Student Research Conference: Academic Year 2002-2003

†	Nimish Adhia did his honors research with Dr. Michael Seeborg on The Labor Market for Nurses: A Cobweb Model.

ABSTRACT: The labor market of nurses has been plagued by reports of persistent shortages, which raise concerns about the quality of health care. The formulation of appropriate policy intervention requires knowledge of the factors shifting the demand and supply of nurses. This paper develops a model of the nursing labor market, in which the demand and supply curves are identified from the observed employment and wages using econometric techniques. It is found that the short term wage elasticity of supply is not significantly different from zero, and hence the employment trends in the nursing labor market follow a cobweb pattern, where the quantity supplied adjusts to exogenous increases in demand, but with a lag, causing shortage in the meanwhile. An appropriate policy instrument would be to subsidize nursing education, which would then increase supply in anticipation of increased future demand.

Kory Blumer did his honors research with Dr. Michael Seeborg examining The Effects of Executive Compensation Structure on Shareholder Wealth and Company Performance.

ABSTRACT: Corporate executives are paid at extremely high levels compared to lower-level employees, especially in the United States, and their level of compensation usually does not change based on company performance with respect to competitors, but rather with changes in their company's stock price. It is well known that executive compensation among U.S. corporations is comprised mostly of stock options, sometimes up to 90% of overall compensation. These stock options allow executives, namely chief executive officers (CEOs), to cash in big bucks during good times and risk zero losses during bad times. I use principal-agent theory and past literature to hypothesize the pattern of changes in shareholder wealth, and in reported earnings, from 1993 - 2001 for 20 U.S. "blue chip" companies. Using simple linear regression analysis, I find that differences in CEO compensation structure have no significant effects on shareholder wealth and reported earnings. I also find that companies whose CEOs sell an unusually high value of stock options suffer a significant decline in shareholder value in the following year. Policy implications, based on my findings and other literature, are also discussed.

Jamie Davenport did her honors research with Dr. Margaret Chapman on The Effect of Supply and Demand Factors on the Affordability of Housing.

ABSTRACT: The difficulty of acquiring affordable rental units remains the most significant concern for low-income households. Despite the strong economic growth of the 1990s, one-third of all households spend more than the recommended thirty percent of their incomes on rental costs. These cost-burdened households face diminishing affordable rental units due to gentrification, rental rates increasing faster than real incomes, and the expiration of government subsidized rental units. The rental market is the focus of this paper since low-income households face the greatest barriers to acquiring affordable housing.

This paper uses an empirical analysis of the supply and demand factors affecting affordability as measured by the percentage of cost-burdened households in a metropolitan statistical area (MSA). The cross-sectional OLS regression uses data from 131 MSAs nationwide to examine the effects of household median income, fair market rents, population change, rental vacancy rates, percentage change in rental units, percentage of low-income households, and percentage of low-rent or subsidized units. The results indicate the significance of income levels and demonstrate the need for increased effectiveness of housing policy to make housing more affordable to low-income households.

†	Juliana Giraldo did her honors research with Dr. Ilaria Ossella-Durbal on The Truth About Income Inequality.

ABSTRACT: Until recently, sustaining high economic growth was thought to be the ultimate goal of development. Unfortunately, economic growth does not necessarily imply an improvement in the standards of living of all of the country's citizens due to the unequal distribution of income. Income inequality is a problem for both developing and developed nations across the globe, but it is most evident in the great metropolis of the developing world. Since economists have failed to come to an agreement as to what is the true relationship between growth and income inequality, researchers have shifted their emphasis to try to ascertain exactly what social and economic determinants affect the level of income inequality in a country. Besides the level of income, this paper focuses on determining the effects that structure of output, structure of employment, population growth, and the level of human capital have on the unequal distribution of income. Based on Kuznets' U-hypothesis and the two sector labor surplus model, this study uses two different simple regression models in order to establish the relationship between income inequality and each of these determinants. The results for this research show some evidence on the existence on the U-hypothesis as well as determine that the most important factors affecting income inequality are the level of human capital and population growth. Based on the results, I discuss policy implications in the last section.

Matt Melick did his independent research with Dr. Robert Leekley on The Relationship Between Unemployment Factors and Motor Vehicle Theft Rates.

ABSTRACT: This study attempts to bring together two opposing theories used to explain the relationship between unemployment factors and motor vehicle theft rates. One theory suggests that higher unemployment rates create an increase in the supply of criminals, while the other theory suggests that an increase in the unemployment rate reduces the supply of property crime victims. The study uses state level data, from 1978 until 2000, on unemployment rates, unemployment insurance (a.k.a. welfare), and motor vehicle theft rates to determine what effect unemployment rate changes and variations in the generosity of unemployment insurance have on the motor vehicle theft rate. Control variables are also implemented to help explain variations in motor vehicle theft rates across states. I propose that a negative relationship exists between stationary, current levels of unemployment and the motor vehicle theft rate while as unemployment rates increase from one period to the next so to do motor vehicle theft rates. Furthermore, I propose that more generous unemployment insurance programs lead to lower motor vehicle theft rates. While this study confirms the hypothesis regarding unemployment rates, there are mixed results relating unemployment insurance and the motor vehicle theft rate. These results show that both the supply of offenders and the supply of victims help determine the motor vehicle theft rate. The mixed results found for unemployment insurance show the data restrictions and the ambiguous nature of the subject.

Kristen Smevold did her independent research with Dr. Ilaria Ossella-Durbal on The Macroeconomic Effects of the Horse Race Betting Market.

ABSTRACT: There are similarities between the market for horse race betting and the stock market. Some of these similarities include a large number of participants, complete ease of entry into the market, and extensive market knowledge. Both markets also operate under conditions of risk and uncertainty. Previous research indicates that the stock market responds to macroeconomic indicators. Due to the similarities between the stock market and the market for horse race betting, I hypothesize that the market for horse race betting also responds to macroeconomic indicators. Based on the wealth effect, an increase in wealth represented through improving macroeconomic conditions should cause individuals to consume more, in this case on horse race wagering. I look at total United States horse race wagering and GDP figures, as well as Illinois and California's GSP (Gross State Product), unemployment rate, and horse race wagering totals. To test the hypothesis, I run a correlation between GDP and wagering totals and run a linear regression for Illinois and California using horse race wagering as my dependent variable and state GSP and unemployment for independent variables. The results show a positive relationship between wagering totals and GSP and a negative relationship between wagering totals and unemployment. Though the results vary in the level of significance, they imply that macroeconomic indicators affect the market for horse race betting. Positive macroeconomic announcements increase the demand for horse race betting and negative macroeconomic announcements decrease the demand for horse race betting.

†	Indicates papers presented at the Midwest Economics Association Annual Meeting.