Homework

To smooth the short-run negative effects of structural reforms on the welfare of poor
households in Latin America during the mid-1990s, several countries launched active
labor-market policies that target the youth. The most distinctive element differentiating
this generation of training programs from previous public-sponsored experiences was the
decentralization of the training services through market mechanisms in which public and
private training institutions compete for public funding (World Bank 2004). The
competition was intended to reverse a long period of neglect of the quality of training in
public institutions and, thus, to increase the returns to training.

The Youth Training Program PROJOVEN was implemented in 1995 with the goal of
increasing the employability and productivity of disadvantaged young individuals aged
16 to 25 through vocational training in blue-collar occupations. The treatment consists of
a mix of formal and on-the-job training organized into two sequential phases. The first
stage consists of 300 hours of classes at the training center locations; or roughly five
hours per day for three months. In the second phase, training institutions must place
trainees into paid, on-the-job training experiences in private manufacturing firms for an
additional period of three months.

PROJOVEN’s selection process consists of several stages governed by different actors:

target individuals, bureaucrats, and training centers. Figure 2 shows the dynamics of this
process. The program awareness strategy (position A) constitutes the first formal effort to
reach out to the target population and aims to inform potential participants about the
program’s benefits and rules. This first filter focuses only on poor neighborhoods. Those
prospective participants attracted by the expected benefits and perceived opportunity
costs of participation voluntarily show up in the registration centers (position B) where
qualified personnel determine their eligibility status. A standardized targeting system
based on some key observable variables (poverty status, age, schooling, labor market
status) determines who is eligible and who is not. This process concludes when there are
approximately twice as many eligible individuals as training slots.

Program

Program
Operator

C
Program Orientation
Operator
Training
Poor Centers
Neighborhood
Eligible
s Beneficiaries
Target
A Population Non
Not Eligible Beneficiaries
B
D

Out of the Program

Eligibility status does not guarantee participation in the program. Program enrollment

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depends on the applicants’ willingness to pursue the application process to its conclusion.
Eligible individuals are invited to an orientation process (position C), where they choose
the courses they want to attend according on a first-come-first-served basis. Finally,
training institutions select beneficiaries from the pool of eligible applicants sent by the
program operator (position D). This is the only step where training institutions intervene
in the selection process and does not follow standardized criteria since each institution
applies its own rules. Institutional evidence show, however, that training centers have
very limited role in selecting beneficiaries because the number of eligible individuals
reaching this final stage of the process only exceeds by about 25 percent the number of
available training slots in each course.

The program operator also selects comparison group individuals for each cohort of
participants in the program. These comparison individuals are selected from a random
sample of “neighbor” households located in the same neighborhoods as those participants
included in the evaluation sample. The program operator builds the comparison samples
by using the same eligibility instruments applied to the treatment sample and by pairing
each beneficiary to a random neighbor who has the same sex, age, schooling, labor
market status, and poverty status.

Download from CULearn data for the first cohort of participants in the PROJOVEN
program. The dataset contains information for 598 individuals (299 beneficiaries and 299
comparison group individuals).

The variables are:

treatment: 1 =receive training; 0=otherwise

sex=1 if male, 0=female
age: age of the individual
educ5: 1 if completed secondary, 0=otherwise
married: 1 if married, 0=otherwise
single: 1 if single, 0=otherwise
children: 1 if children, 0=otherwise
nchildren: number of children
training0: 1 if previous training, 0= otherwise
duration0: duration of previous training (in days)
water: 1 if drinking water piped into house, 0= otherwise
toilet: 1 if flush toilet in the house, 0= otherwise
floor: 1 if earthen floor, 0=otherwise
walls: 1 if matted walls, 0=otherwise
ceiling: 1 if matted ceiling, 0=otherwise
earnings0: monthly earnings before program
earnings1: monthly earnings after program [outcome variable]

2.1 Show that this data correspond to a non-experimental design by testing the mean
equivalence for baseline variables between the treatment and control groups.

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 2.2 Find the average treatment effect on the treated for the earnings variable by
estimating a cross-sectional linear regression. Interpret your results. Use the following
specification:

earnings1   0  1treatment  1age   2age 2   3educ5   4 sex   5married   6 water   7 toilet   8 floor 
+ 9 walls  10 ceiling  11children  12 nchildren  13training 0  14 duration0   i
2.3 Re do 2.2 after dropping educ5, sex, and age variables from the model. What happens
with the estimated treatment effects? Interpret your results.

2.4 Find the average treatment effect on the treated for the earnings variable by
estimating a difference-in-differences linear regression. Interpret your results.

Use the following specification

earnings1  earnings0   0  1treatment  1age   2 age 2   3educ5   4 sex   5married   6 water   7toilet 
+ 8 floor   9 walls  10ceiling  11children  12 nchildren  13training 0 
+14 duration0   i
2.5. Repeat your analysis in 2.4 separately for men and women. Interpret your results.

2.6 Use the psmatch2.ado program in STATA to estimate the nearest-neighbor propensity
score matching estimator. Use a logit model to predict the probability of participation
(propensity score) using the following specification:

i   0  1age   2 age2   3educ5   4 sex   5 married   6 water   7toilet   8 floor   9 walls 

+10ceiling  11children  12 nchildren  13training 0   duration0  13earnings0   i
Find the average treatment effect on the treated. Interpret your results.

2.7 Re do 2.6 but this time use 5 neighbors rather than 1 in the matching estimation.
What do you observe? Interpret your results.

2.8 Re do 2.6 but this time use kernel matching. What do you observe? Interpret your
results.

2.9 Assess the plausibility of the conditional independence assumption (CIA) by

implementing the balancing covariate test (use the ‘pstest’ command in STATA)

2.10. Compare the estimates and the assumptions from the diff-in-diff and matching
estimators. Was this program effective? What is the most credible estimator in the
context of this program?