Lawrence
Summers, Washington Post: Why the Fed needs to prepare for the worst right now. Market signals should be taken especially seriously
when they are long-lasting and coming from many markets, as is the case with
current indications that inflation will not reach target levels within a decade
in the United States, Europe or Japan. Traditionally, international
developments have had only a limited impact on the U.S. and European economies
because their impact could be offset by monetary policy actions. Thus, the U.S.
economy grew robustly through the Asian financial crisis as the Fed brought
interest rates down. With rates essentially at zero in the industrial
countries, however, this option is no longer available, and foreign economic
problems are likely to have much more direct effects on economic performance.
BIS:
Where's the inflation, Mr Shin? Economists are still struggling to figure out the
full story on inflation. The simple stories that people tell are no longer
adequate. These simple stories are domestic and short-term: If the economy is
depressed, you have low inflation. If the economy is overheated, you have high
inflation. We are realising that this cannot be the full story. Otherwise we
should be seeing higher inflation by now.
Neil
Irwin, NYT: Why Negative Interest Rates Are Becoming the New Normal. What we’re learning from Europe about negative rates
and the nonexistence of the zero lower bound is an exemplar for a lot of
monetary experimentation over the last six years. Tools that existed as
academic thought experiments a decade ago are now becoming standard-issue parts
of the central banks’ policy tool kit. Strategies tried briefly by small
countries like Denmark are embraced by the giants of the world economy. It’s
just too bad we had to learn these lessons the hard way — through years upon
years of trial and error, with lots of economic suffering along the way.
Jeffrey
Clemens, NBER: The Minimum Wage and the Great Recession: Evidence from the
Current Population Survey.
I analyze recent federal minimum wage increases using the Current Population
Survey. The relevant minimum wage increases were differentially binding across
states, generating natural comparison groups. I first estimate a standard
difference-in-differences model on samples restricted to relatively low-skilled
individuals, as described by their ages and education levels. I also employ a
triple-difference framework that utilizes continuous variation in the minimum
wage's bite across skill groups. In both frameworks, estimates are robust to
adopting a range of alternative strategies, including matching on the size of
states' housing declines, to account for variation in the Great Recession's
severity across states. My baseline estimate is that this period's full set of
minimum wage increases reduced employment among individuals ages 16 to 30 with less
than a high school education by 5.6 percentage points. This estimate accounts
for 43 percent of the sustained, 13 percentage point decline in this skill
group's employment rate and a 0.49 percentage point decline in employment
across the full population ages 16 to 64.
Eduardo
Porter, NYT: For Immigrants, America Is Still More Welcoming Than Europe. So why is it that immigrants in the United States —
including those here illegally — have managed to integrate far more
successfully into the American economy and social fabric than foreigners
arriving to the relatively coddled states of the European Union, where they
often enjoy access right away to a panoply of rights and benefits? The
difference is worth pondering. More immigrants buy into the American dream than
do native-born Americans. The employment rate of immigrants is higher than that
of natives. One in four of the economically active is out of work in France and
one in three in Belgium and Sweden. And these poor employment prospects persist
down the generations. Youth joblessness among the European-born children of
immigrants is almost 50 percent higher than for those with native-born parents.
Employment is not the only barrier. Children from less-educated immigrant
families are much less likely to succeed at school in Europe than the sons and
daughters of natives, and much more likely to end up marginalized: out of
school and out of work. Immigrants feel discriminated against more often in
Europe. Perceived discrimination is particularly acute among the European-born
children of immigrants, who in several countries still do not qualify for automatic
citizenship.
Hugh
Macartney et al, Duke University: Education Production and Incentives. Our strategy exploits exogenous variation in the
incentive strength of a well-known federal accountability scheme, along with
rich administrative data covering all public school students in North Carolina.
