Thomas Lemieux

Professor and School Director
Royal Society of Canada, Fellow
Society of Labor Economists, Fellow

I am a Professor and School Director at the Vancouver School of Economics at the University of British Columbia. I was born in Quebec City and obtained my Ph.D. from Princeton University. I taught at MIT and the Université de Montréal before coming to UBC in 1999.

Most of my recent research revolves around the issue of earnings inequality in Canada and other countries. I am also interested in econometric methods used to analyze the earnings distribution and regression discontinuity designs.

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PUBLICATIONS

In this paper, we show that the decline in the relative wages of immigrants in Canada is far from homogenous over different points of the wage distribution. The well-documented decline in the immigrant-Canadian born mean wage gap hides a much larger decline at the low end of the wage distribution, while the gap hardly changed at the top end of the distribution. Using standard OLS regressions and unconditional quantile regressions, we show that both the changes in the mean wage gap and in the gap at different quantiles are well explained by standard factors such as experience, education, and country of origin of immigrants. Interestingly, an important source of change in the wages of immigrants relative to the Canadian born is the aging of the baby boom generation that has resulted in a relative increase in the labor market experience, and thus in the wages, of Canadian born workers relative to immigrants.

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This paper provides an overview of Regression Discontinuity (RD) designs for social science researchers. It presents the conceptual framework behind the research design, explains when RD is likely to be valid or invalid, draws a parallel between RD and randomized experiments, and summarizes different ways of estimating a treatment effect in the presence of a RD design. Implementation issues are discussed in the context of an example from U.S. House elections (Lee (2008)).

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Considerable concern has recently been expressed about growing income inequality. Much of the discussion, though, has been in general terms and focused on the U.S. experience. To understand whether and how Canada ought to respond to this development, we need to be clear on the facts. This paper documents Canadian patterns in income inequality and investigates the top 1% of earners – the group receiving much attention. We summarize what is known about the causes of growing income inequality, including the role of gender wage differences. Finally we outline policy options for reducing — or slowing the growth of — inequality.

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This chapter provides a comprehensive overview of decomposition methods that have been developed since the seminal work of Oaxaca and Blinder in the early 1970s. These methods are used to decompose the difference in a distributional statistic between two groups, or its change over time, into various explanatory factors. While the original work of Oaxaca and Blinder considered the case of the mean, our main focus is on other distributional statistics besides the mean such as quantiles, the Gini coefficient or the variance. We discuss the assumptions required for identifying the different elements of the decomposition, as well as various estimation methods proposed in the literature. We also illustrate how these methods work in practice by discussing existing applications and working through a set of empirical examples throughout the paper.

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This paper provides a set of basic facts about changes in wage inequality and the wage structure using May-ORG and March CPS data. An important goal of the paper is show these facts as simply as possible while correcting for changes in the experience and education composition of the workforce. The paper also studies the robustness of the main findings to a number of measurement issues, including i) the nature of the adjustment for topcoding, ii) the treatment of allocated wage observations, and iii) the choice of the March vs. the May-ORG supplement of the CPS, and discusses some implications of the results.

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This paper provides an introduction and “user guide” to Regression Discontinuity (RD) designs for empirical researchers. It presents the basic theory behind the research design, details when RD is likely to be valid or invalid given economic incentives, explains why it is considered a “quasi-experimental” design, and summarizes different ways (with their advantages and disadvantages) of estimating RD designs and the limitations of interpreting these estimates. Concepts are discussed using examples drawn from the growing body of empirical research using RD.

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We examine the evolution of the returns to human capital in Canada over the period 1980–2005. Our main finding is that returns to education increased substantially for Canadian men, contrary to conclusions reached previously. Most of this rise took place in the early 1980s and since 1995. Returns to education also rose, albeit more modestly, for Canadian women. Another important development is that after years of expansion, the wage gap between younger and older workers stabilized after 1995. Controlling for work experience and using Canadian Census data appear to account for the main differences between our results and earlier findings.

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We propose a new regression method to estimate the impact of explanatory variables on quantiles of the unconditional (marginal) distribution of an outcome variable. The proposed method consists of running a regression of the (recentered) influence function (RIF) of the unconditional quantile on the explanatory variables. The influence function is a widely used tool in robust estimation that can easily be computed for each quantile of interest. We show how standard partial effects, as well as policy effects, can be estimated using our regression approach. We propose three different regression estimators based on a standard OLS regression (RIF-OLS), a logit regression (RIF-Logit), and a non-parametric logit regression (RIF-OLS). We also discuss how our approach can be generalized to other distributional statistics besides quantiles.

