How do immigrants assimilate in job search?

How immigrants integrate into the native population has been a concern in many countries for a long time. Typically, this has been done by looking at how they marry, they educate themselves, how much they earn, and how they conduct criminal activities. Their labor market behavior, particularly how they search for a job, is less studied.

Audra Bowlus, Masashi Miyairi and Chris Robinson fill that gap by applying a search model to Canadian data. Two crucial parameters in those models are the job arrival and job destruction rates, which the authors allow to differ between natives and immigrants. In addition, they add a switching process wherein an immigrant stochastically acquires the characteristics of a native. This allows to determine that it takes on average 13 years for this to happen, quite a long time I think. More interesting, however, is that immigrants get significantly fewer offers, 36% lower when unemployed and 93% lower when employed, and they lose their jobs faster as well. This means that if an immigrant transitions to another job, it is almost always through unemployment. As a natural consequence, their wages catch up very slowly with that of natives. In fact, the search process accounts for more than half of the wage gap.

Milk quota markets are not efficient

Many countries have some sort of rationing system in place for their dairy industry, because apparently farmers have a tendency to produce too much milk and depress its price, in the end getting less, I guess because the price elasticity of demand is high. This rationing is typically done through a quota system, and these quotas are sometimes tradable. This last point is important as it makes it possible for the allocation to be efficient: the most efficient producers should indeed acquire more quotas, which they buy from the least productive farmers.

Rebecca Elskamp and Getu Hailu tell us this is not at all what is happening in Ontario, Canada. Elskamp and Hailu identify quota net buyers and sellers and they try to match them with various characteristics. As the milk sale price is uniform, it must have to do with production and costs. The latter do not seem to matter at all. Scale does, though. Thus, if you are a farmer who happens to have an empty barn, you buy quotas whether your costs are high or not. But if you are a very inefficient farmer with high costs, you do not think of selling your entire quota and live from it. Strange.

Good weather and absenteeism

Ah, the weather is so nice outside, yet I am stuck inside working. If only I could take a vacation day. But wait, I could declare myself sick for a day, would not need a doctor's note because it is just a day, and enjoy life! Well, this is not that easy in my case, as I still need to get the work done, but the temptation is there. And many likely cross that line.

Jingye Shi and Mikal Skuterud use absenteeism data for Canada and find indeed that good weather encourages people to take sick leaves. Given the harsh winter climate in Canada, they limit the analysis to non-winter months and indoor workers, so that the temptations are maximized. Yes, they find that short-term "sickness" increases with good weather, but strangely it affects more workers who do not enjoy sick pay benefits or are on probation. The authors suggest this is because they cannot capture some implicit agreement that one can use short sick leaves for other purposes. That does not convince me.

When governments compete for lottery revenue

A state-sponsored lottery is a tax on stupid people, and one may not object on its existence for this reason. Except that people may be stupid for reasons beyond their control. But let us assume that it is a tax that enhances overall well-being, for example because it drives out more harmful taxes. Wouldn't all government want to offer a lottery, especially as they can have a monopoly on the market? That is without counting with other jurisdictions, such as the Canadian federal government that may want to participate where provinces already run lotteries.

Étienne Desjardins, Mélina Longpré and François Vaillancourt explain how the provinces got rid of this unwelcome competitor. At the end of the 1970's, Loto-Canada was encroaching on the provincial lotteries, and an cartel-like agreement was struck: the provincial lotteries bought out the federal one, and they are paying to this date for the privilege of this monopoly. And the provinces got very good deal, as the agreement did not foresee the growth of this market. Maybe the federal government should threaten to reintroduce Loto-Canada to tease out a better agreement.

On democracy and tuition hikes

Some students in Quebec have now been on strike for over three months over a law that would increase the tuition in all universities (they are all public) by a total of about US$1500 over five years. This seems a rather trivial amount for a US student, but in countries where tuition is free or almost free, this is not trivial. The apparent violence of the protests, which have gone all the way to sabotaging the subway system, and the daily protest marches show there is some deep issue at play. Let me add my grain of salt on two points.

The first is about democracy. I am all for popular uprisings, demonstrations and marches when there is a failure in the democratic process that leads the government to take decisions that are against the public good. Frankly, I do not see where the failure of democracy is in this case. The law was adopted by a democratically elected government. While Quebec is a province with severe corruption issues (for Western standards), the electoral process seems clean. Polls appear to show wide support for the government's policies. Even the striking students are a minority in the student population. The street should not hold the democratic process and sound policy making hostages.

