Every 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: “Demographics and Entrepreneurship”
Authors: James Liang, Hui Wang, Edward P. Lazear
What they found: Countries with older workforces are less entrepreneurial.
Why it matters: Entrepreneurship in the U.S. is declining. It’s intuitively appealing to blame that decline on the aging of the baby boom generation, but as I’ve written before, it isn’t that simple. Despite the popular image of startups as a young person’s game — think Mark Zuckerberg and Bill Gates — people are actually most likely to start businesses in their 30s and 40s. In this paper, the authors argue that successful entrepreneurship requires a mix of creativity (a trait usually associated with the young) and business acumen (something often acquired through experience). An aging population is bad for entrepreneurship, they say, not because it leaves too few young people to start businesses, but because older workers clog career pathways, preventing young people from getting the experience they need to start successful businesses. They build a model that finds that “a one-standard deviation decrease in the median age of a country increases the rate of new business formation by 2.5 percentage points.” Older countries, they find, have lower rates of entrepreneurship among workers of every age, not just the young.
Key quote: “To become an entrepreneur, an individual needs to have an idea for a business, which may be more prevalent among the young. But making a new business a success also requires skills that are best acquired through on-the-job training. In an aging society, the important positions in firms are likely to be dominated by older individuals, whereas in a younger society, young workers may get the opportunity to experience situations that will better enable them to start their own businesses. As a consequence, a young society allows more opportunity for workers to acquire business skills early in their careers, which implies that they will be more skilled at any given age.”
Data they used: Global Entrepreneurship Monitor, a cross-country survey conducted by a British nonprofit.
Authors: Hunt Allcott, Daniel Keniston
What they found: Oil booms create jobs and raise wages in the areas where they occur, contrary to concerns that natural resource booms often make local economies less competitive.
Why it matters: Natural resources are a blessing that often turn out to be a curse. Drilling booms can drive up wages and material costs, making other sectors of the economy less competitive. This so-called Dutch Disease has been well documented in an international context, where resource booms also drive up the local currency, hurting exports. But it’s less clear how booms play out within countries. To investigate, the authors of this paper look at county-level employment and production data in the United States back to 1960, a long enough period to cover not just the current fracking-driven boom, but also the last great U.S. oil boom of the 1970s. They find that booms really are an economic blessing: They lead to more jobs and higher wages. Moreover, they find no evidence of Dutch Disease: Other sectors in the local economy also grow during oil booms, suggesting drilling isn’t crowding them out. The authors conclude this is probably due in part to “agglomeration” — other local industries benefit from the boom, for example, as manufacturers create products for the oil industry.
(A disclosure: Keniston, one of the authors, was a high school friend of mine.)
Key quote: “There are several remarkable facets to the results. First, while Dutch Disease is theoretically possible and wages do rise, our statistical and even graphical results clearly reject the idea of Dutch Disease within the United States. Second, while manufacturers are often thought of as producing nationally- or internationally-traded goods, this paper echoes Holmes and Stevens (2014) in highlighting how a meaningful share of manufacturers benefit from local (county-level) demand growth. Third, our results counter the argument that natural resource extraction is unlikely to drive productivity growth. Instead, natural resource booms cause significant employment and [productivity] growth in linked and local manufacturing industries.”
Data they used: Establishment-level microdata from the Census of Manufacturers, along with the Current Population Survey and other sources.
Authors: Thomas Ahn, Jacob Vigdor
What they found: Schools that face penalties under the No Child Left Behind law have better test scores, particularly for low-performing students.
Why it matters: No Child Left Behind, the 2001 federal school-reform law, holds schools to increasingly high standards for student test scores. Schools that fall short face escalating sanctions, ultimately including the firing of administrators and closure. In this paper, the authors use data from North Carolina to study the effects of these sanctions by looking at schools that fell on either side of the test-score cutoff. Students at schools that just missed the cutoff, and therefore faced sanctions, showed more improvement in their test scores than students at schools that just cleared the bar and didn’t face sanctions. The effect was only small for schools facing the weakest sanctions, and not statistically significant for schools facing the middle level of sanctions. But schools facing the harshest penalties, where administrators lose their jobs, experienced more significant gains. Test scores improved the most for low-performing students, but all groups saw gains, which the authors say should ease concerns that the sanctions would incentivize schools to shift resources away from top students.
Key quote: “Overall, our results suggest that accountability systems can have modest impacts on student performance, and if properly designed can in fact improve the performance of some students without harming others. The association of strongest, and broadest, effects with restructuring indicates that management and leadership issues are the most significant obstacles to improvement in public schools marked by persistent low performance.”
Data they used: Student- and school-level data from the North Carolina Educational Research Data Center.