Friday, September 21, 2012

"Micro success doesn't guarantee macro success"

This VoxEU post details an example from a Danish job assistance program. General equilibrium and spillover issues I think are some of the most underappreciated problems in labor market policy evaluation today.

General equilibrium effects are critical for all areas of economics. I think you find microeconomists - because they study human choice - are very attuned to endogeneity and selection problems. That's something that macroeconomists often gloss over. But macroeconomists are the ones who are more attuned to general equilibrium issues that don't come as intuitively to people, and that's an area where microeconomists can lag.

One of the things I like best about the paper I am writing for my econometrics class this semester - an evaluation of a new hire tax credit - is that the study design, in addition to dealing with the standard endogeneity problems, is able to estimate general equilibrium impacts.

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