Andrew C. Johnston

Working Papers:

Teacher Labor Market Policy and the Theory of the Second Best (with Michael Bates, Michael Dinerstein, and Isaac Sorkin), Accepted at Quarterly Journal of Economics [QJE link] [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. 

Divorce, Family Arrangement, and Children's Adult Outcomes (with Maggie Jones and Nolan Pope) Submitted [NBER link]

Nearly a third of American children experience parental divorce before adulthood. To understand its consequences, we use linked tax and Census records for over 5 million children to examine how divorce affects family arrangements and children's long-term outcomes. Following divorce, parents move apart, household income falls, parents work longer hours, families move more frequently, and households relocate to poorer neighborhoods with less economic opportunity. This bundle of changes in family circumstances suggests multiple channels through which divorce may affect children's development and outcomes. In the years following divorce, we observe sharp increases in teen births and child mortality. To examine long-run effects on children, we compare siblings with different lengths of exposure to the same divorce. We find that parental divorce reduces children's adult earnings and college residence while increasing incarceration, mortality, and teen births. Changes in household income, neighborhood quality, and parent proximity account for 25 to 60 percent of these divorce effects.

Moral Hazard among the Employed: Evidence from a Regression Discontinuity (with Ewa Gałecka-Burdziak, Jonas Jessen, and Robin Jessen), Submitted [NBER link] [SSRN link] 

We exploit policy discontinuities in Poland's unemployment insurance to examine the causal effect of both benefit durations and levels. Using a regression discontinuity approach, we uncover three findings: (1) Higher benefit levels distort employment more than benefit extensions. (2) Benefit durations and levels interact: Longer durations substantially increase the distortionary effect of more generous payments. (3) Higher payments increase the transition of employed workers into unemployment. We develop a model of optimal unemployment insurance that accounts for moral hazard among both employed and unemployed workers. Notably, for level increases, distortionary costs are larger among the employed than unemployed.   

Do Pensions Enhance Worker Effort and Selection? Evidence from Public Schools (with Michael Bates), Submitted [SSRN link] [EWP link]

Why do employers offer pensions? We empirically explore two theoretical rationales, namely that pensions may improve worker effort and worker selection. We test these hypotheses using rich administrative measures on effort and output for teachers around the pension-eligibility notch. When workers cross the notch, their effective compensation falls by roughly 50 percent of salary, but we observe no reduction in worker effort or output. This implies that pension payments do not increase 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. 

Worker Retention and Productivity under a Pension Cut (with Jonah Rockoff and James Harrington), Submitted [SSRN link] [EWP link]

We examine how a cost-cutting pension reform in Texas affected teacher retention and productivity. The reform cut benefits and penalized early retirement but grandfathered workers beyond an age-and-experience cutoff. Using regression discontinuity and difference-in-differences designs, we find that the reform maintained retention for older workers while increasing it for younger ones. To examine the reform's effect on productivity, we compare student achievement in grades within the same school that had different exposure to the reform. More exposed grades had greater achievement gains in math and reading than less exposed ones in the same school, mediated by retention. The reform thus increased retention and productivity.   

Social and Health Outcomes around Divorce: Evidence from New Zealand (with Kabir Dasgupta,  Linda Kirkpatrick,  Maxim Massenkoff, and Alexander Plum)

How does family breakdown and divorce affect spouses and their children? We provide new evidence using a matched difference-in-differences design in rich administrative data from New Zealand. While most outcomes remain stable prior to separation, parents' mental health deteriorates in the lead-up. At separation, men's employment falls while women's rises, and women become much more likely to receive government benefits. Men temporarily double their criminal offending; about a third of the increase is domestic disputes. Both parents become more likely to be the victim of non-domestic crime as well. As for mental health, parents become more anxious and depressed at separation, and these remain elevated well after the couple has parted. Their children, too, face increased risks after separation: anxiety, depression, school absenteeism, and crime victimization all rise.  

Selected Publications:

Preferences, Selection, and the Structure of Teacher Pay, Forthcoming at American Economic Journal: Applied Economics [NBER 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), Forthcoming at American Economic Journal: Applied Economics [NBER link] [SSRN link] 

We use a panel of skill measures linked to administrative data in Germany to measure the depreciation of skills while workers are unemployed. Both the reemployment hazard and reemployment earnings steadily decline with unemployment duration, and indicators of depression and loneliness rise substantially. And yet, we find no decline in a wide range of cognitive and non-cognitive 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 observed duration dependence in reemployment outcomes.

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:

Associated Press: US Children of Divorce have Reduced Earnings, Study Says

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

Vox: Rethinking unemployment insurance: New evidence on hidden costs (with Jonas Jessen, Robin Jessen, and Ewa Galecka-Burdziak)

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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