Ben S. Bernanke Blog: Why are interest rates so low,
part 2: Secular stagnation.
Does the U.S. economy face secular stagnation? I am skeptical, and the sources
of my skepticism go beyond the fact that the U.S. economy looks to be well on
the way to full employment today. First, as I pointed out as a participant on
the IMF panel at which Larry first raised the secular stagnation argument, at
real interest rates persistently as low as minus 2 percent it’s hard to imagine
that there would be a permanent dearth of profitable investment projects. As
Larry’s uncle Paul Samuelson taught me in graduate school at MIT, if the real
interest rate were expected to be negative indefinitely, almost any investment
is profitable. For example, at a negative (or even zero) interest rate, it
would pay to level the Rocky Mountains to save even the small amount of fuel
expended by trains and cars that currently must climb steep grades. It’s
therefore questionable that the economy’s equilibrium real rate can really be
negative for an extended period.
Charles I. Jones, NBER: The Facts of Economic Growth. Why are people in the richest countries of the world
so much richer today than 100 years ago? And why are some countries so much
richer than others? Questions such as these define the field of economic growth. This paper documents the facts that underlie
these questions. How much richer are we
today than 100 years ago, and how large are the income gaps between countries?
The purpose of the paper is to provide an encyclopedia of the fundamental facts
of economic growth upon which our theories are built, gathering them together
in one place and updating the facts with the latest available data.
Roland Fryer, Clark Medalist 2015, American Economic
Association. Roland
Fryer in a series of highly-influential studies has examined the age profile
and sources of the U.S. racial achievement gap as measured by standardized test
scores for children from 8 months to seventeen years old. Fryer (with Steven Levitt) has shown the
black-white test score gap is quite small in the first year of life, but black
children fall behind quickly thereafter (“Testing for Racial Differences in
Mental Ability among Young Children,” American Economic Review 2013). The
racial test score gap is largely explained by racial differences in
socioeconomic status at the start of schooling (“Understanding the Black-White
Test Gap in the First Two Years of School,” Review of Economics and Statistics
2004), but observable family background and school variables cannot explain
most of the growth of the racial test score gap after kindergarten. Fryer’s comprehensive chapter in the Handbook
of Labor Economics (2011, “Racial Inequality in the 21st Century: The Declining
Significance of Discrimination”) documents that racial differences in social
and economic outcomes today are greatly reduced when one accounts for
educational achievement gaps. He
concludes that understanding the obstacles facing minority children in K12
schools is essential to addressing racial inequality. Fryer has taken up this challenge to study
the efficacy of education policies to improve the academic achievement and
economic outcomes of low-income and minority children.
Gianna Claudia Giannelli, Chiara Rapallini, IZA:
Immigrant Student Performance in Math: Does It Matter Where You Come From? The performance gap in math of immigrant students is
investigated using PISA 2012. The gap with respect to non-immigrant schoolmates
is first measured. The hypotheses that first (second) generation students
coming from (whose parents come from) countries with a higher performance in
math fare better than their immigrant peers coming from lower-ranked countries
are then tested on a sample of about 13,000 immigrant students. The estimated
average immigrant-native score gap in math amounts to -12 points. The results
show that immigrant students coming from higher-ranked origin countries have a significantly
lower score gap, and are thus relatively less disadvantaged. For example,
coming from a country in the top quintile for math and having attended school
there for one year improves the absolute score gap by nearly 39 points, the
highest coefficient among the variables that reduce the gap, such as parental
education and socio-economic status.
Charlotte Cabane, Adrian Hille, Michael Lechner, IZA:
Mozart or Pelé? The Effects of Teenagers' Participation in Music and Sports. Using data from the German Socio-Economic Panel, this
paper analyses the effects of spending part of adolescents' leisure time on
playing music or doing sports, or both. We find that while playing music
fosters educational outcomes compared to doing sports, particularly so for girls
and children from more highly educated families, doing sports improves
subjective health. For educational outcomes, doing both activities appeared to
be most successful. The results are subjected to an extensive robustness
analysis including instrumental variable estimation and a formal sensitivity
analysis of the identifying assumptions, which does not reveal any serious
problems.
Jeff Frankels Blog: More Black
Swans? I have argued that the best way to think of
“black swan” events is as developments that, even though low-probability, can
in fact be contemplated ahead of time.
Even if they are the sort of thing that has never happened before within
an analyst’s memory, similar things may have happened before in the distant
past or in other countries. What current possible shocks have probabilities
that, even if fairly low, are high enough to warrant thinking about now? Some have been discussed ad infinitum, others
hardly at all. Most widely discussed is the danger of a break-up of the euro.
Considered unthinkable a short time ago, the probability that one or more euro
members will drop out is now well above 50%. Currency unions have disintegrated
before. The most worrisome financial threat is a crash of currently over-priced
bond markets. In theory such a crash could be precipitated by inflation
(particularly commodity-induced inflation as in 1973 or 1979). But this seems
unlikely. More likely triggers are (i) a breakdown in the eurozone or (ii)
political dysfunction in Washington.
Clemens Fuest, Andreas Peichl, IZA: European Fiscal
Union: What Is It? Does It Work? And Are There Really 'No Alternatives'? The view is
widespread that there are just two options for the future of the Eurozone –
either it is complemented by a fiscal union, or it will fall apart. In this
paper, we discuss five possible elements of a fiscal union, of which three are
in the centre of the current debate on fiscal union in the Eurozone. Second, we
argue that the fiscal union will only work if political integration in Europe
goes significantly beyond the current state of affairs. Third, we suggest an
alternative approach, which places less emphasis on centralised fiscal policy
coordination and focuses on financial sector reform, decentralised
responsibility for government debt and sovereign debt restructurings in the
case of fiscal crises.
Charles Wyplosz, VoxEU: The coming
revolt against austerity. Mindless austerity is losing policy
credibility in some Eurozone nations. This column suggests governments
shouldn’t mix long-term growth and fiscal discipline nor produce another Lisbon
strategy. Instead, they should adopt a framework for fiscal policy cooperation,
restructure debts, and remember that fiscal discipline is for the long run.
Carmen M. Reinhart, Vincent R.
Reinhart, Kenneth S. Rogoff, NBER: Debt Overhangs: Past and Present. We identify the major
public debt overhang episodes in the advanced economies since the early 1800s,
characterized by public debt to GDP levels exceeding 90% for at least five
years. Consistent with Reinhart and Rogoff (2010) and other more recent
research, we find that public debt overhang episodes are associated with growth
over one percent lower than during other periods. Perhaps the most striking new
finding here is the duration of the average debt overhang episode. Among the 26
episodes we identify, 20 lasted more than a decade. Five of the six shorter
episodes were immediately after World Wars I and II. Across all 26 cases, the
average duration in years is about 23 years. The long duration belies the view
that the correlation is caused mainly by debt buildups during business cycle
recessions. The long duration also implies that cumulative shortfall in output
from debt overhang is potentially massive. We find that growth effects are
significant even in the many episodes where debtor countries were able to
secure continual access to capital markets at relatively low real interest
rates. That is, growth-reducing effects of high public debt are apparently not
transmitted exclusively through high real interest rates.
Anders Bohlmark, Mikael Lindahl,
CESifo: Independent Schools and Long-Run Educational Outcomes - Evidence from
Sweden's Large Scale Voucher Reform. This paper evaluates
average educational performance effects of an expanding independent school
sector at the compulsory level by assessing a radical voucher reform that was
implemented in Sweden in 1992. We regress the change in educational performance
outcomes on the increase in the share of independent-school students between
Swedish municipalities. We find that an increase in the share of
independent-school students improves average performance at the end of
compulsory school as well as long-run educational outcomes. We show that these
effects are very robust with respect to a number of potential issues, such as
grade inflation and pre-reform trends. However, for most outcomes, we do not
detect positive and statistically significant effects until approximately a
decade after the reform. This is notable, but not surprising given that it took
time for independent schools to become more than a marginal phenomenon in
Sweden. We do not find positive effects on school expenditures. Hence, the
educational performance effects are interpretable as positive effects on school
productivity. We further find that the average effects primarily are due to
external effects (e.g., school competition), and not that independent-school
students gain significantly more than public-school students.
AGING AND RETIREMENT
Kadir Atalay, Garry F. Barrett,
SEDAP: The Impact of Age Pension Eligibility Age on Retirement and Program
Dependence: Evidence from an Australian Experiment. Identifying the
effect of the financial incentives created by social security systems on the
retirement behaviour of individuals requires exogenous variation in program
parameters. In this paper we study the 1993 Australian Age Pension reform which
increased the eligibility age for women to access the social security benefit.