We separately identify teacher effort and teacher ability to determine their
relative magnitudes contemporaneously, finding that a one standard deviation
increase in teacher ability is equivalent to 21 percent of a standard deviation
increase in student test scores, while an analogous change in teacher effort
accounts for 8 percent of such an increase. We then use prior incentive
strength to reject the hypothesis that the persistence of teacher ability and
effort is similar. To supplement our regression-based evidence, we set out a
complementary structural estimation procedure, showing that effort affects
future scores less than ability. From a policy perspective, our results
indicate that incentives matter when measuring teacher value-added.
Shilo
Rea, CMU: Not Mere Trickery: Effects of Behavioral Nudges Persist Despite
Disclosure. Nudging
people toward particular decisions by presenting one option as the default can
influence important life choices. However, many policymakers and some critics
of behavioral interventions have raised serious ethical concerns, arguing that
nudging people toward an option without their awareness is unethical, and that
defaults only work because people are not aware that they are being manipulated
by them. George Loewenstein investigated whether the common assumption that
defaults don’t work if people are aware of them is true. The researchers found
that warning people that they were about to be nudged, or informing them after
the fact and allowing them to change their decisions, did not significantly diminish
the effectiveness of the default option.
Stephen
J. Dubner, Freakonomics: The True Story of the Gender Pay Gap: A New
Freakonomics Radio Podcast. The big question of the gender pay gap has to be broken down into a
set of smaller questions. And then you have to find the data to answer them.
When someone like Claudia Goldin does that, it’s pretty obvious that the
statistic cited by everyone from Sarah Silverman to President Obama isn’t quite
right. Because women aren’t getting paid twenty-some percent less than men for
doing the same work. They are, however, often doing different work, or work
that affords more flexibility — which tends to pay less.
Larry
Summers: My views and the Fed’s views on secular stagnation. It has been two years since I resurrected Alvin
Hansen’s secular stagnation idea and suggested its relevance to current
conditions in the industrial world.
Unfortunately experience since that time has tended to confirm the
secular stagnation hypothesis. Secular
stagnation is a possibility. It is not an inevitability and it can be avoided
with strong policy. Unfortunately, the
Fed and other policy setters remain committed to traditional paradigms and so
are acting in ways that make secular stagnation more likely.
Joshua
Angrist et al, NBER: Leveling Up: Early Results from a Randomized Evaluation of
Post-Secondary Aid.
Our research design answers the challenges of aid evaluation with random
assignment of aid offers and a strong first stage for aid received: randomly
assigned aid offers increased aid received markedly. This in turn appears to
have boosted enrollment and persistence, while also shifting many applicants
from two- to four-year schools. Awards offered to nonwhite applicants, to those
with relatively low academic achievement, and to applicants who targeted
less-selective four-year programs (as measured by admissions rates) generated
the largest gains in enrollment and persistence, while effects were much
smaller for applicants predicted to have stronger post-secondary outcomes in
the absence of treatment. Thus, awards enabled groups with historically-low
college attendance to ʽlevel up,ʼ largely equalizing enrollment and persistence
rates with traditionally college-bound peers, particularly at four-year
programs.
Paul
Graham: Economic Inequality. Lots of people talk about economic inequality. Nearly all say it is
bad if economic inequality increases, and that it would be better if it
decreased. But economic inequality per se is not bad. It has multiple causes.
Many are bad, but some are good. For example, high incarceration rates and tax
loopholes are bad things that increase economic inequality. But startups also
increase economic inequality. A founder whose startup succeeds will end up with
stock worth a lot of money. And unlike high incarceration rates and tax
loopholes, startups are on the whole good. Since economic inequality per se is
not bad, we should not attack it. Instead we should attack the bad things that
cause it. For example, instead of attacking economic inequality, we should
attack poverty.
Philippe
Aghion et al, Harvard University: Innovation and Top Income Inequality. In this paper we use cross-state panel data to show
a positive and significant correlation between various measures of
innovativeness and top income inequality in the United States over the past
decades. Two distinct instrumentation strategies suggest that this correlation
(partly) reflects a causality from innovativeness to top income inequality, and
the effect is significant: for example, when measured by the number of patent
per capita, innovativeness accounts on average across US states for around 17%
of the total increase in the top 1% income share between 1975 and 2010. Yet, innovation
does not appear to increase other measures of inequality which do not focus on
top incomes.