Which brings me to the second point. Apparent popular support in the polls may be a reaction to the violence and radicalization of the student movement. It may not be about sound policy. But it should. Indeed, the main argument for low tuition is that it makes university access affordable to everyone. That is right, but it is also a gigantic gift to the rich, who send their children much more frequently and much longer to university. If you add the costs and the taxes, giving free tuition is equivalent to a very regressive taxation. I do not think that this is the goal. The goal is to get everyone to pay their fair share in education, for which the future personal benefits in present value are very large. Tuition should be subsidized because of the positive externalities of education, but those that benefit the most from it should also pay the most for it. If students cannot afford studies right now, then grants and loans can overcome that. But the fact that some students cannot afford to study should not lead to a policy where higher education is free, or almost free, for everyone.

The Quebec government is right on this one, and the street is wrong.

Individual characteristics are more important for academic success in university

What makes a good college students? Looking at the admission criteria of universities can be insightful. Public universities in the United States basically just look for high school grades and standardized test results, with some adjustment background characteristics (race, high school characteristics), if any. European universities in the end just care about grades, in most cases that a student was above some level. And US private universities look at a large array of characteristics, with extracurricular activities and personal essays being of particular importance, grades in some cases being even ignored. While these different types of universities have obviously different motivations, ultimately they are looking for potential in students. So what determines academic success?

Martin Dooley, Abigail Payne and Leslie Robb use administrative data about a dozen entering cohorts in four Ontario universities to explain what makes students stay longer in tertiary education and have better college grades. It turns out that the high school grades are pretty much sufficient. At least for Canada, it is reassuring to see that individual performance matters more than where you are coming from. Of course, one could wonder whether all the other characteristics that private US schools consider would matter here. But this kind of data was presumably not available, as Ontario universities, all public, do not ask for such information during the application process. Also, there is no record in the study about individual standardized test results. Including those would only reinforce the results, but may have important policy implications: imagine they do not matter. Then it opens the door to grade inflation in high schools, and the grade signal gets diluted. And then admissions officers need to find something else to rely on, such as some of the characteristics that matter less.

Why is Argentina poorer than Canada?

Up to the 1930's, Argentina and Canada were very similar countries: rich, sparsely populated, income mostly from natural resources and agriculture, lots of immigrants, similar GDP per capita. Then after World War II, the economic fortunes of those two countries drifted apart. What happened?

Germán González and Valentina Viego think that Canada benefited from a rich and large neighbor that was a nice complement to Canada. Argentina, however, did not have this advantage and fell into a trap that made it more and more reliant on its core products and prevented it for following a "normal" development path towards industrialization. This conclusion comes from a fairly standard growth accounting exercise that highlights how Argentinian economic efficiency did not keep up with Canada's starting in the 1930's, primarily due to higher technology adoption in Canada. The latter is clearly helped by the vicinity of the US, while Argentina compounded things by adopting an ill-advised import substitution policy.

Risk sharing among states: Canada does it well

While individual and firms can, at least to some extend, insure against various eventualities hitting them, governments do this remarkably little. Of course, they have some policies available, like fiscal policy, monetary policy and in particular borrowing against future tax revenue, but they do not exploit risk sharing. The only exception are the facilities provided by the International Monetary Fund. But within countries, it appears some good mechanisms are in place.

Faruk Balli, Syed Basher and Rosmy Louis look at Canada at the various ways the provinces have to share risk. Interestingly, only 19% of the risk is left after: capital markets (40%), federal government transfers (25%), and credit markets (16%). The large share of capital markets is attributable to the fact that the relevant banks are present nationwide. Federal transfers include direct transfers to provinces through perequation as well as federal social programs. Finally, the direct access of provinces to credit markets has become less important for smoothing, likely because of more chronic provincial deficits (instead of cyclical ones) and the more positive correlation of them across provinces.

The new (Canadian) Liberal tax plan

The Liberal Party of Canada, official opposition, just presented its new tax reform, entitled the Green Shift. It is a very pleasant read, not the least because there is a lot of sound Economics in it. It also addresses a lot of the issues discussed on this blog.

