Andrew C. Johnston

Working Papers:

Teacher Labor Market Policy and the Theory of the Second Best (with Michael Bates, Michael Dinerstein, and Isaac Sorkin), Revise and resubmit at Quarterly Journal of Economics [NBER link] [SSRN link] [EWP link]  

The teacher labor market is a two-sided matching market where the effects of policies depend on the actions of both sides. We specify a matching model of teachers and schools that we estimate with rich data on teachers' applications and principals' ratings. Both teachers' and principals' preferences deviate from those that would maximize the achievement of economically disadvantaged students: teachers prefer schools with fewer disadvantaged students, and principals' ratings are weakly related to teacher effectiveness. We find, however, that the theory of the second best holds. These two deviations combine to produce a surprising current allocation where teacher quality is balanced across advantaged and disadvantaged students. To close academic achievement gaps, policies that address deviations on one side alone are ineffective or harmful, while policies that address both deviations could substantially increase disadvantaged students' achievement. 

Pension Reform and Labor Supply: Retention and Productivity under a Pension Cut (with Jonah Rockoff), Submitted [SSRN link] [EWP link]

We examine the effect of a representative cost-cutting reform on the retention and productivity of workers. The reform reduced pension annuities and increased penalties for early retirement, projected to save eight percent of pension revenues. We leverage administrative records and a discontinuity in the reform to estimate the reform's effect on labor supply. The reform slightly increased worker retention, and we can rule out small attrition effects. We use a difference-in-differences design that leverages exposure differences across units and find that the reform had a marginally significant positive effect on worker output. The reform thus appears to have maintained or improved the extensive and intensive margins of labor supply. 

Divorce, Family Arrangement, and Children's Adult Outcomes (with Maggie Jones and Nolan Pope)

We examine U.S. tax and Census records to understand the impacts of divorce on family arrangements and children's outcomes. Following a divorce, we observe parents separating, a decrease in household income, increased work hours for mothers, elevated moving rates, and relocation to economically challenged neighborhoods with lower upward mobility. Panel data reveals a significant rise in teen births and mortality among children at the time of parental divorce. By comparing siblings with different exposure to divorce within the same family, we find that parental divorce during childhood leads to decreased adult earnings and college attendance and increased incarceration rates for affected children. Changes in household income and neighborhood choice account for about a third of these effects, leaving two-thirds unexplained by these factors.

Demand for Social Security: Evidence from Patchwork Coverage (with Isaac Cohen)

By historical quirk, public schools in Georgia have a patchwork of Social Security coverage, which we use to measure worker demand for the program. When transferring schools, teachers exchange Social Security coverage for 3.4 percent of salary on average, implying the marginal transfer values coverage at about half the employer cost and a portion of the full social cost. Evidence from teacher flows between districts using a gravity model also suggests a low valuation of coverage with teachers avoiding covered employment, conditional on pay and student demographics. Our setting provides the first empirical estimates to quantify Hicksian transfers for Social Security reform.

Moral Hazard among the Employed: Evidence from a Regression Discontinuity (with Ewa Gałecka-Burdziak, Jonas Jessen, and Robin Jessen)

We leverage thresholds in Poland that quasi-randomly determine benefit generosity and duration and report several findings. First, the distortionary effects of benefit duration and benefit generosity interact: The unemployment elasticity of benefit generosity is 50 percent larger if benefit duration is (quasi-randomly) high. Second, in addition to delaying re-employment, we find that more generous unemployment insurance significantly increases the hazard that employed workers become unemployed. Third, we find that marginal workers that become unemployed because of more generous benefits are older, more female, and less educated than the infra-marginal unemployed. We extend a model of optimal UI to account for moral hazard among the employed as well as interaction effects. The results suggest that, in our setting, the total distortion of UI among the employed is larger than that among the unemployed.   

Do Pensions Enhance Worker Effort and Selection? Evidence from Public Schools (with Michael Bates)

Why do employers offer pensions? We empirically explore two theoretical rationales, namely that pensions may improve worker effort and worker selection. We examine these hypotheses using administrative measures on effort and output in public schools around the pension-eligibility notch. Worker effort and output do not fall as workers cross the eligibility threshold, implying that pensions may not elicit additional effort. As for selection, we find that pensions retain low value-added and high value-added workers at the same rate, suggesting pensions have little or no influence on selection.  

Selected Publications:

Preferences, Selection, and the Structure of Teacher Pay, Conditionally accepted at American Economic Journal: Applied Economics [SSRN link] [EWP link] 

I investigate teacher preferences using a discrete-choice experiment that I link to records on teacher performance. I estimate willingness-to-pay for a rich set of compensation elements and working conditions. High-performing teachers have similar preferences to their peers but have a distinct preference for greater performance pay. Taking the preference estimates at face value, I investigate the optimal compensation structure to meet various goals, including maximizing teacher utility, teacher retention, and student achievement. Under each objective, schools underpay in salary and performance pay while overpaying in retirement benefits. Restructuring compensation can significantly increase both teacher welfare and student achievement.

