Essays in Applied Microeconomics

Abstract

This dissertation consists of essays covering topics in labor economics and behavioral economics, with an emphasis on the role of information and norms in the labor market and other economic transactions. The first chapter explores whether there is an information friction between firms and working mothers causing workers to reduce their duration of maternity leave to signal their value to the firm. I develop a model which posits that firms infer private information about commitment to work through their choice of forgoing paid leave to return to work early. The model delivers distinct predictions of the signaling channel of parental leave when there is an exogenous change in the maximum allowed paid leave duration. I test these predictions using unanticipated leave extension policies in Denmark. I show that changing the equilibrium has indirect effects in changing the signals that are sent by all workers, and also has direct effects in terms of labor market consequences. Consistent with the model's predictions, a leave extension causes infra-marginal mothers, whose leave would not have been constrained by the previously lower maximum, to take longer leave. For mothers for whom the previously lower maximum would have been binding, signaling contributes to a divergence in wages due to the information that their choices convey upon a leave extension. The results provide direct evidence of persistent labor market consequences of signaling in a context in which signaling operates during the course of one's labor market experience. The last two chapters, written jointly with Neil Thakral, examine how reference points influence behavior, focusing on the cases of income targets in labor supply decisions and social norms in tipping. Chapter two provides field evidence on how reference points adjust, a degree of freedom in reference-dependence models. Examining this in the context of cabdrivers' daily labor-supply behavior, we ask how the within-day timing of earnings affects decisions. Drivers work less in response to higher accumulated income, with a strong effect for recent earnings that gradually diminishes for earlier earnings. We estimate a structural model in which drivers work towards a reference point that adjusts to deviations from expected earnings with a lag. This dynamic view of reference dependence reconciles conflicting ``neoclassical'' and ``behavioral'' interpretations of evidence on daily labor-supply decisions. Chapter three presents a model of social norms and how norms change. We test the predictions of the model in the context of tipping decisions, where suggested tip amounts help establish norms. Using tip data from New York City taxi rides, the empirical tests exploit variation across taxis in suggested tip amounts as well as over time due to a permanent fare increase in 2012. The theoretical model provides the basis to invert data on choices and uncover the distribution of individual-level attitudes toward norm adherence.