We find economically significant responses to the increase in the Age Pension
eligibility age. An increase in the eligibility age of 1 year induced a decline
in retirement probability by approximately 10 percent. In addition, we find
that the social security reform induced significant "program
substitution." The rise in the Age Pension eligibility age had an
unintended consequence of increasing enrolment in other social insurance
programs, particularly the Disability Support Pension, which functioned as an
alternative source for funding retirement.
Espen Bratberg et al, CESifo: Is Recipiency of Disability Pension
Hereditary? This paper addresses whether children’s exposure to
parents receiving disability benefits induces a higher probability of receiving
such benefits themselves. Most OECD countries experience an increasing
proportion of the working-age population receiving permanent disability
benefits. Using data from Norway, a country where around 10% of the working-age
population rely on disability benefits, we find that the amount of time that
children are exposed to their fathers receiving disability benefits affects their
own likelihood of receiving benefits positively. This finding is robust to a
range of different specifications, including family fixed effects.
MARS 23 2012
Richard W. Evans,
Laurence J. Kotlikoff, Kerk L. Phillips, NBER: Game Over: Simulating
Unsustainable Fiscal Policy. Fiscal sustainability
is one of the most pressing policy issues of our time. Yet it remains difficult
to quantify. Official debt is plagued with a number of measurement difficulties
since its measurement reflects the choice of words, not policies. And forming
the fiscal gap-the imbalance in the government's intertemporal budget-requires
strong discount rate assumptions. An alternative approach, taken here, is
specifying a stochastic general equilibrium model and determining via
simulation how long it takes for the economy to reach game over-the point where
current policy can no longer be maintained. Our simulations, based on an OLG
model calibrated to the U.S. economy, produce an average duration to game over
of roughly one century, with a 35 percent chance of reaching the fiscal limit
in roughly 30 years. The prospect of man-made economic collapse produces large
equity premia, like those observed in the data. Our simulations show that both
the fiscal gap and the equity premium rise as the economy gets closer to
hitting its fiscal limit, suggesting that the fiscal gap and the equity premium
may be good indicators of unsustainable policy.
Ruud de Mooij,
Michael Keen, NBER: 'Fiscal Devaluation' and Fiscal Consolidation: The VAT in
Troubled Times. This paper focuses on two core tax design
issues that arise in addressing current fiscal challenges It first explores the
idea, prominent in troubled Eurozone countries, of a ‘fiscal devaluation:’
shifting from social contributions to the VAT as a way to mimic a nominal
devaluation. Empirical evidence is presented which suggests that in Eurozone
countries this may indeed improve the trade balance quite sizably in the
short-run, though, as theory predicts, the effects eventually disappear. The
paper then assesses the wider scope for VAT reform in meeting fiscal
consolidation needs, developing and beginning to apply a methodology for
finding additional VAT revenue in ways less distortionary and fairer than
further raising the standard rate.
N. Gregory Mankiw, NYT: Capital Gains, Ordinary Income and Shades of
Gray. But put that aside. If we are going to tax capital
gains at a lower rate, one question necessarily arises: What is a capital gain,
and how can we distinguish it from ordinary income? The answer seems simple. If
you have a job, the money you are paid for your work is ordinary income. If you
buy an asset at one time and sell it later for a higher price, the profit you
made from holding it is a capital gain. But is it really that easy? Consider
five examples, and see if you can identify what is ordinary income and what is
a capital gain.
Torben M.
Andersen, Aarhus University: Social policies and activation in the Scandinavian
welfare model: the case of Denmark. Scandinavian
countries are characterized by a generous tax-financed social safety net which
provides insurance and performs a redistributive role. While contributing to
lower inequality it may imply that incentives to work are low, and yet
employment rates are high. How have the Scandinavian countries been able to
reconcile social objectives with a high employment level? It is argued that the
Scandinavian welfare model has a strong employment focus both because it is an
important element in social policy based on social inclusion, but also because
a collective welfare arrangement is only financially viable if (private)
employment is sufficiently high. To ensure this, the social safety net includes
a number of employment conditionalities (active labour market
policies/workfare) to balance income protection with an employment focus. These
policies are discussed using Denmark as an example and empirical evidence is
presented. The criticism of workfare is also briefly discussed.
Tuomas Pekkarinen, IZA: Gender Differences
in Education. This
paper surveys the trends in gender gaps in education, their causes and
potential policy implications. I show that female educational attainment has
surpassed, or is about to surpass, male educational attainment in most
industrialized countries. These gaps reflect male overrepresentation among
secondary school drop-outs and female overrepresentation among tertiary
education students and graduates. Existing evidence suggests that this pattern
is a result of a combination of increasing returns to education and lower
female effort costs of education. Widening gender gap in education combined
with recent wage and employment polarization will likely lead to widening
inequalities and is linked to declining male labor force participation. The
paper discusses evidence on educational policies that both widen and reduce
gender gaps in educational outcomes.
Sara Markowitz et
al, NBER: Estimating the Relationship between Alcohol Policies and Criminal
Violence and Victimization. Violence is one of
the leading social problems in the United States. The development of
appropriate public policies to curtail violence is confounded by the
relationship between alcohol and violence. In this paper, we estimate the
propensity of alcohol control policies to reduce the perpetration and
victimization of criminal violence. We measure violence with data on individual
level victimizations from the U.S. National Crime Victimization Survey. We
examine the effects of a number of different alcohol control policies in
reducing violent crime. These policies include the retail price of beer, drunk
driving laws and penalties, keg laws, and serving and selling laws. We find
some evidence of a negative relationship between alcohol prices and the
probability of alcohol or drug related assault victimizations. However, we find
no strong evidence that other alcohol policies are effective in reducing
violent crimes. These results provide policy makers with guidance on potential
approaches for reducing violence through alcohol beverage control.
Bruno S Frey,
Jana Gallus,VoxEU: The world appears to be unfair. Those who are
prettier earn a higher salary and are also happier. This column argues it is
still not hopeless for those less blessed with looks. Appropriate clothing,
hairstyles, and good teeth can help, as can choosing a profession where
expertise is clearly central and beauty of less importance.
Jason M Fletcher, IZA: The Effects of
Personality Traits on Adult Labor Market Outcomes: Evidence from Siblings. While large literatures
have shown that cognitive ability and schooling increases employment and wages,
an emerging literature examines the importance of so-called "non-cognitive
skills" in producing labor market outcomes. However, this smaller
literature has not typically used causal methods in estimating the results. One
source of heterogeneity that may play an important role in producing both
personality and other non-cognitive skills and labor market outcomes is family
background, including genetic endowments. This paper is the first to use
sibling differences to estimate the effects of personality on employment and
wages and is also able to control for many other sources of heterogeneity,
including attractiveness, cognitive ability, schooling, occupation, and other factors.
Overall, the findings suggest that personality measures are important
determinants of labor market outcomes in adulthood and that the results vary
considerably by demographic group. The findings also! highlight the potential
role of extraversion in leading to favorable labor market outcomes, which has
not been documented in many other studies.
AGING AND RETIREMENT
Ehsan Latif, University of Toronto: The Impact of Retirement on Health
in Canada. This study estimates the impact of
retirement on subsequent health outcomes as measured by self-reported health
status. The empirical study is based on seven longitudinal waves of the
Canadian National Population Health Survey, spanning 1994 through 2006. To
account for biases due to unobserved individual-specific heterogeneity, this
study uses a fixed-effects method. The results indicate that retirement has a
positive but insignificant impact on self-reported health status. The study further
examined this issue using different subgroups based on gender and income and
again found that retirement has no significant impact on health status.
MARS 16 2012
Greg Smith, NYT: Why I Am Leaving Goldman Sachs. Today is my last day
at Goldman Sachs. After almost 12 years at the firm — first as a summer intern
while at Stanford, then in New York for 10 years, and now in London — I believe
I have worked here long enough to understand the trajectory of its culture, its
people and its identity. And I can honestly say that the environment now is as
toxic and destructive as I have ever seen it.
Edward P. Lazear,
James R. Spletzer, NBER: Hiring, Churn and the Business Cycle. Churn, defined as replacing departing workers
with new ones as workers move to more productive uses, is an important feature
of labor dynamics. The majority of hiring and separation reflects churn rather
than hiring for expansion or separation for contraction. Using the JOLTS data,
we show that churn decreased significantly during the most recent recession
with almost four-fifths of the decline in hiring reflecting decreases in churn.
Reductions in churn have costs because they reflect a reduction in labor
movement to higher valued uses. We estimate the cost of reduced churn to be
$208 billion. On an annual basis, this amounts to about .4% of GDP for a period
of 3 1/2 years.
