Does Factor-Biased Technological Change Stifle International Convergence? Evidence from Manufacturing   

August 2000

Abstract: Factor-biased technological change implies divergent productivity growth across countries with different amounts of skill and capital per worker. I estimate the extent of factor bias within industries and countries in a 19-country panel of manufacturing data covering the 1980s. Estimates using both production functions and total factor productivity functions show that technological change is strongly biased against less-skilled workers and toward both skilled workers and capital. An industry or country with twice the capital and skill per less-skilled worker enjoys 1.4%-1.8% faster total factor productivity growth annually due to the effects of factor-bias. These results are consistent with the empirical literature on skill-biased technological change. They may well explain why "conditional convergence" of per capita income across countries is so slow.

Journal of Public Economics, 2000
Environmental Regulation and Labor Demand: Evidence from the South Coast Air Basin * with Linda T. Bui

Abstract: The devolved nature of environmental regulation generates rich regulatory variation across regions, industries and time. We exploit this variation, using direct measures of regulation and plant data, to estimate employment effects of sharply increased air quality regulation in Los Angeles. Regulations were accompanied by large reductions in NOx emissions and induced large abatement investments for refineries. Nevertheless, we find no evidence that local air quality regulation substantially reduced employment, even when allowing for induced plant exit and dissuaded plant entry. Regulations affected employment only slightly -- partly because regulated plants are in capital and not labor-intensive industries. These findings are robust to the choice of comparison regions.

Quarterly Journal of Economics August 2000

Sect, Subsidy and Sacrifice: An Economist's View of Ultra-Orthodox Jews

Abstract: Israeli Ultra-Orthodox men study full-time in yeshiva till age 40 on average. Why do fathers with families in poverty choose yeshiva over work? Draft deferments subsidize yeshiva attendance, yet attendance typically continues long after exemption. Fertility rates are high (TFR=7.6) and rising. A social interaction approach explains these anomalies. Yeshiva attendance signals commitment to the community, which provides mutual insurance to members. Prohibitions effectively tax real wages, inducing high fertility. Historically, the incursion of markets into traditional communities produces Ultra-Orthodoxy. Subsidies and rising alternative wages induce dramatic reductions in labor supply and unparalleled increases in fertility, illustrating extreme responses social groups may have to interventions.

Skill-Biased Technology TransferEvidence of Factor Biased Technological Change in Developing Countries(1)
with Stephen Machin

November 1999

Abstract: This paper investigates the skill-bias of technological change in developing countries using a global sample of manufacturing industries. We report a striking increase in demand for skilled workers in the 1980s in middle income countries (GDP/capita between $2000 and $10,000). This increase is mostly due to skill-upgrading within industries rather than a reallocation of employment from low to high-skill industries and cannot be explained by capital-skill complementarity, indicating skill-biased technological change. Furthermore, the same industries that substituted toward skilled labor in middle-income countries in the 1980s had been doing so in the U.S. through the 1960s, 1970s and 1980s. We conclude that recent skill-biased innovations migrated rapidly from developed to middle income countries, but find no evidence of transfer to low income countries.

1. We have benefitted from the comments of participants in seminars at NBER productivity and labor studies sessions and at the University of Chicago Business School and at Boston University. We thank Marco Morales and Zaur Rzakhanov for research assistance.

Fertility, Migration, Altruism and Growthwith Zaur Rzakhanov

August 1998

* We appreciate the helpful comments of Kevin Lang and seminar participants at Boston University, the Hebrew University, Jerusalem the University of Maryland and an NBER Labor Studies session.

Consider migration to a higher income region as a human capital investment in which parents bear migration costs and children share returns. Migrants from a population with heterogeneous intergenerational discount rates will be self-selected on intergenerational altruism, or patience. Selection on patience provides an alternative explanation for Chiswick's classic earnings-overtaking result. Other supporting evidence is: 1) Soviet Jews who migrate to Israel despite high migration costs are self-selected to have more children than members of the same birth cohort who migrate later when costs are low. We distinguish selection from treatment effects using a comparison group of women who migrate after childbearing age. 2) Immigrants favor bequests more and spend more time with their grandchildren in the U.S. Health and Retirement Survey. 3) Immigrant-absorbing countries like the U.S. have higher fertility than other countries at comparable income levels. Selection on patience implies that immigrant-absorbing regions will grow faster, or have higher per capita income, or both.

Quarterly Journal of Economics, November 1998
Implications of Skill-Biased Technological Change: International Evidence (1)  
with John Bound and Stephen Machin

Demand for less skilled workers plummeted in developed countries in the 1980s. In open economies, pervasive skill biased technological change (SBTC) can explain this decline. The more countries experiencing a SBTC the greater its potential to decrease local demands for unskilled labor by increasing the world supply of unskill-intensive goods. We find strong evidence for pervasive SBTC in developed countries. Most industries increased the proportion of skilled workers despite generally rising or stable relative wages. Moreover, the same manufacturing industries simultaneously increased demand for skills in different countries. Many developing countries also show increased skill premia, a pattern consistent with SBTC.
1. We appreciate the helpful comments and suggestions of Olivier Blanchard, Jonathan Eaton, Christine Greenhalgh, Lawrence Katz, Kevin Lang, John Martyn, Kenneth Troske, Daniel Tsiddon, two anonymous referees and participants in numerous conferences and seminars. The Sloan Foundation supported plant visits. We thank Thibaut Desjonqueres and Noah Greenhill for research assistance.

