Essays on labor economics


Ho, Cheuk Yin (2013). Essays on labor economics.


Chapter 1 estimates the compensating differential with moral hazard. I show

that, in an environment of asymmetric information, the wage premium of an un- pleasant job attribute not only includes the compensating differential but also the economic rent that stimulates worker effort. The wage premium is equal to the compensating differential if and only if workers are perfectly monitored. Es- timates of a structural model using data from the National Longitudinal Survey of Youth find that the wage premium of risky jobs is 6.6%, which is decomposed into a compensating differential that accounts for 2.8% and an efficiency wage premium that accounts for 3.8%. Since the wage premium is interpreted as the compensating differential in a hedonic wage regression, the results show that the reduced-form estimate of the compensating differential has upward bias.

Chapters 2 and 3 examine the problem of racial segregation in friendships. Chapter 2 estimates the effect of friendship segregation on educational achieve- ment. Estimating models with data from the National Longitudinal Study of Adolescent Health, I find that a higher exposure to minority friends lowers the standardized test scores of minorities, but do not have significant effects on whites. Specifically, a 10% increase in the proportion of minority friends lowers 4.8% of a standard deviation in the standardized test scores of minorities. The effect is
large enough to conclude that friendship segregation increases the minority-white
achievement gap. Completely integrating friendships can close 30% of the gap.

Chapter 3 evaluates the effectiveness of busing policy on friendship integration. Policymakers can affect students’ friendship opportunities by relocating students across schools, but they cannot manipulate students’ preferences to achieve de- sired friendship outcomes. Simulation results show that, by relocating students across schools, the percentage changes in the proportion of minority friends are much smaller than the percentage changes in the proportion of minority school- mates of students. The intuition is that even though the friendship opportunities of students change, they self-segregate by making friends with their own race. Because of students’ racial sorting, integration policy cannot completely integrate
friendships and thus about 70% of the potential achievement gains are forgone.


Reference Type


Book Title

Department of Economics


Ho, Cheuk Yin

Series Author(s)

Caetano, Gregorio

Year Published


Volume Number

Doctor of Philosophy




University of Rochester

City of Publication

Rochester, New York

Reference ID