Jennifer Hunt et
al, NBER: Why Don't Women Patent? We investigate
women's underrepresentation among holders of commercialized patents: only 5.5%
of holders of such patents are female. Using the National Survey of College
Graduates 2003, we find only 7% of the gap is accounted for by women's lower
probability of holding any science or engineering degree, because women with
such a degree are scarcely more likely to patent than women without.
Differences among those without a science or engineering degree account for
15%, while 78% is accounted for by differences among those with a science or engineering
degree. For the latter group, we find that women's underrepresentation in
engineering and in jobs involving development and design explain much of the
gap; closing it would increase U.S. GDP per capita by 2.7%.
Alessandro
Bucciol, Marco Piovesan Pay Dispersion and Work Performance. The effect of
intra-firm pay dispersion on work performance is controversial and the
empirical evidence is mixed. High pay dispersion may act as an extra incentive
for employees' effort or it may reduce motivation and team cohesiveness. These
effects can also coexist and the prevalence of one effect over the other may
depend on the use of different definitions of what constitutes a
"team." For this paper we collected a unique dataset from the men's
major soccer league in Italy. For each match we computed the exact pay
dispersion of each work team and estimated its effect on team performance. Our
results show that when the work team is considered to consist of only the
players who contribute to the result, high pay dispersion has a detrimental
impact on team performance. Several robustness checks confirm this result. In
addition, we show that enlarging the definition of work team causes this effect
to disappear or even become positive. Finally, we find that the detrimental
effect of pay dispersion is due to worst individual performance, rather than a
reduction of team cooperation.
Jason DeBacker, Bradley Heim, Vasia Panousi, Ivan Vidangos
San Francisco Fed: Rising Inequality: Transitory or Permanent? New Evidence
from a U.S. Panel of Household Income. We use a new and
large panel dataset of household income to shed light on the permanent versus
transitory nature of rising inequality in individual male labor earnings and in
total household income, both before and after taxes, in the United States over
the period 1987-2006. Due to the quality and the significant size of our
dataset, we are able to conduct our analysis using rich and precisely estimated
error-components models of income dynamics. Our main specification finds
evidence for a quadratic heterogeneous income profiles component and a random
walk component in permanent earnings, and for a moving-average component in
autoregressive transitory earnings. We find that the increase in inequality
over our sample period was entirely permanent for male earnings, and
predominantly permanent for household income. We also show that the tax system,
though reducing inequality, nonetheless did not materially affect its
increasing trend. Furthermore, we compare our model-based findings against
those of simpler, non-model based inequality decomposition methods. We show
that the results for the trends in the evolution of the permanent and
transitory variances are remarkably similar across methods, whereas the results
for the shares of those variances in cross-sectional inequality differ widely.
Further investigation into the sources of these differences suggests that
simpler methods produce erroneous decompositions because they cannot flexibly
capture the relative degree of persistence of the transitory component of
income.
International Monetary Fund: IMF News and Data for the iPad. The IMF News and Data
lets you access the latest International Monetary Fund news in 6 different
languages and chart and view the latest World Economic Outlook (WEO) data on global
economic indicators. The IMF News and
Data will be of use to students, professors, economists, researchers and anyone
looking to learn more about global economic news, indicators, and trends.
AGING AND RETIREMENT
A.C.S., Free
Exchange Blog: This old stock market. Aging populations in
America and Europe raise many economic concerns. A popular one is whether aging
baby boomers will tank the stock market. That’s story in this Wall Street
Journal article, which says that when baby boomers bought stock to fund their
retirement, that drove up share prices in the 1990s. Now, on the cusp of
retirement, they will sell their shares so prices must fall. This theory
appears to be confirmed by a figure from the San Francisco Fed, which shows a
strong correlation between the price/earnings ratio and what they call the M/O
ratio, the ratio of people age 40 to 49 to people age 60 to 69.
Grip Andries et
al, Maastricht University: Retirement
and cognitive development: are the retired really inactive? This paper uses longitudinal test data to
analyze the relation between retirement and cognitive development. Controlling
for individual fixed effects, we find that retirees face greater declines in
information processing speed than those who remain employed. However,
remarkably, their cognitive flexibility declines less, an effect that appears
to be persistent 6 years after retirement. Both effects of retirement on
cognitive development are comparable to those of a five to six-year age
difference. They cannot be explained by (1) a relief effect after being
employed in low-skilled jobs, (2) mood swings or (3) changes in lifestyle.
Controlling for changes in blood pressure, which are negatively related to
cognitive flexibility, we still find lower declines in cognitive flexibility
for retirees. Since the decline in information processing speed after
retirement holds particularly for the low educated, activating these persons
after retirement could lower the social costs of an aging society.
Antonio Filippin, Jan C. van Ours, IZA: Run
for Fun: Intrinsic Motivation and Physical Performance. We use data from the
24-hours Belluno run which has the unique characteristic that participants are
affiliated with teams and run for an hour. This allows us not only to study the
individual relationship between age and performance but also to study group
dynamics in terms of accessions to and separations from teams in a manner that
closely resembles workers and firms when individual productivity would have
been perfectly observable. From our analysis we conclude that individual
performance goes down with age, although the speed-age gradient is rather flat.
Group performance goes down with age as well, but interestingly a
counterbalancing force emerges, namely team dynamics that are driven by
performance of runners who enter and leave.
MARS 9 2012
Brad
Plumer, Wonkblog: Oil could make the crisis in Europe so much worse. Europe is getting hammered
by soaring oil prices harder than just about anywhere else. Not good news for a
continent already mired in recession. And the graph below is especially
striking — the euro zone countries with the worst trade imbalances (and, not
coincidentally, the worst debt crises) are also particularly dependent on
foreign oil and gas:
Barry Eichengreen, Kevin H O’Rourke, VoxEU:
A tale of two depressions redux. The debate over
stimulus versus austerity continues unabated. This column shows that, while
industrial production and trade recovered much more quickly than during the
Great Depression, both series now appear to be slowing down. It suggests that,
as St Augustine would have said had he been managing director of the IMF, there
is a case for additional fiscal consolidation and monetary normalisation, but
not yet.
Maurice Obstfeld, NBER: Does the Current
Account Still Matter? Do global current account imbalances still matter in
a world of deep international financial markets where gross two-way financial
flows often dwarf the net flows measured in the current account? Contrary to a
complete markets or “consenting adults” view of the world, large current
account imbalances, while very possibly warranted by fundamentals and welcome,
can also signal elevated macroeconomic and financial stresses, as was arguably
the case in the mid-2000s. Furthermore, the increasingly big valuation changes
in countries’ net international investment positions, while potentially
important in risk allocation, cannot be relied upon systematically to offset
the changes in national wealth implied by the current account. The same factors
that dictate careful attention to global imbalances also imply, however, that
data on gross international financial flows and positions are central to any
assessment of financial stability risks. The balance sheet mismatches of
leveraged entities provide the most direct indicators of potential instability,
much more so than do global imbalances, though the imbalances may well be a
symptom that deeper financial threats are gathering.
Michael D. Bordo, Christopher M. Meissner,
NBER: Does Inequality Lead to a Financial Crisis? The recent global
crisis has sparked interest in the relationship between income inequality,
credit booms, and financial crises. Rajan (2010) and Kumhof and Ranciere (2011)
propose that rising inequality led to a credit boom and eventually to a
financial crisis in the US in the first decade of the 21st century as it did in
the 1920s. Data from 14 advanced countries between 1920 and 2000 suggest these
are not general relationships. Credit booms heighten the probability of a
banking crisis, but we find no evidence that a rise in top income shares leads
to credit booms. Instead, low interest rates and economic expansions are the
only two robust determinants of credit booms in our data set. Anecdotal
evidence from US experience in the 1920s and in the years up to 2007 and from
other countries does not support the inequality, credit, crisis nexus. Rather,
it points back to a familiar boom-bust pattern of declines in interest rates,
strong growth, rising credit, asset price booms and crises.
Marina
Azzimonti et al, Philadelphia Fed: Financial Globalization, Inequality, and the
Raising of Public Debt. During the last three decades, the stock of
government debt has increased in most developed countries. During the same
period, we also observe a significant liberalization of international financial
markets and an increase in income inequality in several industrialized
countries. In this paper we propose a multicountry political economy model with
incomplete markets and endogenous government borrowing and show that
governments choose higher levels of public debt when financial markets become
internationally integrated and inequality increases. We also conduct an
empirical analysis using OECD data and find that the predictions of the
theoretical model are supported by the empirical results.
