Evidence-based policy making

The use of anonymous job applications (or blind recruitment) to combat hiring discrimination is gaining attention and interest. Results from field experiments and pilot projects in European countries (France, Germany, the Netherlands, Finland and Sweden are considered here), Canada, and Australia shed light on their potential to reduce some of the discriminatory barriers to hiring for minority and other disadvantaged groups. But although this approach can achieve its primary aims, there are also important cautions to consider.

There is a strong link between mothers’ primary school completion (8 or more years of schooling) and better socioeconomic outcomes, such as improved child health and reduced teenage fertility, but establishing causality is challenging. A 1997 compulsory schooling law in Turkey, which extended education from five to eight years, provides a natural experiment to identify causal effects. Empirical evidence suggests that increased female education from such reform significantly improves many socioeconomic outcomes of mothers and their children. While suggested mechanisms include changes in healthcare services utilization and risky pregnancy behaviors, such as smoking, thorough investigation of underlying channels is lacking.

Policymakers often propose a minimum wage as a means of  raising incomes and lifting workers out of poverty. However, improvements in some young workers’ incomes due to a minimum wage come at a cost to others. Minimum wages reduce employment opportunities for youths and create unemployment. Workers miss out on on-the-job training opportunities that would have been paid for by reduced wages upfront but would have resulted in higher wages later. Youths who cannot find jobs must be supported by their families or by the social welfare system. Delayed entry into the labor market reduces the lifetime income stream of young unskilled workers.

Internal whistleblowing refers to the decision of an employee observing a misconduct in a firm to report it through an internal channel, i.e. via a hotline or directly to an identified ombudsman. Whistleblowing is highly beneficial to firms in various ways. However, employees may be reluctant to blow the whistle, both for moral reasons and due to a fear of retaliation. Consequently, a firm aiming at encouraging whistleblowing in order to save judicial or reputation costs, fines, and to spare its reputation should consider a wide range of possible measures in addition to developing a global ethical culture.

Increasing population age and low fertility rates, which characterize most modern societies, compromise the balance between people who can participate in the labor market and people who need care. This is a demographic and social issue that is likely to grow in importance for future generations. It is therefore crucial to understand what factors can positively influence fertility decisions. Policies related to the availability and costs of different kinds of childcare (e.g. formal care, grandparents, childminders) should be considered after an evaluation of their effects on the probability of women having children.

The shadow (underground) economy has a major impact on society and economy in many countries. People evade taxes and regulations by working in the shadow economy or by employing people illegally. On the one hand, this unregulated economic activity can result in reduced tax revenue and fewer public goods and services, lower tax morale and less tax compliance, higher control costs, and lower economic growth rates. But on the other hand, the shadow economy can be a powerful force fostering institutional change and boosting the overall production of goods and services in an economy. The shadow economy has implications on the political order and institutional change.

Entrepreneurs, creators of new firms, are a rare species. Even in innovation-driven economies, only 1–2% of the work force starts a business in any given year. Yet entrepreneurs, particularly innovative entrepreneurs, are vital to the competitiveness of the economy and may establish new jobs. The gains of entrepreneurship are only realized, however, if the business environment is receptive to innovation. In addition, policymakers need to prepare for the potential job losses that can occur in the medium term through “creative destruction” as entrepreneurs strive for increased productivity.

Randomized control trials are often considered the gold standard to establish causality. However, in many policy-relevant situations, these trials are not possible. Instrumental variables affect the outcome only via a specific treatment; as such, they allow for the estimation of a causal effect. However, finding valid instruments is difficult. Moreover, instrumental variables (IV) estimates recover a causal effect only for a specific part of the population. While those limitations are important, the objective of establishing causality remains; and instrumental variables are an important econometric tool to achieve this objective.