Skill Depreciation during Unemployment: Evidence from Panel Data (with Jonathan Cohen and Attila Lindner), Conditionally accepted at American Economic Journal: Applied Economics [NBER link] [SSRN link] 

We use a panel of survey responses linked to administrative data in Germany to measure the depreciation of skills while workers are unemployed. Both the reemployment hazard rate and reemployment earnings steadily fall with unemployment duration, and indicators of depression and loneliness rise substantially. Despite this, we find no decline in a wide range of cognitive and noncognitive skills while workers remain unemployed. We find the same pattern in a panel of American workers. The results imply that skill depreciation in general human capital is unlikely to be a major explanation for duration dependence.

Unemployment-Insurance Taxes and Labor Demand: Quasi-Experimental Evidence from Administrative Data, American Economic Journal: Economic Policy, (2021) [journal link] [SSRN link] [IZA link (ungated)] 

To finance unemployment insurance benefits, states raise payroll taxes on employers who engage in layoffs. Since tax rates increase in response to layoffs, taxes are highest for troubled firms after downturns, potentially hampering labor demand and employment during recoveries. Using full-population administrative records from Florida, I estimate the causal effect of these targeted tax increases on firm behavior leveraging a regression kink design in the tax schedule. UI tax hikes reduce firm hiring and employment substantially, with no effect on layoffs or worker earnings. Analysis of heterogeneity and timing suggests the role of cash constraints in explaining the magnitude of the estimates. The results imply unanticipated costs of the financing regime which, once accounted for, reduce the optimal benefit calculation by a quarter.

Is Compassion a Good Career Move?: Evidence on Nonprofit Earning Differentials from Employer Changes (with Carla Johnston), Journal of Human Resources, (2021) [journal link] [SSRN link] [IZA link (ungated)]

We explore the nonprofit earnings penalty. To separate the influence of demand and supply, we leverage workers who change employers in administrative tax data. The average nonprofit worker earns 5.5 percent less than the average for-profit worker. Supply-side factors (worker selection) contribute 80 percent of the nonprofit differential. The remaining 20 percent is from demand (a nonprofit penalty). Within-worker nonprofit variation generates several insights about the influence of nonprofits on the labor market. Nonprofits compress the wage distribution and reduce inequality among earners. Nonprofit penalties are much more pronounced in classic charities than in “commercial” nonprofits, which sometimes exhibit nonprofit premia. 

Potential Unemployment Insurance Duration and Labor Supply: Evidence from a Benefit Cut (with Alexandre Mas), Journal of Political Economy, (2018) [journal link] [local link] [SSRN link] 

We examine how a 16-week cut in potential unemployment insurance (UI) duration in Missouri affected search behavior of UI recipients and the aggregate labor market. Using a regression discontinuity design (RDD), we estimate a marginal effect of maximum duration on UI and nonemployment spells of approximately 0.45 and 0.25 respectively. We use the RDD estimates to simulate the unemployment rate assuming no market-level externalities. The simulated response, which implies almost a one percentage point decline in the unemployment rate, closely approximates the estimated change in the unemployment rate following the benefit cut. This finding suggests that, even in a period of high unemployment, the labor market absorbed this influx of workers without crowding-out other jobseekers.

The Effect of Unemployment Benefits on the Duration of Unemployment Insurance Receipt: New Evidence from a Regression Kink Design in Missouri, 2003-2013 (with David Card, Pauline Leung, Alexandre Mas, and Zhuan Pei), American Economic Review: Papers & Proceedings, (2015) [journal link] [manuscript link] 

We provide new evidence on the elasticity of unemployment insurance weekly benefit amount on unemployment insurance spells based on administrative data from the state of Missouri covering 2003-2013.  Identification comes from a regression kink design that exploits the quasi-experimental variation around the kink in the UI benefit schedule.  We find that unemployment durations are more responsive to benefit levels during the recession and its aftermath, with an elasticity of about 0.9 as compared to 0.35 pre-recession.

Coming Soon:

Selection into Teaching (with Michael Dinerstein and Basit Zafar)

Moral Hazard among the Employed (with Mette Ejrn and Stefan Hochguertel)

Experience Rating in Recession and Recovery 

The Influence of Pensions on Labor Supply (with Jonah Rockoff)

Parent Absence and Human Capital Formation: Evidence from Quasi-Random Deployments (with Michael Kofoed, Trey Miller, and Richard Patterson)

Popular Writing and Coverage:

Wall Street Journal: Pandemic Unemployment Will Soon Bring Tax Hikes (with Mark Duggan)

American Economic Association: The Unemployment Insurance Tax Hangover

Stanford Policy Brief: Unemployment During the Pandemic: How to Avoid Going for Broke (with Mark Duggan and Audrey Guo)

Forbes: The States With The Best And Worst Unemployment Benefits—And Why They’re So Different

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