Olaf
van Vliet and Henk Nijboer, MPRA: Flexicurity in the European Union:
Flexibility for Outsiders, Security for Insiders. There is little
insight into whether flexicurity policies have been adopted across the European
Union. Therefore, the aim of this paper is to analyse to what extent labour
market policies have been reformed along the lines of the flexicurity concept
across 18 European countries over the period 1985-2008. Focusing on the main
axes of the flexicurity concept, new datasets are used to examine changes in
employment protection legislation, unemployment benefits and active labour
market policies. Data on the strictness of employment regulation indicate that
reforms have been influenced by labour market insiders, since the level of
flexibility has been increased more for temporary employment, the labour market
outsiders, than for regular employment, the insiders. Although gross
unemployment replacement rates suggest that unemployment benefits have become
more generous, net replacement rates indicate that the level of income security
from benefits actually has been decreased. Moreover, data illustrate that
larger shares of European labour forces have temporary contracts. As such, the
gap between insiders and outsiders on the labour market has been increased.
Timothy Halliday, IZA: Earnings Growth and
Movements in Self-Reported Health. We employ data from the Panel Study of Income
Dynamics to investigate income to health causality. To account for unobserved
heterogeneity, we focus on the relationship between earnings growth and changes
in self-reported health status. Causal claims are predicated upon appropriate
moment restrictions and specification tests of their validity. We find evidence
of Granger-type causality running from income to health for married men but not
for women or single men. These effects are more pronounced for younger men and
the bottom quartile of the earnings distribution. The former may be the consequence
of permanent earnings shocks, whereas the latter may be the consequence of job
loss.
Florencia López Bóo, Martín A. Rossi,
Sergio Urzua, IZA: The Labor Market Return to an Attractive Face: Evidence from
a Field Experiment. We provide new evidence on the link between beauty
and hiring practices in the labor market. Specifically, we study if people with
less attractive faces are less likely to be contacted after submitting a
resume. Our empirical strategy is based on an experimental approach. We sent
fictitious resumes with pictures of attractive and unattractive faces to real
job openings in Buenos Aires, Argentina. We find that attractive people receive
36 percent more responses (callbacks) than unattractive people. Given the
experimental design, this difference can be attributed to the exogenous
manipulation of facial attractiveness of our fake job applicants.
Jo Ritzen, Klaus F. Zimmermann, IZA: Fading
Hope in the US. A substantial literature claims that the strong
increase in inequality over the last decade in countries such as the US would
lead to a collapse of society. Fading hopes in the population seem to confirm
this. The paper rejects this interpretation since the decline in hopes cannot
be traced back to rising inequality.
AGING AND RETIREMENT
Pekka
Martikainen, Mikko Myrskylä, Max Planck Institute, Lifespan variation by occupational class:
compression or stagnation over time? Adult lifespan variation in most western
countries has stagnated since the 1960s, despite continued improvements in
longevity. Cross-sectional analyses, however, find that in the 1990s higher
socio-economic position was associated with lower lifespan variation. Trends in
this association over time are unknown. We investigated trends in lifespan
variation over four decades by occupational social class (manual, lower
non-manual, upper non-manual) using Finnish register data (1971-2007). We
performed age and cause-of-death decompositions of lifespan variation for each
sex (a) by occupational class over time and (b) between occupational classes at
a shared life expectancy. We found that although all occupational classes
experienced increases in life expectancy, manual workers had stagnating
lifespan variation over time while the higher occupational groups experienced
mortality compression. These differences were caused by diverging trends in
early adult mortality: all occupational classes experienced similar trends in
lifespan variation at older ages, but variation in early adult mortality
increased for all classes except the highest category. The high and stagnant
lifespan variation of the manual class was mostly due to higher early adult
mortality from external causes. These results suggest that mortality
compression can be compatible with increases in life expectancy by tackling
inequalities in early adult mortality.
Austin
Nichols, Urban Institute: Do Financial Planners Advise Us to Save Too Much for
Retirement? There is abundant advice about how much to save, much
of which urges individuals to aim to replace 80 percent of their preretirement
pretax income. However, those who wait to save for retirement and follow this
rule of thumb would save far too much of their gross income, and many would see
their annual resources spike upward when they retire. The constant savings rate
required to equalize consumption across the preretirement and postretirement
years generally is generally much lower than the 80 percent rule.
Melissa
M. Favreault et al, Urban Institute: Boomers' Retirement Income Prospects. The lackluster
economy, eroding traditional pensions, and volatile stock market suggest that
baby boomers - those born between 1945 and 1965 - face increasingly uncertain
retirements. Our projections show that lower - and moderate-income boomers will
continue to rely on Social Security for most of their retirement income. While
the projections reflect some good news - women will reap the rewards of working
and earning more than previous generations - they also raise alarms. Between 30
and 40 percent of boomers will not have enough income at age 70 to replace 75
percent of their preretirement earnings, a common standard for measuring
retirement income adequacy.
MARS 2 2012
Tim
Geithner, WSJ: Financial Crisis Amnesia. My wife occasionally looks up from the
newspaper with bewilderment while reading another story about people in the
financial world or their lobbyists complaining about Wall Street reform or
claiming they didn't need the Troubled Asset Relief Program. She reminds me of
the panicked calls she answered for me at home late at night or early in the
morning in 2008 from the then-giants of our financial system. We cannot afford
to forget the lessons of the crisis and the damage it caused to millions of
Americans. Amnesia is what causes financial crises. These reforms are worth
fighting to preserve.
Ashoka Mody, Franziska Ohnsorge, Damiano Sandri, VoxEU: Precautionary savings
in the Great Recession. Uncertainty rose sharply during the Great Recession,
as did saving rates. This column shows that these two developments were
related. Using a panel of OECD countries, it estimates that at least two-fifths
of the increase in households’ saving rates between 2007 and 2009 was due to
increased uncertainty about labour-income prospects. It adds that restoring
higher levels of consumption and aggregate demand will require
employment-friendly social insurance and reduced policy-induced uncertainty.
Christina and David Romer, UCLA: The incentive effects of marginal tax
rates. This paper uses the interwar period in the
United States as a laboratory for investigating the incentive effects of
changes in marginal income tax rates. Marginal rates changed frequently and
drastically in the 1920s and 1930s, and the changes varied greatly across
income groups at the top of the income distribution. We examine the effect of
these changes on taxable income using time-series/cross-section analysis of
data on income and taxes by small slices of the income distribution. We find
that the elasticity of taxable income to changes in the log after-tax share
(one minus the marginal rate) is positive but small (approximately 0.2) and
precisely estimated (a t-statistic over 6). The estimate is highly robust. We
also examine the time-series response of available indicators of investment and
entrepreneurial activity to changes in marginal rates. We find suggestive
evidence of an impact on business formation, but no evidence of an important
impact on other indicators.
Laurent Gobillon, Thierry Magnac, Harris
Selod, IZA: Do Unemployed Workers Benefit from Enterprise Zones? The French
Experience. This paper presents an impact evaluation of
the French enterprise zone program which was initiated in 1997 to help
unemployed workers find employment by granting a significant wage-tax exemption
(about one third of total labor costs) to firms hiring at least 20% of their
labor force locally. Drawing from a unique geo-referenced dataset of unemployment
spells in the Paris region over an extensive period of time (1993-2003), we are
able to measure the direct effect of the program on unemployment duration,
distinguishing between short- and medium-term effects. This is done by
implementing an original two-stage empirical strategy using individual data in
the first stage and aggregate data and conditional linear matching techniques
in the second stage. We show that although the enterprise zones program tended
to "pick winners", it is likely to be cost-ineffective. It had a
small but significant effect on the rate at which unemployed workers find a job
(which is increased by a modest 3 percent). This effect is localized and
significant only in the short run (i.e. at best during the 3 years that follow
the start of the policy).
David Card, Christian Dustmann and Ian Preston, Norface Migration:
Immigration, Wages, and Compositional Amenities. There is strong
public opposition to increased immigration throughout Europe. Given the modest
economic impacts of immigration estimated in most studies, the depth of
antiimmigrant sentiment is puzzling. Immigration, however, does not just affect
wages and taxes. It also changes the composition of the local population,
threatening the “compositional amenities” that natives derive from their
neighborhoods, schools, and workplaces. In this paper we use a simple latent
factor model, combined with data for 21 countries from the 2002 European Social
Survey (ESS), to measure the relative importance of economic and compositional
concerns in driving opinions about immigration policy. The ESS included a
unique battery of questions on the labor market and social impacts of
immigration, as well as on the desirability of increasing or reducing immigrant
inflows. We find that compositional concerns are 2-5 times more important in
explaining variation in individual attitudes toward immigration policy than
concerns over wages and taxes. Likewise, most of the difference in opinion
between more- and lesseducated respondents is attributable to heightened
compositional concerns among people with lower education.