Contemporary Jewry , Vol 20, 1999
Subsidized Sacrifice: State Support of Religion in Israel

This paper offers three economic arguments for ending discriminatory religious law in Israel:
 - First, the current set of subsidies have created massive poverty and welfare dependence in the Israeli Haredi community. With men remaining in Yeshiva till an average age of forty and the Haredi population doubling each 17 years, that community is dangerously dependent on transfers which are unlikely to grow fast enough to support it. Previous work developed a model to explain why fathers with families in poverty choose Yeshiva over work. This paper explores policy implications of that analysis, stressing the extreme distortion that results from subsidizing membership in a community that requires personal sacrifice as an entry requirement. Subsidies are largely dissipated by the induced increase in sacrifice.
 - A second argument for ending discriminatory religious law is that the monopoly status granted to Haredim limits competition in the market for religious services, resulting in underprovision to the remainder of the Jewish population.
 - Finally, the opportunity to draw transfers that discriminate in favor of their own constituencies provides a strong incentive to organize political-religious parties, which have destabilized Israeli politics.
    The paper offers a set of equitable reforms which would compensate the Haredi community for their loss of subsidies and religious monopoly status by expanding needs-based social welfare programs. By limiting the discriminatory rents that a religious-political can aspire to, such reforms would reduce the incentive of religious groups to organize politically, thus serving as an alternative to (the failed) electoral reform.

Language-Skill Complementarity: Returns to Immigrant Language Acquisition 
with Kevin Lang and Erez Siniver(1)

June 1999

Abstract: We examine the effect of language acquisition on immigrant earnings growth. We gathered data on recent Soviet immigrants to Israel that include retrospective questions on earnings and language ability on entry into their current job. Language acquisition interacts positively with occupational level. Immigrant software workers and technicians have a return to tenure about three percentage points higher than that of natives. Improved Hebrew language skills account for between 2/3 and 3/4 of that differential wage growth. In contrast, construction workers and gas station attendants have no convergence of wages to those of natives and language acquisition has no discernible effect on their wages. For these less skilled workers the estimated "return" to Hebrew proficiency in the cross-section is entirely due to ability bias. This finding may invite a reinterpretation of other studies on the returns to language acquisition for low wage immigrants.

1. Boston University and National Bureau of Economic Research; Boston University; Management Institute, Tel Aviv. Lang acknowledges the support of NSF grant SBR-9515052. We benefitted from the comments of Dan Ackerberg and participants in seminars at the Institute for Race and Social Division and a labor lunch at Boston University.

1999 by Eli Berman, Kevin Lang and Erez Siniver. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full, credit is given to the source.

Environmental Regulation and Productivity: Evidence from Oil Refineries with Linda T.M. Bui

October 1998

Abstract: We examine the effect of air quality regulation on the productivity of some of the most heavily regulated manufacturing plants in the United States, the oil refineries of the Los Angeles (South Coast) Air Basin. We use direct measures of local air pollution regulation in this region to estimate their effects on abatement investment. Refineries not subject to these local environmental regulations are used as a comparison group. We study the period of increased regulation between 1979 and 1992. On average, each regulation cost $3M per plant on compliance dates and a further $5M per plant on dates of increased stringency. We also construct measures of total factor productivity using plant level data which allow us to observe physical quantities of inputs and outputs for the entire population of refineries. Despite the high costs associated with the local regulations, productivity in the Los Angeles Air Basin refineries rose sharply during the 1987-92 period, a period of decreased refinery productivity in other regions. We conclude that measures of the cost of environmental regulation may be significantly overstated. The gross costs may be far greater than the net cost, as abatement may be productive.

Human Capital Investment and Nonparticipation: Evidence from a Sample with Infinite Horizons (or: Mr. Jewish Father Stops Going to Work), (with Ruth Klinov), Maurice Falk Institute, DP 97.05, May 1997

Between 1970 and 1993 labor force participation of prime aged Israeli males dropped from 94% to 86%, the lowest rate in the developed world. Expansion of military service was the main cause in the 1970s but participation continued to fall in the 1980s despite the shrinking population share of the military. Along with causes that are common to other countries - increased disability and discouraged work-seekers - a unique Israeli feature is increased full-time yeshiva (ultra-orthodox school) attendance. Yeshiva attendance increased through the 1980s despite the low return to investment in yeshiva education, especially when compared to the increasing returns to secular education and to labor market experience. We investigate various explanations for these trends.