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An increasing fraction of jobs in the U.S. labor market explicitly pay workers for their performance using bonus pay, commissions, or piece-rate contracts. Using data from the Panel Study of Income Dynamics, we show that compensation in performance-pay jobs is more closely tied to both observed and unobserved productive characteristics of workers than compensation in non-performance-pay jobs. We also find that the return to these productive characteristics increased faster over time in performance-pay than in non-performance-pay jobs. We show that this finding is consistent with the view that underlying changes in returns to skill due, for instance, to technological change induce more firms to offer performance-pay contracts and result in more wage inequality among workers who are paid for performance. Thus, performance pay provides a channel through which underlying changes in returns to skill get translated into higher wage inequality. We conclude that this channel accounts for 21% of the growth in the variance of male wages between the late 1970s and the early 1990s and for most of the increase in wage inequality above the eightieth percentile over the same period.

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This paper presents an overview of the changes in wage inequality in industrialized countries. The paper first presents a number of stylized facts about the evolution of wage inequality in Canada, the united States, and the large European economies. A key pattern that comes out of the data is that the growth in inequality has been concentrated in the upper-end of the wage distribution in recent years. Several explanations ranging from the introduction of information and communication technologies to labour market institutions are considered as possible explanations for these changes. The paper concludes that the growth in inequality cannot be accounted for by a single causal explanation such as technological change. A more promising approach for explaining the changes in wage inequality in industrialized countries is rather based on a number of causal factors coming from the demand and the institutional side of the labour market.

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In regression discontinuity (RD) designs for evaluating causal effects of interventions, assignment to a treatment is determined at least partly by the value of an observed covariate lying on either side of a fixed threshold. These designs were first introduced in the evaluation literature by Thistlewaite and Campbell [1960. Regression-discontinuity analysis: an alternative to the expost Facto experiment. Journal of Educational Psychology 51, 309–317] With the exception of a few unpublished theoretical papers, these methods did not attract much attention in the economics literature until recently. Starting in the late 1990s, there has been a large number of studies in economics applying and extending RD methods. In this paper we review some of the practical and theoretical issues in implementation of RD methods.

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Before 1989, childless social assistance recipients in Quebec under age 30 received much lower benefits than recipients over age 30. We use this sharp discontinuity in policy to estimate the effects of social assistance on various labour market outcomes using a regression discontinuity approach. We find strong evidence that more generous social assistance benefits reduce employment. The estimates exhibit little sensitivity to the degree of flexibility in the specification, and perform very well when we control for unobserved heterogeneity using a first difference specification. Finally, we show that commonly used difference-in-differences estimators may perform poorly with inappropriately chosen control groups.

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The paper reviews recent developments in the literature on wage inequality with a particular focus on why inequality growth has been particularly concentrated in the top end of the wage distribution over the last 15 years. Several possible institutional and demand-side explanations are discussed for the secular growth in wage inequality in the United States and other advanced industrialized countries.

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This paper uses the Adult Education and Training Survey (AETS) to look at the effect of unions on the incidence and sources of payment for training in Canada. Simple tabulations indicate that union workers are more likely to engage in training activities than nonunion workers. The higher incidence of training among union workers is driven by the fact that they are more likely to take training courses offered by their employers than nonunion workers. This suggests that union workers are more likely to participate in training activities that enhance their firm-specific human capital. This union effect disappears, however, once we control for a variety of factors such as age, education, and in particular, firm size and seniority. Everything else being equal, unions have little effect on the provision of training in Canada. Finally, we present some limited evidence that unions help increase the participation of firms in the financing of training activities.

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The paper presents descriptive evidence from quantile regressions and more “structural” estimates from a human capital model with heterogenous returns to show that most of the increase in wage inequality between 1973 and 2005 is due to a dramatic increase in the return to post-secondary education. The model with heterogenous returns also helps explain why both the relative wages and the within-group dispersion among highlyeducated workers have increased in tandem over time. These findings add to the growing evidence that, far from being ubiquitous, changes in wage inequality are increasingly concentrated in the very top end of the wage distribution.