Ron Haskins, Peter H. Schuck, Brookings: Welfare Reform Worked. According to Census
Bureau data, between 1996 and 2000, the percentage of never-married mothers in
jobs increased by about a third (to 66%), while the poverty rate for these
mothers and their children declined by about a third (to 40%). For the poorest
of the poor, this large an improvement based on their own efforts was
unprecedented. Since then, two recessions have reduced these gains somewhat;
their employment rate is down to 58.7% (still better than for women generally)
and their poverty rate is up to 49.3%. Yet even in the worst recession since
the Depression, more are employed and they are less poor than they were before
the 1996 law. In fact, researchers Bruce Meyer of the University of Chicago and
James Sullivan of Notre Dame have found that if all the work-based benefits
given to low-income workers were included — such benefits are mostly ignored by
the official poverty measure — the incomes of these mothers and children would
be even higher and their poverty rate even lower.
Nadya Labi, The Atlantic: Misfortune Teller. A statistics professor says
he can predict crime before it occurs. Drawing from criminal
databases dating to the 1960s, Berk initially modeled the Philadelphia
algorithm on more than 100,000 old cases, relying on three dozen predictors,
including the perpetrator’s age, gender, neighborhood, and number of prior
crimes. To develop an algorithm that forecasts a particular outcome—someone
committing murder, for example—Berk applied a subset of the data to “train” the
computer on which qualities are associated with that outcome. Philadelphia’s
parole officers were surprised to learn, for example, that the crime for which
an offender was sentenced—whether it was murder or simple drug possession—does
not predict whether he or she will commit a violent crime in the future. Far
more predictive is the age at which he (yes, gender matters) committed his
first crime, and the amount of time between other offenses and the latest
one—the earlier the first crime and the more recent the last, the greater the
chance for another offense. Berk’s expertise is being sought at nearly every
stage of the criminal-justice process. Maryland is running an algorithm like
Philadelphia’s that predicts who under supervision will kill—or be killed.
Mark Thoma, Economist view Blog: Whorfian Economics: The Interaction of
Language and Economic Decisions. Does the way in
which the language we speak describes the future have an impact our intertemporal
choices? I find a strong correlation between how a language treats future-time
reference (FTR), and the choices that speakers of those languages make when
thinking about the future. Specifically, in large data sets that survey
families across hundreds of countries, I find a strong and robust negative
correlation between the obligatory marking of FTR in the language a family
speaks, and a whole host of forward-looking behaviors, like saving, exercising,
and refraining from smoking.
Raúl López-Pérez,
Eli Spiegelman, IDEAS: Do Economists Lie More? Recent experimental
evidence suggests that some people dislike telling lies, and tell the truth
even at a cost. We use experiments as well to study the socio-demographic
covariates of such lie aversion, and find gender and religiosity to be without
predictive value. However, subjects’ major is predictive: Business and
Economics (B&E) subjects lie significantly more frequently than other majors.
This is true even after controlling for subjects’ beliefs about the overall
rate of deception, which predict behavior very well: Although B&E subjects
expect most others to lie in our decision problem, the effect of major remains.
An instrumental variables analysis suggests that the effect is not simply one
of selection: It seems that studying B&E has a causal impact on behavior.
AGING AND RETIREMENT
Emma L. Gorman, Grant M. Scobie, Andy Towers, NZ Treasury: Labour force
participation and retirement of older New Zealanders. The central question
which is addressed is the extent to which the labour force participation of
those aged 54 to 70 is influenced by their health status (both mental and
physical), in addition to a wide range of economic, social and demographic
variables. Discrete choice models are employed and particular attention is
given to the potential effects of unobserved heterogeneity. We find a range of
factors to be associated with the decision to retire, notably health status,
marital status and financial incentives. After accounting for the confounding
influence of unobservable factors which affect both health and propensity to
participate in the labour force, we find that physical health remains an
important determinant of labour force exit for older males. Finally, both the
marginal and aggregate effects of specific chronic illnesses on labour force
participation are estimated.
Alan Barrett, Irene Mosca, IZA: Announcing
an Increase in the State Pension Age and the Recession: Which Mattered More for
Expected Retirement Ages? In March of 2010, the
Irish government announced that the age at which the state pension is paid
would be raised to 66 in 2014, 67 in 2021 and 68 in 2028. Also during 2010, the
economic news became increasingly bad as the full scale of the fiscal and
banking crises in Ireland emerged. The question we address in this paper is
whether expected retirement ages of Irish individuals aged 50 to 64 changed as
a result of the policy announcement and/or the bad economic news. The data we
use are from the Irish Longitudinal Study on Ageing (TILDA). Between late 2009
and early 2011, over 8,500 people aged 50 and over in Ireland were interviewed
about a wide range of issues including standard socio-economic items such as
labour force status, earnings and education. Respondents were also asked at
what age they expected to retire. Our findings show that there was no
noticeable break in expected retirement ages before and after 3 March 2010 (the
day on which the policy announcement was made). However, there was a clear
shift of people into the categories "don't plan to retire" and
"do not know" before and after September 30 2010. This was the day
that the full scale of the banking crisis emerged (named by the media as
"Black Thursday") and was followed by the set of events which led to
the bailout of November 2010. Similarly, there was a shift away from modal
expected retirement ages after that date.
FEBRUARY 23 2012
Felix
Salmon, Reuter: The improbable Greece plan. The plan assumes that
Greece’s politicians will stick to what they’ve agreed, and start selling off
huge chunks of their country’s patrimony while at the same time imposing
enormous budget cuts. Needless to say, there is no indication that Greece’s
politicians are willing or able to do this, nor that Greece’s population will
put up with such a thing. It could easily all fall apart within months; the
chances of it gliding to success and a 120% debt-to-GDP ratio in 2020 have got
to be de minimis. Europe’s politicians know this, of course. But at the very
least they’re buying time: this deal might well delay catastrophic capital
flight from Greece, and give the Europeans more time to work out how to shore
up Portugal if and when that happens. Will they make good use of the time that
they’re buying? I hope so. Because once the Greek domino falls, it’s going to
take a huge amount of money, statesmanship, and luck to prevent further
dominoes from toppling.
Matthew Denes, Gauti B. Eggertsson, and Sophia Gilbukh, NY Fed:
Deficits, Public Debt Dynamics, and Tax and Spending Multipliers. Cutting government
spending on goods and services increases the budget deficit if the nominal
interest rate is close to zero. This is the message of a simple but standard
New Keynesian DSGE model calibrated with Bayesian methods. The cut in spending
reduces output and thus—holding rates for labor and sales taxes
constant—reduces revenues by even more than what is saved by the spending cut.
Similarly, increasing sales taxes can increase the budget deficit rather than
reduce it. Both results suggest limitations of “austerity measures” in low
interest rate economies to cut budget deficits. Running budget deficits can by
itself be either expansionary or contractionary for output, depending on how
deficits interact with expectations about the long run in the model. If
deficits trigger expectations of i) lower long-run government spending, ii)
higher long-run sales taxes, or iii) higher future inflation, they are
expansionary. If deficits trigger expectations of higher long-run labor taxes
or lower long-run productivity, they are contractionary.
Atif
Mian, Amir Sufi, CBSB: What Explains High Unemployment? The Aggregate Demand
Channel. A drop in aggregate demand driven by shocks to
household balance sheets is responsible for a large fraction of the decline in
U.S. employment from 2007 to 2009. The aggregate demand channel for
unemployment predicts that employment losses in the non-tradable sector are
higher in high leverage U.S. counties that were most severely impacted by the
balance sheet shock, while losses in the tradable sector are distributed
uniformly across all counties. We find exactly this pattern from 2007 to 2009.
Alternative hypotheses for job losses based on uncertainty shocks or structural
unemployment related to construction do not explain our results. Using the
relation between non-tradable sector job losses and demand shocks and assuming
Cobb-Douglas preferences over tradable and non-tradable goods, we quantify the
effect of aggregate demand channel on total employment. Our estimates suggest
that the decline in aggregate demand driven by household balance sheet shocks
accounts for almost 4 million of the lost jobs from 2007 to 2009, or 65% of the
lost jobs in our data.
