevant for first-time bar passage and among undergraduates majoring in STEM fields. However, shifting minority undergraduates to low-resource non-selective schools ultimately may undo any gains from higher match quality, and shifting minorities out of law schools altogether could lead to worse labor market outcomes among these students than had they been admitted to some law school.”

Data they used: Undergraduate and law school student records, from pre-entry academic qualifications (such as SAT scores) to post-departure outcomes (like bar exam results).

Title: “Analyzing the Labor Market Outcomes of Occupational Licensing”

Authors: Maury Gittleman, Mark A. Klee, Morris M. Kleiner

What they found: Workers in occupations that require a government-issued license earn about 6.5 percent more, and are more likely to be employed, than similar workers in jobs that don’t have such requirements.

Why it matters: The share of occupations requiring a license from the government has been growing for decades. The licensing requirements are often education-related but vary widely, depending on the state or local government. The authors of this paper used a new data set from the U.S. Census Bureau to examine the effect of licensing and found a 6.5 percent premium after controlling for worker and occupational characteristics. Licensed workers were also more likely than similar workers in occupations to be employed and to have retirement benefits from their jobs. The paper did not speculate about why licensed workers earn more.

Key quote: “After controlling for observable heterogeneity, including occupational status, those with a license earn higher pay, are more likely to be employed, and have a higher probability of receiving retirement and pension plan offers.”

Data they used: The Professional Certifications, Licenses, and Educational Certificates topical module from the Survey of Income and Program Participation, covering May 2008 through November 2013.

Title: “The Great Recession, Retirement and Related Outcomes”

Authors: Alan L. Gustman, Thomas L. Steinmeier, Nahid Tabatabai

What they found: The Great Recession negatively affected young baby boomers, who experienced higher unemployment and longer spells between jobs, compared with people in the same age group before the downturn. However, the pay of these boomers didn’t suffer when they were rehired after the recession. Furthermore, they were less willing to retire early.

Why it matters: Older workers are thought to be less vulnerable to the cycles of the economy. They have more experience, and probably greater job security, than younger or middle-age workers. But the Great Recession that began in 2007 did not spare them. Younger boomers — those between 53 and 58 years old in 2006, before the recession hit — were more likely to experience a period of unemployment than those of the same age cohort in previous years. Also, the typical period of unemployment was longer for the recession-era boomers. Finally, because the value of their assets declined during the recession, early retirement became less attractive. Proportionally, more of the boomers during the recent recession described themselves as “not retired” or “partially retired” while unemployed — meaning they were intent on staying attached to the labor market and not simply retiring early.

Key quote: “A labor market connection for someone who is not working and not unemployed must be quite tenuous. Such an individual who also claims to be not retired or only partially retired probably does not have immediate plans to try to get back to work. There may be several motivations for such individuals to claim they are not retired or only partially retired. It may be that they don’t want to admit that they are really retired (in which case they really are retired), or there may be circumstances which cause them to think that they will return to work at some time in the indefinite future.”

Data they used: Health and Retirement Study database.

Andrew Flowers writes about economics and sports for FiveThirtyEight.