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Talking Economics is a live-streamed public lecture series with CERGE-EI's researchers introducing their latest work.

This time we will focus on Labor Economics with our faculty member Štěpán Jurajda (Cross-country Comparison of Wage Rates: the McWage Index) and CERGE-EI junior researcher Ekaterina Travova (Performance of Police Officers as an Incentive to Cheat)

Register by filling this form and join us online on Tuesday, 21 April 2020 at 13:00. 

Štěpán Jurajda: Cross-country Comparison of Wage Rates: the McWage Index

How low are US wages? Thanks to a standardized work protocol and technology of McDonald’s restaurants, the hourly wage rate of McDonald’s Basic Crew workers offers consistent, easy-to-interpret, and up-to-date wage comparisons for workers supplying identical skill input under uniform hedonic job conditions.

The McWage rate captures variation in low-skill labor costs across locations, while the Big Macs (earned) Per Hour (BMPH) index measures the purchasing power of labor income. We compare McWages across more than 80 countries and also within the U.S., using geo-coded data on over 10 thousand McDonald’s restaurants covering counties with 97% of the U.S. population.

During 2016-19, the 5/95 percentile range of BMPH across U.S. counties was about 1.6/2.4. Similarly, high-wage U.S. states have nominal and real McWages about 50% above low-wage states, suggesting limited labor market integration. We record essentially no growth in BMPH in the half of the U.S. where minimum wages did not increase. Our data also imply that states set their minimum wages in tandem with latent McWage means.

Ekaterina Travova: Performance of Police Officers as an Incentive to Cheat

In order to push employees to do their best in every part of their job, organizations need to apply various motivation schemes. However, in government jobs, strong incentives could be sometimes inappropriate, detracting the attention of civil servants away from tasks that are not easily measured, or even inducing fraudulent behavior. In this project, I explore the importance of incentives in the public sector, analyzing possible manipulation of amounts of drugs seized by police officers in Russia during 2013-2014.

First, using a standard bunching estimator and event study framework, I document that drug manipulations are most likely triggered by the officers' performance evaluation system. Second, applying a novel bunching technique, I determine that police officers are more likely to manipulate the drug amounts seized from repeat offenders. The overall effect of manipulation on the sentence length is an additional year of incarceration, which is a 67% increase, compared to the average sentence length without manipulation.