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This paper evaluates the empirical performance of the standard Mincer earnings equation thirty years after the publication of Schooling, Experience and Earnings. Over this period, there has been a dramatic expansion in micro data and estimation techniques available to labor economists. How does the Mincer equation stand in light of these advances in empirical labor economics? Is it time to revise our benchmark model? On the basis of the existing literature and some new empirical estimates, I conclude that the Mincer equation remains an accurate benchmark for estimating wage determination equations provided that it is adjusted by 1) includinga quartic function in potential experience instead of just a quadratic, 2) allowing for a quadratic term in years of schooling to capture thegrowingconvexity in therelationship between schooling and wages, and 3) allowing for cohort effectsto capture thedramatic growth in returns to schoolingamongcohorts bornafter 1950.

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Using data from the May and Outgoing Rotation Group (ORG) supplements of the CPS, this paper shows that a large fraction of the growth in residual wage inequality between 1973 and 2003 is due to spurious composition effects. These composition effects are linked to the secular increase in the level of experience and education of the workforce, two factors associated with higher within-group wage dispersion. I also show that both the level and growth in residual wage inequality are overstated in March CPS data that have been used in most previous studies. Measured wages are noisier in the March than in the May/ORG CPS because the March CPS does not measure directly the hourly wages of workers paid by the hour. The extent of measurement error in CPS wages also increases over time. Once these factors are corrected for, I find that residual wage inequality only accounts for a small share of the overall growth in wage inequality. Furthermore, all of the growth in residual wage inequality occurs during the 1980s. This closely mirrors the pattern of change in “between-group” wage differentials like the college-high school wage premium. Overall, the magnitude and timing of the growth in residual wage inequality provides little evidence of a pervasive increase in the demand for skill due, for instance, to skill-biased technological change.

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We develop a model in which a worker’s skills determine the worker’s current wage and sector. The market and the worker are initially uncertain about some of the worker’s skills. Endogenous wage changes and sector mobility occur as labor-market participants learn about these unobserved skills. We show how the model can be estimated using non-linear instrumental-variables techniques. We apply our methodology to study the wages and allocation of workers across occupations and industries using individual-level panel data from the National Longitudinal Survey of Youth. We find that high-wage sectors employ high-skill workers and offer high returns to workers’ skills.

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This paper compares trends in male and female hourly wage inequality in the United Kingdom and the United States between 1979 and 1998. Our main finding is that the extent and pattern of wage inequality became increasingly similar in the two countries during this period. We attribute this convergence to “U.S. style” reforms in the U.K. labour market. In particular, we argue that the much steeper decline in unionisation in the United Kingdom explains why inequality increased faster than in the United States. For women, we conclude that the fall and subsequent recovery in the real value of the U.S. minimum wage explains why wage inequality increased faster in the United States than in the United Kingdom during the 1980s, while the opposite happened during the 1990s. Interestingly, the introduction of the National Minimum Wage in the U.K. in 1999 also contributed to the convergence in labour market institutions and wage inequality between the two countries.

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Over the last fifteen years, a large number of studies have attempted to explain the determinants and changes of wage inequality. This paper proposes a simple procedure to decompose changes in the distribution of wages or in other distributions into three factors: changes in regression coefficients, changes in the distribution of covariates, and residuals changes. The procedure requires only estimating standard OLS regressions augmented by a logit or probit model. The procedure can be extended by modelling residuals as a function of unmeasured skills and skill prices. Two empirical examples showing how the procedure works in practice are considered. The first example looks at sources of differences in the wage distribution in Alberta and British Columbia. The second example re-examines the sources of changes in overall wage inequality in the United States from 1973 to 1999. Finally, the proposed procedure is compared to other existing procedures.

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This paper analyzes the impact of increases in the minimum drinking age on the prevalence of alcohol and marijuana use among high school seniors. The empirical analysis is based on a large sample of students from 43 states over the years 1980-1989. We find that increases in the legal minimum drinking age did slightly reduce the prevalence of alcohol consumption. We also fi nd, however, that increased legal minimum drinking ages had the unintended consequence of slightly increasing the prevalence of marijuana consumption. Estimates from a structural model suggest that this unintended consequence is attributable to standard substitution e ffects.