Edward
Hughes, A Fistful of Euros Blog: For Whom The Bailout Tolls. Feelings that what we
are seeing today will only constitute a short interlude in a pretty atonal
concierto are based on an appreciation of three important factors: a) a
recognition that even a reduction of debt to GDP to 120% by 2020 is still not
sustainable; b) a recognition that after the formal bailout is awarded there
will still be ongoing programme reviews, and the country will struggle to
comply with the conditions; and c) the fact that the implementation of the
Private Sector Involvement debt swap will probably mean changing the
jurisdiction under which Greek debt is denominated from mainly Greek law in the
majority to international law in the totality, and that the only creditors left
on whom the country can effectively default is now the official sector. This
latter point is undoubtedly the most important, although being able to grasp
its full implications implies an understanding of the first two. Essentially, if the unsustainability of the
Greek debt path and the inability to comply with conditionality are accepted,
then a further default will be inevitable, but such a default will undoubtedly
be a very, very hard one, and most likely an uncontrolled one. In the first
place if the country were to leave the Euro after the debt swap, then the new
Greek bonds could now not be converted to New Drachma (or equivalent) by a
weekend session of the Greek parliament, and the country would have to default
on bonds denominated in Euros, which would presented them with all kinds of
problems.
Jo Ritzen, Klaus F. Zimmermann, IZA: Fading
Hope in the US. A substantial literature claims that the
strong increase in inequality over the last decade in countries such as the US
would lead to a collapse of society. Fading hopes in the population seem to
confirm this. The paper rejects this interpretation since the decline in hopes
cannot be traced back to rising inequality.
William B. Peterman, FED: The Effect of Endogenous Human Capital
Accumulation on Optimal Taxation. This paper considers
the impact of endogenous human capital accumulation on optimal tax policy in a
life cycle model. Including endogenous human capital accumulation, either
through learning-by-doing or learning-or-doing, is analytically shown to create
a motive for the government to use age-dependent labor income taxes. If the
government cannot condition taxes on age, then it is optimal to use a tax on
capital in order to mimic such taxes. Quantitatively, introducing
learning-by-doing or learning-or-doing increases the optimal tax on capital by
forty or four percent, respectively. Overall, the optimal tax on capital is
thirty five percent higher in the model with learning-by-doing compared to the
model with learning-or-doing implying that how human capital accumulates is of
significant importance when determining the optimal tax policy.
Daniel H. Cooper, Byron F. Lutz, and Michael G. Palumbo, FED:
Quantifying the Role of Federal and State Taxes in Mitigating Wage Inequality. Wage inequality has risen dramatically in the
United States since at least 1980. This paper quantifies the role that the tax
policies of the federal and state governments have played in mitigating wage
inequality. The analysis, which isolates the contribution of federal taxes and
state taxes separately, employs two approaches. First, cross-sectional
estimates compare before-tax and after-tax inequality across the 50 states and
the District of Columbia. Second, inequality estimates across time are
calculated to assess the evolution of the effects of tax policies. The results
from the first approach indicate that the tax code reduces wage inequality
substantially in all states. On average, taxes reverse approximately the last
two decades of growth in wage inequality. Most of this compression of the
income distribution is attributable to federal taxes. Nevertheless, there is
substantial cross-state variation in the extent to which state tax policies compress
the income distribution. Cross-state differences in gasoline taxes have a
surprisingly large impact on income compression, as do sales tax exemptions for
food and clothing. The results of the second approach indicate that the
mitigating influence of tax policy on wage inequality has increased very
modestly since the early 1980s. The increase is due to the widening of the
pre-tax wage distribution interacting with a progressive tax structure. In
contrast, legislated tax changes over this period decreased income compression
somewhat.
Chiara Criscuolo,
Ralf Martin, Henry Overman, John Van Reenen, NBER: The Causal Effects of an
Industrial Policy. We exploit
multiple changes in the area-specific eligibility criteria for a major program
to support manufacturing jobs ("Regional Selective Assistance"). Area
eligibility is governed by pan-European state aid rules which change every
seven years and we use these rule changes to construct instrumental variables for
program participation. We match two decades of UK panel data on the population
of firms to all program participants. IV estimates find positive program
treatment effect on employment, investment and net entry but not on TFP. OLS
underestimates program effects because the policy targets underperforming
plants and areas. The treatment effect is confined to smaller firms with no
effect for larger firms (e.g. over 150 employees). We also find the policy
raises area level manufacturing employment mainly through significantly
reducing unemployment. The positive program effect is not due to substitution
between plants in the same area or between eligible and ineligible areas
nearby. We estimate that "cost per job" of the program was only
$6,300 suggesting that in some respects investment subsidies can be cost
effective.
Ryan Avent, Free Exchange Blog: Cognitive inequality. Politicians, and many
economists, are increasingly focused on the importance of global supply
chains—where production is done and what benefits are conferred on those
controlling which parts of the production line. Now there are certainly some
interesting and potentially important issues in that discussion, but what most
people seem to gloss over is the fact that the most important parts of modern
supply chains are embedded in the heads of innovators and (I would add and Mr
Smith probably would not) in the space between groups innovators in which
discussions about innovation take place. To take a common and extreme but
useful example: the most important parts of the Apple supply chain are Steve
Jobs' brain and the community of engineers tasked with turning Jobs' musings
into actual, revolutionary products.
Mark Van Vugt, Wendy Iredale, BJP: Men behaving nicely: Public goods as
peacock tails. Insights from sexual selection and costly
signalling theory suggest that competition for females underlies men's public
good contributions. We conducted two public good experiments to test this
hypothesis. First, we found that men contributed more in the presence of an
opposite sex audience, but there was no parallel effect for the women. In
addition, men's public good contributions went up as they rated the female
observer more attractive. In the second experiment, all male groups played a
five round public good game and their contributions significantly increased
over time with a female audience only. In this condition men also volunteered
more time for various charitable causes. These findings support the idea that
men compete with each other by creating public goods to impress women. Thus, a
public good is the human equivalent of a peacock's tail.
AGING AND RETIREMENT
Atella, Vincenzo
and Carbonari, Lorenzo, MPRA: When elders rule: is gerontocracy harmful for
growth? We study the relationship between
gerontocracy and aggregate economic perfomance in a simple model where growth
is driven by human capital accumulation and productive government spending. We
show that gerontocratic élites display the tendency to underinvest in public
education and productive government services and thereby may be harmful growth.
In absence of intergenerational altruism, the damage caused by gerontocracy is
mainly due to the lack in long-term delayed-return investment originated by the
shorter life horizon of the ruling class with respect to the rest of the
population. An empirical analysis is carried out on a rich data set that al
lows to test theoretical results across different countries and different sectors. The
econometric results confirm our main
hypotheses.
Klaus Prettner,
David Canning, Harvard: Increasing life expectancy and optimal retirement:does
population aging necessarily undermine economic prosperity? In this paper we
analyze the effects of changes in longevity and the pace of technological
progress on interest rates, savings behaviour and optimal retirement decisions.
In so doing we embed the dynamic optimization problem of choosing a life-cycle
consumption path and the retirement age into a general equilibrium setting.
Thereby we assume that technology evolves exogenously and the production side
of the economy can be described by means of a neoclassical production function.
Our results show that (i) the aggregate capital to consumption ratio increases
and interest rates decrease in response to increases in longevity; (ii) the
response of the optimal retirement age to increases in longevity is ambiguous. However,
for reasonable parameter values the optimal retirement age increases in
longevity; (iii) the aggregate capital to consumption ratio decreases and
interest rates increase in response to faster technological progress; (iv) the
response of the optimal retirement age to faster technological progress is
ambiguous. However, for reasonable parameter values the optimal retirement age
increases in the pace of technological improvements.
FEBRUARY 16 2012
Benjamin R. Mandel, NY Fed: Why
Is the U.S. Share of World Merchandise Exports Shrinking? As the U.S. share of
the world goods trade slips from its level in the 1980s and 1990s, concerns have
arisen that the productivity of U.S. exporters has not been growing as fast as
that of foreign firms selling similar products. However, an analysis of
industry-level trade data suggests that two other factors explain much of the
drop in export share: the changing composition of the products traded
internationally and the diminished share of U.S. GDP in global output.
Declining relative productivity may have played a role in the early 2000s, but
it has not been a large factor across industries over the longer term. Overall,
there is little evidence of a broad-based decline in the nation’s ability to
compete in global markets.
Christina D. Romer, NYT: Do Manufacturers Need Special Treatment? A successful argument
for a government manufacturing policy has to go beyond the feeling that it’s
better to produce “real things” than services. American consumers value health
care and haircuts as much as washing machines and hair dryers. And our earnings
from exporting architectural plans for a building in Shanghai are as real as
those from exporting cars to Canada. The economic rationales for a policy aimed
specifically at shoring up manufacturing largely fall into three categories.
