Essays on Labor and Education Economics

Abstract

This dissertation investigates the effect of various labor and education policies on individual decisions and outcomes. Chapter 1 examines how a considerable wage increase affects worker financial outcomes and family labor supply decisions. To estimate this causal relation, we leverage quasi-experimental variation from an exam-based promotion policy and use novel data linking census-like banking and household information to personnel records from a large public organization. We exploit the sharp discontinuity in the allocation of promotions among police officers in Colombia to compare the outcomes of nearly identical workers before and after they receive a 25 percent pay raise. We show that within four years, promoted officers accumulate debt equivalent to 160 percent of their annual pay premium. This response is driven by an increase in the use of installment credit, particularly mortgages and personal loans. As a result, officers allocate only one-third of their monthly wage increase to repay debt. We also document a sharp decline in the employment rate of promoted officers' spouses, an effect that is more pronounced among couples with school-age children. Our findings suggest that households rely on credit instruments to adjust their time and consumption allocation in response to a pay increase. Chapter 2 studies how signaling skills that are specific to college majors affect labor market outcomes of college graduates. We rely on census-like data and a regression discontinuity design to study the impacts of an academic award granted to top performers in a mandatory nationwide exam in Colombia. The award allows students to signal their high level of specific skills when searching for a job. These students earn 7 to 12 percent more than nearly identical individuals lacking the signal. This positive return persists five years after graduation. The signal mostly benefits workers who graduate from low-reputation colleges, and allows workers to find jobs in more productive firms and in sectors that better match their skills. We rule out that the positive earnings returns are explained by human capital. The signal favors mostly less advantaged groups, implying that reducing information frictions about students’ skills could potentially shrink earnings gaps. Finally, Chapter 3 examines the impact of college financial aid on tuition prices and how colleges respond to changes in their revenues. We exploit exogenous variation from a large-scale program in Colombia, where loan recipients were only allowed to enroll in high-quality colleges. Using a difference-in-differences approach, we find that tuition at these institutions increased by nearly 6.9 percent following the program’s introduction. Additionally, we provide evidence that high-quality colleges maintain selective admission practices, even as demand from high-achieving students rises. This response is likely driven by concerns about reputation and education quality, as evidenced by a constant student-to-faculty ratio despite a growing student body. Colleges achieve this by hiring additional faculty, including instructors with doctoral degrees.