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The rise in college attendance rates in the mid-1960s is often attributed to draft avoidance behavior. Throughout most of the Vietnam war men who were enrolled in college could obtain deferments that delayed their eligibility for conscription. Anecdotal and quantitative evidence suggests that these deferments were an effective though imperfect way to avoid military service. We use data on enrollment and completed education of cohorts of men and women born between 1935 and 1959 to estimate the effect of draft avoidance behavior on the schooling choices of men who faced the highest risk of service during the Vietnam-era draft. We assume that in the absence of the draft the relative schooling outcomes of men and women would have followed a smooth inter-cohort trend. We find a strong link between the risk of induction faced by a cohort of men and their enrollment and completed education relative to women. We estimate that draft avoidance raised college attendance rates by 4-6 percentage points in the late 1960s, and raised the fraction of men born in the late 1940s with a college degree by up to 2 percentage points.

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Over most of the 20th century successive generations of U.S. children had higher enrollment rates and rising levels of completed education. This trend reversed with the baby boom cohorts who attended school in the 1970s, and only resumed in the mid-1980s. Even today, the college entry rate of male high school seniors is not much higher than it was in 1968. In this paper, we use a variety of data sources to address the question “What went wrong in the 1970s?” We focus on both demand-side factors and on a particular supply side variable – the relative size of the cohort currently in school. We find that tuition costs and local unemployment rates affect schooling decisions, although neither variable explains recent trends in enrollment or completed education. We also find that larger cohorts have lower schooling attainment, and that aggregate enrollment rates are correlated with changes in the earnings gains associated with a college degree. For women, our results suggest that the slowdown in education in the 1970s was a temporary response to large cohort sizes and low returns to education. For men, however, the decline in enrollment rates in the 1970s and slow recovery in the 1980s point to a permanent shift in the inter-cohort trend in educational attainment that will affect U.S. economic growth and trends in inequality for many decades to come.

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Although the college-high school wage gap for younger men has doubled over the past 30 years, the gap for older men has remained nearly constant. We argue that these shifts reflect changes in the relative supply of highly-educated workers across age groups. Cohorts born in the first half of the century had steadily rising educational attainments that offset rising demand for better educated workers. This trend ended abruptly in the early 1950s and has only recently resumed. Using a model with imperfect substitution between similarly-educated workers in different age groups, we show that a slowdown in the rate of growth of educational attainment across cohorts will lead to a rise in the return to college for young workers that eventually works its way through the age distribution. This prediction is remarkably consistent with data for the U.S. over the period from 1959 to 1995. Estimates based on a version of the model with two education groups – high school equivalent and college equivalent workers – suggest that the elasticity of substitution between different age groups is large but finite (around 5) while the elasticity of substitution between the two education groups is about 2.5. We also examine data for the United Kingdom and Canada: both countries experienced similar slowdowns in the rate of growth of educational attainment. Results from these countries are comparable to the U.S. findings, and underscore the importance of cohortspecific relative supplies in interpreting movements in education-related wage differentials.

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We use the unique experiences of Canadian World War II veterans to identify the effects of a large scale college subsidy program on educational attainment and earnings. Like the United States, Canada set up an extensive veteran’s assistance program that provided financial aid and institutional support for college attendance. Because of differences in military enlistment rates and education systems, however, a much lower fraction of Quebec benefited from VRA benefits that men from other provinces. Building on this fact, we analyze inter-cohort patterns of education and earnings for English-speaking men from Ontario, using French-speaking men from Quebec as a control group. We use data from the 1971 and 1981 Canadian Censuses to compare conventional (OLS) estimates of the return to schooling with instrumental variables (IV) estimates that use potential eligibility for VRA benefits as an exogenous determinant of schooling. Consistent with the recent literature, we find that the IV estimates are typically as big or bigger than the corresponding OLS estimates. We also explore an alternative identification strategy that utilizes information on family background available in the 1973 Canadian Job Mobility Survey. We hypothesize that veterans from relatively disadvantaged family backgrounds were more likely to be affected by the VRA’s incentives than veterans from wealthier families. Using the interaction of veteran status and family background as an instrument for schooling, we again find rates of return to education as large or larger than the corresponding OLS estimates.

