We estimate the effect of new unionization on firms’ equity value over the 1961-1999 period using a newly
assembled sample of National Labor Relations Board (NLRB) representation elections matched to stock market
data. Event-study estimates show an average union effect on the equity value of the firm eq uivalent to a cost of at
least $40,500 per unionized worker. At the same time, point estimates from a regression-discontinuity design –
comparing the stock market impact of close union election wins to close losses – are considerably smaller and close
to zero. We find a negative relationship between the cumulative abnormal returns and the vote share in support of
the union, allowing us to reconcile these seemingly contradictory findings. Using the magnitudes from the analysis,
we calibrate a structural “median voter” model of endogenous union determination in order to conduct
counterfactual policy simulations of policies that would marginally increase the ease of unionization.

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 using examples drawn from the growing body of empirical research using RD.

Using administrative, longitudinal data on felony arrests in Florida, we exploit the
discontinuous increase in the punitiveness of criminal sanctions at 18 to estimate the
deterrence effect of incarceration. Our analysis suggests a 2 percent decline in the logodds
of offending at 18, with standard errors ruling out declines of II percent or more.
We interpret these magnitudes using a stochastic dynamic extension of Becker's (1968)
model of criminal behavior. Calibrating the model to match key empirical moments, we
conclude that deterrence elasticities with respect to sentence lengths are no more negative
than -0.13 for young offenders.

It has become standard practice to use local linear regressions in regression discontinuity designs.
This paper highlights that the same theoretical arguments used to justify local linear regression suggest
that alternative local polynomials could be preferred. We show in simulations that the local linear estimator
is often dominated by alternative polynomial specifications. Additionally, we provide guidance on the
selection of the polynomial order. The Monte Carlo evidence shows that the order-selection procedure
(which is also readily adapted to fuzzy regression discontinuity and regression kink designs) performs
well, particularly with large sample sizes typically found in empirical applications.

Inequality in the unconditional distribution of observed wage rates in the U.S. rose substan-
tially during the 1980s, mostly in the lower tail of the distribution. The causes of this rising
wage inequality are obscured by the fact that concurrent decreases in the federal minimum wage
tend to increase observed wage inequality, regardless of its effect on employment. This study
uses regional variation in the relative level of the federal minimum wage to separately identify
the impact of the minimum wage from nation-wide growth in “latent” wage dispersion during
the 1980s. CPS wage data show a tight empirical relation between the relative level of the
federal minimum wage and dispersion in the lower tail of the wage distribution, across states
and over time. After accounting for the diminishing impact of the minimum wage during the
1980s, the evidence points to little or no increase in wage dispersion in the lower tail of the
wage distribution.

During the 1980s, did the sharp increase in the college-high school wage differential
represent a rise in the college premium, or a growth in the payoff to unmeasured "ability" or
"skill"? Can the slowdown in black-white wage convergence or the widening black-white gap
among young workers witnessed during the 1980s be explained by a rise in the return to pre-labor
market factors correlated with race? In this study, we show that it is possible to use across-group
variation in within-group wage variances from multiple periods to identify the change in the return
to unobservable skill, within a relatively unrestrictive error-components model of wages. The
identification does not require full specification of the time-series properties or the functional form
of the errors. Male earnings data from the CPS show that there is useful variation in within-group
wage variances -- enough to estimate a growth in the return to unobservable skill of about 10 to
20 percent during the 1980s. In our analysis, these magnitudes imply that even alter controlling for
the effects of an increase in the payoff to unobservable skill, college-educated workers still gain
substantially relative to high school-educated workers, while young black men still experience a
significant wage decline relative to white men during the l980s.

This paper provides a theoretical analysis of optimal minimum wage policy in a perfectly
competitive labor market. We show that a binding minimum wage – while leading to
unemployment – is nevertheless desirable if the government values redistribution toward
low wage workers and if unemployment induced by the minimum wage hits the lowest
surplus workers first. This result remains true in the presence of optimal nonlinear taxes
and transfers. In that context, a minimum wage effectively rations the low skilled labor
that is subsidized by the optimal tax/transfer system, and improves upon the second-best
tax/transfer optimum. When labor supply responses are along the extensive margin, a
minimum wage and low skill work subsidies are complementary policies; therefore, the
co-existence of a minimum wage with a positive tax rate for low skill work is always
(second-best) Pareto inefficient. We derive formulas for the optimal minimum wage (with
and without optimal taxes) as a function of labor supply and demand elasticities and
the redistributive tastes of the government. We also present some illustrative numerical
simulations.