Nelson
D. Schwartzjan, NYT: Economists Take Aim at Wealth Inequality. While the much-talked-about 1 percent is doing just
fine, the supersize gains are taking place even further up the income ladder,
according to what Mr. Bloom and four colleagues found by examining 35 years of
data from the Social Security Administration. The phenomenon is not limited to
Wall Street or the big banks — manufacturers rewarded their top executives
every bit as generously as did firms in the finance, insurance and real estate
sectors. And this pattern is being repeated in countries where the political
landscape is quite different from that of the United States, like Sweden,
Germany and Britain.
T
imothy
J. Hatton, University of Essex: Refugees, Asylum Seekers and Policy in OECD
Countries. There are
no easy solutions to the refugee crisis, and I think by now we all understand
that. We could do better. Making life miserable for asylum applicants is not
really going to do very much to stop them coming,” he said. “It’s not a
deterrent, so let’s put more effort into and resources into refugee welfare and
to integration policies for those that are accepted. And, in fact, many
countries have been doing that for the last 10, 15 years.
Susan
F. Martin, Donald G. Herzberg Professor of International Migration: Rethinking
Protection of those Displaced by Humanitarian Crises. Many millions more are displaced each year and
cumulatively from a much broader range of life-threatening humanitarian crises
than captured by UNHCR’s figures. An average of 26.4 million were displaced
annually by acute natural hazards since 2008 and an unknown but sizeable number
from gang and cartel violence, electoral and communal violence, nuclear and
industrial accidents, and a range of other human made disasters. This paper
argues for new legal, institutional and operational frameworks to more
effectively address the situation of the totality of displaced persons.
Jeffrey
D. Sachs, Earth Institute: Towards an International Migration Regime. Few if any issues in public policy are as muddled and
contentious as international migration. There is no international regime that
establishes standards and principles for national migration policies other than
in the case of refugees (migrants escaping persecution). My aim here is to
describe some economic and ethical principles that may underpin an
international migration regime.
Waldfogel,
J (1993), "The deadweight loss of Christmas", The American Economic
Review. Estimates
in this paper indicate that between a tenth and a third of the value of holiday
gifts is destroyed by gift-giving. .
Mark
Whitehouse, WSJ (2006): How Christmas
Brings Out The Grinch in Economists. Economists aren't suggesting Christmas be abolished.
Still, in the latest Wall Street Journal forecasting survey, more than two of
three economists opined that if Christmas ceased to exist as a holiday,
consumers would either spend more on themselves or spread their gift purchases
more evenly across other events such as birthdays. That, in the view of some
academics, would put more goods into the hands of people who truly value them
and improve social welfare as a result.
George
Loewenstein, Cass R. Sunstein, New Republic (2011): The Behavioral Economics of
Christmas. Luckily,
behavioral economics provides some straightforward lessons for gift-givers.
Don’t assume that other people like what you like. Beware of projecting your
current mood onto your purchasing decisions. Avoid unrealistic optimism: People
probably won’t react as enthusiastically as you expect. Focus on gifts that
will get frequent use, rather than immediate applause, only to disappear into
holiday-season purgatory. And unless you are dealing with people very close to
you, don’t assume that the gift will matter a whole lot. You’ll probably
remember it better than they will.
Matthew
Yglesias, Slate (2011): Do Not Buy Dad a Tie.