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WORKING PAPERS

In this paper we use data from the Canadian Labour Force Survey (1997 to 2012) to understand why the level and dispersion of wages have moved differently across provinces. In terms of levels, the dominant trend is the much faster increase in wages in Newfoundland, Saskatchewan, and Alberta than in other provinces since the late 1990s. We find that the growth in the extractive resources sector (mining, oil and gas) accounts for most of these differences. We also find that less-educated workers have benefited more from these changes, which explains why inequality declined in Alberta and Saskatchewan relative to the rest of the country. Inequality also declined in the bottom half (the gap between the 50th and 10th wage percentiles) in most provinces, resulting in a polarization of wages documented in other countries. We show that changes in minimum wages appear to be the main reason why wages at the very bottom (e.g. the 10th percentile) grew more than in the middle of the distribution over the last 10-15 years. Most provinces have increased their minimum wages substantially since about 2005, and changes in (province-level) wages at the bottom of the wage distribution are closely connected to changes in provincial minimum wages.

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In fuzzy regression discontinuity (FRD) designs, the treatment effect is identified through a discontinuity in the conditional probability of treatment assignment. We show that when identification is weak (i.e. when the discontinuity is of a small magnitude) the usual t-test based on the FRD estimator and its standard error suffers from asymptotic size distortions as in a standard instrumental variables setting. This problem can be especially severe in the FRD setting since only observations close to the discontinuity are useful for estimating the treatment effect. To eliminate those size distortions, we propose a modified t-statistic that uses a null-restricted version of the standard error of the FRD estimator. Simple and asymptotically valid confidence sets for the treatment effect can be also constructed using this null-restricted standard error. An extension to testing for constancy of the regression discontinuity effect across covariates is also discussed.

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This paper looks at the surprisingly different labor market performance of the United States, Canada, Germany, and several other OECD countries during and after the Great Recession of 2008-09. The unemployment rate followed a very different path in these countries. It barely increased in Germany, increased and remained at relatively high levels in the United States, and increased moderately in Canada. More recent data also shows that, unlike Germany and Canada, the U.S. unemployment rate remains largely above its pre-recession level. We find two main explanations for these differences. First, we show that the large employment swings in the construction sector linked to the boom and bust in U.S. housing markets is an important factor behind the different labor market performance of the three countries. Second, we find that cross-country differences are consistent with a conventional Okun relationship linking GDP growth to employment performance. Relative to pre-recession trends, there has been a much larger drop in GDP in the United States than Germany between 2008 and 2012, which helps account for a large fraction of the difference in employment performance between the two countries.

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This paper argues that changes in the returns to occupational tasks linked to offshorability and the technological content of work have contributed to changes in the wage distribution over the last three decades. Occupational tasks are measured using the O*NET data set, and wage data are from the Current Population Survey (CPS). Using a decomposition procedure based on RIF-Regressions, we find that technological change and de-unionization played a central role in changes in the wage distribution during the 1980s and 1990s, while offshorability became an important factor from the 1990s onwards.

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Using data from the Panel Study of Income Dynamics, we study how the aucovariance structure of wages and earnings differs under different contractual arrangements. We divide jobs on the basis of whether they pay for performance, and whether they are covered by collective bargaining agreements. While cross-sectional wage inequality is larger in performance-pay than non-performance-pay jobs, precisely the opposite happens in the case of annual earnings. This suggests that hours of work respond more
to demand shocks when wages are infl‡exible (in non-performance-pay jobs) than when they are ‡flexible because of performance-pay schemes. This result only holds, however, for purely cross-sectional measures of inequality. Since the variation in hours is mostly transitory, from a long-run perspective inequality remains larger in performance-pay than non-performance-pay jobs.

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This paper examines the link between population aging and the human capital investments of youth. The study proceeds in three steps. First, we estimate an updated version of the Card and Lemieux (2001a) model for Canada using data from the 1981, 1986, 1991, 1996 and 2001 census. The results are used to forecast the impact of population aging on the returns to education of young workers. Second, we review existing empirical studies of the determinants of human capital investments of youth. These studies show that the return to education is one of many important factors in the decision of youth to acquire more education. We show in new empirical work of our own that higher education policies and demographic factors also play a very important role in these decisions. The final step of the paper is to combine the estimates of the updated Card and Lemieux model with existing estimates of the elasticity of human capital investments with respect to cohort size, returns to education, and policy variables that have been obtained. This shows the expected effect of aging on human capital investments of youth under various scenarios.

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Winter 2014

ECON640 Ph.D. Research Seminar Sections