Research BlogHere, I share some summaries, notes and findings. I am currently not teaching. And teaching and writing helps me to reflect and digest new information. Therefore, I share some insights at this place. Maybe this is helpful for others too.
Good friends don’t let good friends use IV. Many argue that this one-liner hasn’t been more true than today. Instrumental variable approaches and two-stage least square estimators (TSLS) have been at the forefront of the credibility revolution in economics. It basically allows you to exploit variation, that is unrelated to the outcome of interest but nevertheless causes you to take up the treatment. A famous example are military lotteries. If you are interested in the effect of you military service on your earnings, you are probably confronted with the fact that those in the military differ from the general working population, and that these factors potentially correlate with their earnings. Hence, a simple difference between those who served in the military and those who ddi not gives you a biased estimate. To circumvent this issue, researchers exploited random draw policies (among those who are eligible) to check the causal effect of a military service on earnings. By the virtue of randomization, the treatment and control group are identical (in a distributional sense) in their observed and unobserved characteristics. Hence, we can recover an unbiased estimate of the causal estimate of serving the military.
Business cycle fluctuations are a common feature of modern economies. Many papers have documented large long-term costs of those business cycle fluctuations. However, these costs probably represent only a lower bound of the costs associated with economic downturns since economic deteriorations are associated with health costs which are often enough not part of cost-benefit analyses of fiscal policy measures. These (non-monetary) costs have been addressed in few studies. But only few to none studies investigated the mental health costs of economic downturns. That’s where Avdic et al. (2021) contribute to.
The minimum wage is one of the most highly debated topics among economists. The reason is that in neoclassical models of the labor market, individuals with lower marginal productivity will be priced out of the market once a minimum wage above the equilibrium wage rate is established. However, empirical evidence on the employment effects of minimum wage introductions are fairly mixed. As a consequence, the introduction of the minimum wage in Germany was accompanied by a vigorous discussion of the pros and cons of a minimum wage rate. In 2015, the federal government introduced a universal minimum wage of 8.50€. This corresponds to about 57% of the median hourly wage in Germany in 2015.