Here is a summary of the executive summary: to address environmental issues and improve incentives to work, the tax system is shifted away from income towards pollution. Carbon emissions are taxed, at increasing rates over four years, and tax rates on household and corporate income are reduced in parallel to render this reform tax neutral. As we advocated before, we need to truly tax "sins" at the appropriate level so that user take correctly into account the externalities they exert on others. The revenue can then be used to remove taxation on activities that are good, like earning an income, hiring people, etc.

A very good read, with only little political pandering. Too bad the Liberals are currently in the opposition.

The fitness tax credit

Healthy people are good for an economy: they are productive, happy and in particular do not generate (poor) health related costs. As long as all those characteristics are private, there is no need for the government to intervene and promote good health. Everybody is free to choose the lifestyle she prefers, and suffer the consequences.

If there are externalities, it is another story. Second-hand smoke, drunk driving, are all example of lifestyle choices that have a negative impact on others. But health itself also has an impact if health care costs are at least partly carried by the community. This is the case in socialized health care, like in the United Kingdom and Canada, in mandatory group health insurance like in Germany, or in state supported old age health care like in the United States. There are two ways to address this: tax bad behavior, or subsidize good behavior.

Thus the plethora of sin taxes. Among existing ones, let us mention cigarettes and alcohol. But other possibilities could be trans-fat, French fries, corn syrup and sodas. One can also encourage good behavior: some health insurance companies offer lower rates for non-smokers or subsidize various sports activities. Canada introduced last year a tax credit for up to C$500 towards a child's sport activities. There is now a proposal on the table to create a similar tax credit for adults, up to C$1,500.

Telling people to exercise and eat well is only going so far if they are bombarded with temptations. But making them see the consequences in their budget, and early rather than later when they get sick, is bound to have more impact.

Quebec's failed daycare policy

In 1997, Quebec introduced the C$5-a-day daycare, heavily subsidizing existing daycares. The fee was increased to C$7 in 2004. While it seems admirable to provide affordable daycare for young parents, this policy is a disaster, and even more so than simple economics would have predicted.

First the obvious economics: with such a drastic reduction in price, the quantity demanded increases tremendously. And it did. People who had found other arrangements, for example within the family, do not to bother the grand-mother anymore if it costs only a few bucks a day to put a child in daycare. Parents who did not even need daycare now find it convenient to get free time at little cost. Now, was the supply subsidized enough to meet the demand? Of course not. One could think that the under-supply would be only temporary, in particular as new daycares need to be certified, manpower needs to be trained. But a decade after the introduction of the policy, the government is still struggling to provide anything near what demand would require, and at a huge cost. Given that there is rationing, a black market has evolved, or something that resembles it, as daycares bend rules to get closer to the market price. But the government is fighting it in the courts.

Now the less than obvious economics: the policy in Quebec is that everyone has equal access to public services (health care, schools, daycare, etc). Given that there must be rationing, who actually gets to use the subsidized daycare centres? Those with higher incomes, that is those who could have paid for the daycare anyway. Keep in mind that childcare tax credits were scrapped with the introduction of this programme. And this study finds that while female labour supply increased significantly, child welfare deteriorated in terms of health, behaviour and skills.

And to illustrate the economic literacy of policy makers, the Quebec minister in charge of families said Saturday that the daycare fee would not increase, as there are still families that are looking for a spot. Even the simple concept of demand and supply is foreign to her.

PS: Speaking of cold places, a story on a man that is immune to cold temperatures.

A tax credit for fetuses

Various fiscal measures help parents with raising their children, typically through tax deductions, child care credits, education credits or child allowances. The goal is to increase fertility or simply help parents. The Liberal Party of Quebec, currently forming a minority government in the province, is thinking aloud about extending tax credits to fetuses of 20 weeks or more.

This is not as silly as it seems. After all, various social programmes are already in place to benefit pregnant women. For example, the WIC programme in the United States provides cheques to lower income women (either pregnant or with young children) to encourage them to buy healthy food. Other countries provide for maternity leave that can extend substantially into the pregnancy.

The innovation in Quebec would be simply extend the benefits for children to the latter stages of a first pregnancy. This would allow households to acquire the necessary goods for the baby before birth, something that may matter for cash constrained households. The credit would depend on household income and be paid out monthly. The pregnancy needs to be certified by a physician, thus encouraging women to be followed medically.