Preface

1. Preface

2. Objectives of the course • This course is directed at undergraduate students who are motivated to develop professional knowledge about labor economics. • Encourage critical thinking about empirical questions, particularly about the labor market (Note that I am not teaching “calculation economics”) • Equip students with theoretical and empirical tools to identify causal relationship of interest.

3. Prerequisite • ECO20N02 (Microeconomics I & II) • ECON4015 (Econometrics I & II) Without micro or econometrics background, you may run into difficulties understanding some models and/or arguments. All lectures will be delivered and exams designed in English, but you are not required to hand in assignment and take the exams in English.

4. Materials • Required Text: George J. Borjas, Labor Economics (6th Edition) • Better stick to this edition. • Other reading materials: Additional references, specified as required or recommended, will be occasionally linked to the course web page. • Powerpoint slides, assignments, answers, and other reading materials will be available online. • http://homepage.ntu.edu.tw/~elliottfan/labor.htm

5. About me Elliott Fan Assistant Professor Economics Department National Taiwan University • Email: elliottfan@ntu.edu.tw • Office hour: Wednesdays 11:10-12:00 / R404 • Venue: Graduate Building R404

6. Course evaluation Note: Except for emergency cases, no special consideration on grading will be granted.

7. Exams • The scope is focused on but not limited to lecture notes, textbook, required reading materials. • Presentation topics and discussion are also under consideration. • Numerical questions are not the only form.

8. Group presentation • A group is required to conduct a presentation in class once. A group is comprised of 2 students, and you should find your partners by yourselves. (please select a contact person for each group) • Through teamwork, a group should select a topic (or asks for a assigned one), form interesting questions, develop analysis and possible answers, design and deliver the presentation. • Each time one group is required to present a topic, and all remaining groups are required to make comments and/or raise questions. • In general, all kinds of labor economics related topics can be considered. Available sources of topic can be found online, in pubic media, books, documentaries, academic journal articles etc. • Talks, as well as all Q and A, can be delivered in English or Chinese. The length of the presentation is 20-minute long, followed by comments, discussion, and Q and A for another 10 minutes. • After each presentation, the presenting group should submit the slides.

9. Group presentation • Please form a group of 2 and submit the entire name list (with student numbers) via email to me by 5pm Wednesday 25/09/2013. The presentation schedule of each group will be finalized in the following week. • Each group should submit a written proposal (via email or in class) 2 weeks before the presentation date. The proposal should be clearly written, with reading materials, questions, and issues to be discussed specified in it. The proposal will be approved or required to be modified. • Evaluation is based on both presentation and context, focusing on whether the questions raised are intriguing, arguments are legitimately made, evidence is profoundly provided. Additional points will be granted to citations of empirical evidence regarding Taiwan. • I myself will demonstrate how to present a talk later.

10. Regarding math • I am assuming that all students have knowledge about learned fundamental calculus. • This course will involve applications of various mathematic tools. • Note that intuition is by any means more important than using math.

11. Your teaching assistants

12. How to get a great mark • Motivation is everything. • Get involved. Be active. • Make use of study group. • Complete everything by yourself. • Develop skills as well as intuition

13. Additional marks • Every week, I will incorporate a discussion on contemporary labor issues in the lecture. • I will also play some videos from time to time, such as this one. • Your participation is highly appreciated.

14. What is labor economics?

15. Wiki’s definition • Labor economics seeks to understand the functioning and dynamics of the markets for labor. Labor markets function through the interaction of workers and employers. Labor economics looks at the suppliers of labor services (workers), the demands of labor services (employers), and attempts to understand the resulting pattern of wages, employment, and income.

16. Approaches Approaches: • Macro vs micro • Theoretical vs empirical • Positive vs normative analyses Issues: • Traditional fields regarding labor supply, demand, and equilibrium. • Newly developed fields relating to health, demographics, education, and public policies.