The
economist’s guide to giving Christmas presents that people actually want. The indisputable fact is that cash is the most
economically efficient gift. But cash is, in many cases, socially unacceptable,
which means you need to pursue an alternative approach. Here your best bet is
to show a taste for risk. The problem with presents is that you’re never going
to do a better job of satisfying the gift-recipient’s preferences than she
could do herself. But preference sets aren’t fixed. If someone had handed me
$10, I never would have spent it buying the Cults album, for the simple reason
that I hadn’t heard of the band. When it was given to me, I immediately checked
it out and loved it. When you step outside the circle of things you know for
sure your gift-getter likes, you risk creating a massive deadweight loss. (You
give her a ticket to Las Vegas, without knowing that she hates gambling.) But
with the greater risk comes a greater potential reward. You may introduce the
recipient to something marvelous she would otherwise have never encountered.
Giving stuff rather than cash is a way of saying you know better than the
recipient what she really wants. The riskier the present, the more likely it is
to generate significant benefit. (So, not a sweater).
The
Economist (2014): Less holy, more holly. "WE'RE more popular than Jesus now," John
Lennon boasted of The Beatles in 1966. Another shaggy superstar—Father
Christmas—can make a similar claim. Based on the number of times
"Santa" and "Jesus Christ" have been mentioned in
English-language books or journals, Mr Claus surpassed Jesus around the start
of 20th century. Secularists seem to have the wind at their back in other
respects, too. Book references to "Christmas" have steadily risen
over the past 200 years; mentions of "Christianity" itself have fallen,
closing the gap between the festivities and the religion that lies behind them.
The accoutrements of the modern Christmas, from the Christmas tree to the
Advent calendar, have appeared more frequently in books and journals in recent
decades (see chart below). Although the calendar has spiritual origins, its
real purpose now is to celebrate popular graphics.
Laura
Birg, Anna Goeddeke, VOX (2014): Christmas economics: Challenging some common
beliefs. Christmas
may be not so merry as we hope. Economists have argued that gift giving is an
inefficient way to allocate resources, and it is widely suggested that
Christmas brings a peak in prices and the number of suicides, or even disrupts
the business cycle. This column discusses some conventional wisdom about
Christmas and shows that economic research in fact runs counter to some of
these common beliefs.
Josh
Barro , NYT (2014): An Economist Goes Christmas Shopping.
David Autor of M.I.T. pointed to “revealed
preference”: If people give and receive so many gifts, it’s presumably because it
makes them happy. Alberto Alesina of Harvard said choosing a gift “is a signal
of intensity of search effort,” which is econo-speak for “it’s the thought that
counts.
Russell
Lynch, Evening Standard (2015): Economic Analysis: The economists' guide to
Christmas presents.
But if you don’t succumb to the world of the purely rational economic beings
who only exist in textbooks, and still want to buy a present instead of giving
your loved one a few tenners, what then? Gift vouchers may be the way to go, as
they come across as more thoughtful than a cash gift and avoid the stigma of
handing over notes, according to US economist Jennifer Offenberg. Offenberg
recommends that to play it safe and cut the risk of lost value you should buy
gift vouchers for general purpose stores (basically the vouchers as much like
cash as possible), while avoiding gift cards to more specialised chains like jewellers.
Sumit
Agarwal et al, NBER: Do Banks Pass Through Credit Expansions? The Marginal
Profitability of Consumer Lending During the Great Recession.
We examine the
ability of policymakers to stimulate household borrowing and spending during
the Great Recession by reducing banks’ cost of funds. Using panel data on 8.5
million U.S. credit card accounts and 743 credit limit regression
discontinuities, we estimate the marginal propensity to borrow (MPB) for
households with different FICO credit scores. We find substantial
heterogeneity, with a $1 increase in credit limits raising total unsecured
borrowing after 12 months by 59 cents for consumers with the lowest FICO scores
(≤ 660) while having no effect on consumers with the highest FICO scores (>
740). We estimate that a 1 percentage point reduction in the cost of funds
raises optimal credit limits by $127 for consumers with FICO scores below 660
versus $2,203 for consumers with FICO scores above 740. We conclude that banks’
MPL is lowest exactly for those households with the highest MPB, limiting the
effectiveness of policies that aim to stimulate the economy by reducing banks’
cost of funds.