None are completely convincing: Market Failures ..., Jobs ..., Income
Distribution ...As an economic historian, I appreciate what manufacturing has
contributed to the United States. It was the engine of growth that allowed us
to win two world wars and provided millions of families with a ticket to the
middle class. But public policy needs to go beyond sentiment and history. It
should be based on hard evidence of market failures, and reliable data on the
proposals’ impact on jobs and income inequality. So far, a persuasive case for
a manufacturing policy remains to be made...
Daron Acemoglu,
David Autor , NBER: What Does Human Capital Do? A Review of Goldin and Katz's The
Race between Education and Technology. Goldin and Katz's The
Race between Education and Technology is a monumental achievement that supplies
a unified framework for interpreting how the demand and supply of human capital
have shaped the distribution of earnings in the U.S. labor market over the 20th
century. This essay reviews the theoretical and conceptual underpinnings of
this work and documents the success of Goldin and Katz's framework in
accounting for numerous broad labor market trends. The essay also considers
areas where the framework falls short in explaining several key labor market
puzzles of recent decades and argues that these shortcomings can potentially be
overcome by relaxing the implicit equivalence drawn between workers' skills and
their job tasks in the conceptual framework on which Goldin and Katz build. The
essay argues that allowing for a richer set of interactions between skills and
technologies in accomplishing job tasks both augments and refines the
predictions of Goldin and Katz's approach and suggests an even more important
role for human capital in economic growth than indicated by their analysis.
Brandon Keim, Wired: Why Some Wild Animals Are Becoming Nicer. Nature is supposed
to be red in tooth and claw, and domestication an artificial process for making
animals gentle. But it appears that some corners of the animal kingdom are
becoming kinder, gentler places. Certain creatures may be domesticating
themselves. This possibility is most apparent in bonobos, a close cousin of
chimpanzees. Unlike their violent cousins, bonobos are generally peaceful. And
while many animals have evolved to be socially agreeable, bonobos — and
possibly other species — seem to be experiencing something more precise and
profound: the physical and behavioral changes specifically described in studies
of domestication, but as a natural evolutionary process.
Tim Harford, The Undercover Economist Blog: Five steps to an organised
inbox. Here are a few microeconomic analysis-tested tips to
get your email under control: It is remarkably easy, however, to get rid of
email: all that is needed is the “will to delete” – ideally the deletion should
be swift and without remorse. Steve Whittaker, a computer scientist at IBM
Research, with four colleagues, has conducted a study to figure out the
effectiveness of these different approaches. It’s called “Am I wasting my time
organising email?” and the conclusion is “yes, you are”.
AGING AND RETIREMENT
James M. Poterba,
Steven F. Venti, David A. Wise, NBER: Were They Prepared for Retirement?
Financial Status at Advanced Ages in the HRS and AHEAD Cohorts. Many analysts have considered whether
households approaching retirement age have accumulated enough assets to be well
prepared for retirement. In this paper, we shift from studying household
finances at the start of the retirement period, an ex ante measure of
retirement preparation, to studying the asset holdings of households in their
last years of life. The analysis is based on Health and Retirement Study. We
find that a substantial fraction of persons die with virtually no financial
assets--46.1 percent with less than $10,000--and many of these households also
have no housing wealth and rely almost entirely on Social Security benefits for
support. In addition this group is disproportionately in poor health. Based on
a replacement rate comparison, many of these households may be deemed to have
been well-prepared for retirement, in the sense that their income in their final
years was not substantially lower than their income in their late 50s or early
60s. Yet with such low asset levels, they would have little capacity to pay for
unanticipated needs such as health expenses or other financial shocks or to pay
for entertainment, travel, or other activities. This raises a question of
whether the replacement ratio is a sufficient statistic for the
"adequacy" of retirement preparation.
Deloitte: Tilbage til
arbejdsmarkedet. Erfaringer med folkepensionister og efterlønsmodtagere, der
arbejder. På
engelsk anvendes betegnelsen unretirement for, at folkepensioni-ster og
efterlønsmodtagere vender tilbage til arbejdsmarkedet, selvom de oprindeligt
havde trukket sig tilbage. At dømme efter antallet af folkepensionister og
efterlønsmodta-gere, der stiller deres arbejdskraft til rådighed på job- og
rekrut-teringsportaler, har pensionister og efterlønsmodtagere lyst til at
arbejde. Samtidig har virksomhederne, der har ansat pensioni-ster og
efterlønsmodtagere, gode erfaringer og fremhæver kvali-teter som stabilitet,
omhyggelighed og lang erhvervs- og livser-faring hos deres medarbejdere over 60
år. Det skaber gode for-udsætninger for at få flere pensionister og
efterlønsmodtagere til at vende tilbage til arbejdsmarkedet. Det Danska Social-
och integrationsministeriet bedriver ett project för “Unretirement:
FEBRUARY 9 2012
Ryan Avent, Free Exchange Blog: The hazards of crisis. I don't know whether
the euro zone has figured out a way to muddle through this mess. It seems
pretty clear to me that the euro zone has not done the things I thought it
needed to do to make it through, but at the moment it isn't that easy to figure
out what the ECB's actual underlying strategy is. Perhaps time will vindicate
me in every way; so I say to myself every morning. My feeling is that the
crisis is about the fear that institutions will be unable to make good on their
obligations, that failure to make good on these obligations will cause
significant financial and economic disruption, and that the only way to solve
the problem is to figure out how to handle a potential shortfall in a manner
that's as minimally disruptive as possible—perhaps through inflation and/or
financial repression.
Daniel J. Wilson, San Francisco Fed: Government Spending: An Economic
Boost? The severe global
economic downturn and the large stimulus programs that governments in many
countries adopted in response have generated a resurgence in research on the
effects of fiscal policy. One key lesson emerging from this research is that
there is no single fiscal multiplier that sums up the economic impact of fiscal
policy. Rather, the impact varies widely depending on the specific fiscal
policies put into effect and the overall economic environment.
Mark Setterfield, Trinity College: Real Sector Imbalances and the Great
Recession. While much attention has been focused on the
financial woes of the US economy in the wake of the Great Recession, this
chapter focuses on an important real sector imbalance: the failure of real
wages to keep pace with productivity growth over the past three decades. This
imbalance is shown to create a structural flaw in the aggregate demand generating
process that threatens to undermine future macroeconomic performance. The
chapter reflects on the policy responses necessary to remedy this situation,
and the likelihood that the US will succeed in avoiding a future of secular
stagnation.
David Beckworth, Macro and other musings Blog: Can Raising Interest Rates Spark a Recovery? The economy is not sluggish because interest
rates are low. Rather, interest rates are low because the economy is sluggish.
The demand for credit by households and firms simply is depressed. They see uncertainty, lower-than-expected
future income paths, on-going deleveraging, and consequently have pulled back
on their borrowing. There also has been
an increase in domestic private savings for the same reasons. And to pile it on, there is this global
shortage of safe assets problem which causes foreigners to channel their
savings here too. All of these
developments mean lower interest rates.
Rob Valletta, Katherine Kuang, San Francisco Fed: Why Is Unemployment
Duration So Long? During the recent recession, unemployment duration
reached levels well above those of past downturns. Duration has continued to
rise during the uneven economic recovery that began in mid-2009. Elevated
duration reflects such factors as changes in survey measurement, the
demographic characteristics of the unemployed, and the availability of extended
unemployment benefits. But the key explanation is the severe and persistent
weakness in aggregate demand for labor.
Gregory F. Branch, Eric A. Hanushek, Steven
G. Rivkin, NBER: Estimating the Effect of Leaders on Public Sector
Productivity: The Case of School Principals. Outcome-based
estimates of principal value-added to student achievement reveal significant
variation in principal quality that appears to be larger for high-poverty
schools. Alternate lower-bound estimates based on direct estimation of the
variance yield smaller estimates of the variation in principal productivity but
ones that are still important, particularly for high poverty schools. Patterns
of teacher exits by principal quality validate the notion that a primary
channel for principal influence is the management of the teacher force.
Finally, looking at principal transitions by quality reveals little systematic
evidence that more effective leaders have a higher probability of exiting high
poverty schools.
Michael Waldman, Sean Nicholson, Nodir
Adilov, NBER: Positive and Negative Mental Health Consequences of Early
Childhood Television Watching. An extensive literature in medicine investigates the
health consequences of early childhood television watching. However, this
literature does not address the issue of reverse causation, i.e., does early
childhood television watching cause specific health outcomes or do children
more likely to have these health outcomes watch more television? This paper
uses a natural experiment to investigate the health consequences of early
childhood television watching and so is not subject to questions concerning reverse
causation. Specifically, we use repeated cross-sectional data from 1972 through
1992 on county-level mental retardation rates, county-level autism rates, and
county-level children’s cable-television subscription rates to investigate how
early childhood television watching affects the prevalence of mental
retardation and autism. We find a strong negative correlation between average
county-level cable subscription rates when a birth cohort is below three and
subsequent mental retardation diagnosis rates, but a strong positive
correlation between the same cable subscription rates and subsequent autism
diagnosis rates. Our results thus suggest that early childhood television
watching has important positive and negative health consequences.
