MAY 22 2015

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.

Janet C. Gornick,  Branko Milanovic, LIS: Income Inequality in the United States in Cross-National Perspective: Redistribution Revisited. Our key point is that, when we estimate population-wide redistribution levels (as in Figure 1), the lesser reliance on income transfers by older American households reduces the overall level of redistribution in the US relative to other countries. Once older households are removed, market income inequality (for the working age population) in the US is seen to be comparatively high – higher than we would conclude from Figure 1 alone.

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.