17. Labor economists in Taiwan • NTU(Jin-Tan Liu, Ming-ChingLuoh, Min-Jen Lin, etc.) • Academia Sinica (Kamhon Ken, Stacey Chen) • NCNU (Yen-Chien Chen) • NCU (Meng-Wen Tsou) There are also not-so-labor applied economists: • NTU(Chun-Fang Jiang, Political Economics) • NCCU(Ming Lien, Health Economics)

18. Theoretical and Empirical • Economic theory helps tell us what happens if a LM parameter (e.g., a policy) changes • To TEST a model, or to tell HOW LARGE a predicted effect is, we have to look to the data • Big Problem: we are not physicists

19. Regression Analysis Log Wage Change in log wage Slope = b Years of Schooling Change in schooling a

20. Scatter Diagram: Wages and Schooling by Occupation, 2001

21. Choosing Among Lines Summarizing Trends in the Data

22. The Best-Fit Regression Line

23. Multiple Regression • Extending regression analysis to include multiple independent variables • Each estimated coefficient shows the impact of a particular variable on the dependent variable, other things constant • Standard errors of the regression coefficients are used to evaluate significance of the relations between each particular variable and the dependent variable

24. Causality issue: Earnings andSchooling (graph)

25. Implication and challenge: • Implication from the graph: schooling seems to have positive effect on earnings. • Challenge: need to control for other factors that may affect schooling and earnings simultaneously, e.g., family background, individual ability, etc.

26. Association versus Causation • Correlation does not imply causation! • 3 Possibilities explaining an association 1) Si Yi (causation) 2) Yi Si (reverse causation) 3) Zi Si & Zi Yi (other factors affect both S,Y)

27. Example of random assignment in economics • Marianne Bertrand and SendhilMullainathan send out thousands of resumes to different manual and service sector job openings (advertised in Boston and Chicago Newspapers) • They randomize the names of the applicants: e.g. Lakisha versus Emily and Jamal versus Greg

28. What Bertrand and Mullainathan Did:

29. Individuals given white sounding names about twice as likely as getting callbacks!

30. What happens when researchers ignore omitted variables bias? • Under the freedom of information act, the Toronto Star requests Toronto Police data on incidents and whether they led to arrests, and simple demographic information • On March 18, 2003, Star reports that, relative to population size, blacks more likely arrested than whites • Huge uproar, and accusations that results imply racial profiling

31. What Star did in the report:

32. Any Possibility of Omitted Variables Bias? Can we think of other variables that are related both to being a visible minority and being arrested? e.g: on average, lower income, disadvantaged family background Note: Not saying here that racial profiling does not exist, rather that this study is not able to tell

33. We will have to deal with omitted variable bias often in this course • Always be skeptical about research quality (note ‘publication’ bias) • Always question what are potential omitted variables • Directly addressing skepticism with careful research design and analysis makes results so much more convincing

34. OVB formula Consider a model: where Omitted variable bias formula: it says: short equals long plus the effect of omitted times the regression of omitted on included.

35. A sample presentation In you talk, a few components are required: • A well-suited title • Motivations (why the topic is interesting) • One or more clearly defined questions to raised • Answers to the questions • Arguments (theory and evidence) • Conclusions • Your own comments or evaluation

36. A sample presentation A well-suited topic: A discussion on:

37. A sample presentation Motivations of the paper: • Sustainability is a major concern for many countries, including Taiwan. • The 2005 reform was a significant one.

38. A sample presentation Questions: • Does the “equalizing differences theory” predicts the effect of the 2005 reform? (wage and pension contribution are perfect substitutes) • Did the newly introduced program benefit workers in the private sector? If so, how much? • Did the newly introduced program benefit workers in the public sector? If so, how much?

39. A sample presentation Methodology: • Difference-in-difference method: estimate the change in (log) wage for private workers after the policy implementation, relative to the change for the public workers.

40. A sample presentation Results:

41. A sample presentation Conclusions: • The prediction of the “equalizing differences theory” largely holds: Average wage for the private workers dropped by around 5.92%, amazingly close to the contribution rate, 7%, born by the employers. • There was no parallel decline in wage for the public workers.

42. A sample presentation Comments: • Public workers might not be an ideal control group. • DinD method cannot rule out selection bias.