AGING AND RETIREMENT
Benedict Clements, IMF: It’s the Years, Not The Mileage: IMF Analysis of
Pension Reforms in Advanced Economies. Indiana Jones, the fictional character of the
namesake movies, once said “It’s not the years, it’s the mileage.” This quote
comes to mind as many advanced economies wrestle with pension reform and the
best way to ensure both retirees and governments don’t go broke. Our view,
explained in a new study, is that the years do matter. Our analysis shows that
gradually raising retirement ages could help countries contain increases in
pension spending and boost economic growth. Further cuts in pension benefits,
or raising payroll contributions, are also options countries could consider,
although many countries will find many advantages in raising retirement ages.
The challenge is to reform pension systems without hurting their ability to
provide income security for the elderly and prevent old-age poverty
Nicolai Kristensen, IZA: Training and Retirement. This paper presents
results on the effect of formal life-long learning on the decision to retire
early. Specifically, I estimate an Option Value model based on individual
employer-employee longitudinal data including comprehensive government
co-sponsored training records dating back more than 30 years. Human capital
theory predicts that the amount of training and the length of working life will
be positively correlated in order to recoup investment and yield a higher
return. Significant upper bound effects of training in prolonging working life
are found for certain types of training and certain groups of workers. However,
out-of-sample simulations indicate that on average one year of training only
adds up to one month to the career length. This means that training in itself
is not enough to substantially prolong careers and increase the workforce.
Tobias Launa, Johanna Wallenius, HHS: A Life Cycle Model of Health and
Retirement: The Case of Swedish Pension Reform. In this paper we
develop a life cycle model of labor supply and retirement to study the
interactions between health and the labor supply behavior of older workers, in
particular disability insurance and pension claiming. In our framework,
individuals choose when to stop working and, given eligibility criteria,
when/if to apply for disability and pension benefits. Individuals care about
their health and can partially insure against health shocks by investing in
health. We use the model to study the labor supply implications of the recent
Swedish pension reform. We find that the new pension system creates big
incentives for the continued employment of older workers. In particular, the
model predicts an increase in the average retirement age of more than two
years.
FEBRUARY 2 2012
Tyler Durden , Zero Hedge Blog: This Is Europe's Scariest Chart. Surging Greek and
Portuguese bond yields? Plunging Italian bank stocks? The projected GDP of the
Eurozone? In the grand scheme of things, while certainly disturbing, none of
these data points actually tell us much about the secular shift within European
society, and certainly are nothing that couldn't be fixed if the ECB were to
gamble with hyperinflation and print an inordinate amount of fiat units
diluting the capital base even further. No: the one chart that truly captures
the latent fear behind the scenes in Europe is that showing youth unemployment
in the continent's troubled countries (and frankly everywhere else). Because
the last thing Europe needs is a discontented, disenfranchised, and devoid of
hope youth roving the streets with nothing to do, easily susceptible to
extremist and xenophobic tendencies: after all, it must be
"someone's" fault that there are no job opportunities for anyone.
Michael B. Devereux, Ozge Senay, Alan
Sutherland, NBER: Nominal Stability and Financial Globalization. Over the one and a
half decades prior to the global financial crisis, advanced economies
experienced a large growth in gross external portfolio positions. This
phenomenon has been described as Financial Globalization. Over roughly the same
time frame, most of these countries also saw a substantial fall in the level
and variability of inflation. Many economists have conjectured that financial
globalization contributed to the improved performance in the level and
predictability of inflation. In this paper, we explore the causal link running
in the opposite direction. We show that a monetary policy rule which reduces
inflation variability leads to an increase in the size of gross external
positions, both in equity and bond portfolios. This is a highly robust
prediction of open economy macro models with endogenous portfolio choice. It
holds across many different modeling specifications and parameterizations. We
also present preliminary empirical evidence which shows a negative relationship
between inflation volatility and the size of gross external positions.
Pierre-Olivier
Gourinchas, Maurice Obstfeld, VoxEU:
Understanding past and future financial crises. What explains the
different effects of the crisis around the world? This column compares the
2007–09 crisis to earlier episodes of banking, currency, and sovereign debt
distress and identifies domestic-credit booms and real currency appreciation as
the most significant predictors of future crises, in both advanced and emerging
economies. It argues these results could help policymakers determine the need
for corrective action before crises hit.
Kenneth Rogoff, Project Syndicate: Coronary Capitalism. A systematic and
broad failure of regulation is the elephant in the room when it comes to
reforming today’s Western capitalism. ... But is the problem unique to the
financial industry...? Consider the food industry... Obesity rates are soaring
around the entire world... Of course,... there are numerous other examples,
across a wide variety of goods and services, where one could find similar
issues. Here, though, I want to focus on the food industry’s link to broader
problems with contemporary capitalism...True, market forces have spurred
innovation, which has continually driven down the price of processed food, even
as the price of plain old fruits and vegetables has gone up. That is a fair
point, but it overlooks the huge market failure here. Consumers are provided
with precious little information through schools, libraries, or health
campaigns; instead, they are swamped with disinformation through advertising.
Conditions for children are particularly alarming..., children are co-opted by
channels paid for by advertisements...If our only problems were the food
industry causing physical heart attacks and the financial industry facilitating
their economic equivalent, that would be bad enough. But the pathological
regulatory-political-economic dynamic that characterizes these industries is
far broader. We need to develop new and much better institutions to protect
society’s long-run interests.Of course, the balance between consumer
sovereignty and paternalism is always delicate. But we could certainly begin to
strike a healthier balance than the one we have by giving the public far better
information across a range of platforms, so that people could begin to make
more informed consumption choices and political decisions.
Steve Loughna et
al, University of Kent: Economic Inequality Is Linked to Biased Self-Perception. People’s
self-perception biases often lead them to see themselves as better than the
average person (a phenomenon known as self-enhancement). This bias varies
across cultures, and variations are typically explained using cultural
variables, such as individualism versus collectivism. We propose that
socioeconomic differences among societies—specifically, relative levels of
economic inequality—play an important but unrecognized role in how people
evaluate themselves. Evidence for self-enhancement was found in 15 diverse
nations, but the magnitude of the bias varied. Greater self-enhancement was
found in societies with more income inequality, and income inequality predicted
cross-cultural differences in self-enhancement better than did
individualism/collectivism. These results indicate that macrosocial differences
in the distribution of economic goods are linked to microsocial processes of
perceiving the self.
AGING AND RETIREMENT
Machado, C. Sofia, Portela, IZA: Miguel
Hours of Work and Retirement Behavior. Using a novel dataset
from the 2006 Portuguese Labor Force Survey this paper examines the impact of a
voluntary reduction in hours of work, before retirement, on the moment of exit
from the labor force. If, as often suggested, flexibility in hours of work is a
useful measure to postpone retirement, then a reduction in working hours should
be associated with retirement at later ages. Results prove otherwise suggesting
that reducing hours of work before retirement is associated with early exits
from the labor force. A reduction in hours of work seems to signal the worker's
wish to retire sooner rather than to announce the desire of remaining in the
labor market.
David M. Cutler Ellen Meara Seth Richards-Shubik, Harvard University:
Healthy Life Expectancy: Estimates and Implications for Retirement Age Policy. The simultaneous
growth in longevity and mounting budget deficits in the U.S. have increased
interest in raising the age of eligibility for public health and retirement
benefits. The consequences of this policy depend on the health of the near
elderly, and on the distribution of health by demographic group. We first
describe healthy life expectancy at age 62 by sex, race, and education. Healthy
life expectancy varies widely within and across gender and race groups, with
the best-off groups enjoying nearly 4 more years of healthy life than less
well-off groups. We then simulate the capacity to work of near elderly
individuals (62-64 year-olds) based on the work, disability, and retirement
status of 57-61 year-olds reporting the same level of health. Our estimates
indicate that work capacity is substantial. The health status of 62-64
year-olds suggests their labor force participation could rise by over 15
percentage points without access to early Social Security retirement benefits,
while disability rates would increase modestly, by 3 percentage points. Still,
less advantaged groups such as those without any college education, would
experience a rise in disability rates that is twice as large, indicating the
uneven burden of changes in the age of eligibility.