Neil
Irwin, NYT: Why Negative Interest Rates Are Becoming the New Normal. What we’re learning from Europe about negative rates
and the nonexistence of the zero lower bound is an exemplar for a lot of
monetary experimentation over the last six years. Tools that existed as
academic thought experiments a decade ago are now becoming standard-issue parts
of the central banks’ policy tool kit. Strategies tried briefly by small
countries like Denmark are embraced by the giants of the world economy. It’s
just too bad we had to learn these lessons the hard way — through years upon
years of trial and error, with lots of economic suffering along the way.
Bradley
Speigner, BoE: Finding a Match. Is falling unemployment masking a broader
deterioration in UK labour market performance? The ease with which a typical
job seeker lands a job is a crucial indicator of the health of the labour
market, which cannot be fully inferred from just a casual glance at the
headline unemployment rate. It is true that unemployment has declined quite
rapidly recently. But this is because job openings have been unusually abundant
while the labour market’s capacity to match individual workers to available
jobs quickly has actually worsened. This capacity is referred to as matching
efficiency, and it started falling in the UK even before the 2008 recession.
Krishna
Regmi, Georgia College & State University: Examining the Externality of
Social Insurance: Unemployment Insurance and Children's Educational
Achievements. Exploiting
the large variation in the generosity of unemployment insurance (UI) benefits
across states and over time in the U.S., this paper investigates the link between
UI and children's academic outcomes. I use data from the Survey of Income and
Program Participation (SIPP) and the Current Population Survey (CPS), and create
two separate measures of academic outcomes: grade repetition, and high-school dropout
status, respectively. My estimates from the SIPP data show that a one percent
increase in maximum UI benefits decreases the probability of a child's grade
repetition by about 0.0005 percentage points, which is approximately 1.41
percent. Empirical finding from the CPS data is that a one percent increase in
maximum benefits reduces the probability that a student drops out of high
school by around 0.0018 percentage points, about 0.89 percent. This paper's findings,
which are the first in the literature to show evidence of a positive effect of
UI on children's educational outcomes, help us to understand the role of UI in
the human capital accumulation of children, and thus to devise an optimal level
of UI.
Eduardo
Porter, NYT: For Immigrants, America Is Still More Welcoming Than Europe. So why is it that immigrants in the United States —
including those here illegally — have managed to integrate far more
successfully into the American economy and social fabric than foreigners
arriving to the relatively coddled states of the European Union, where they
often enjoy access right away to a panoply of rights and benefits? The
difference is worth pondering. More immigrants buy into the American dream than
do native-born Americans. The employment rate of immigrants is higher than that
of natives. One in four of the economically active is out of work in France and
one in three in Belgium and Sweden. And these poor employment prospects persist
down the generations. Youth joblessness among the European-born children of
immigrants is almost 50 percent higher than for those with native-born parents.
Employment is not the only barrier. Children from less-educated immigrant
families are much less likely to succeed at school in Europe than the sons and
daughters of natives, and much more likely to end up marginalized: out of
school and out of work. Immigrants feel discriminated against more often in
Europe. Perceived discrimination is particularly acute among the European-born
children of immigrants, who in several countries still do not qualify for
automatic citizenship.
National
Academies of Sciences, Engineering, and Medicine: The Integration of Immigrants
into American Society. A committee of experts examined the available
research to assess how immigrants are integrating into American society in a
range of areas such as education, occupations, health, and language. As
immigrants and their descendants become integrated into U.S. society, many
aspects of their lives improve, including measurable outcomes such as
educational attainment, occupational distribution, income, and language
ability, but their well-being declines in the areas of health, crime, and
family patterns. At the same time, several factors impede immigrants’
integration into society, such as their legal status, racial disparities in
socio-economic outcomes, and low naturalization rates.
Sneha
Elango, Jorge Luis Garcia, James J. Heckman, Andres Hojman, NBER: Early
Childhood Education.
This paper organizes and synthesizes the literature on early childhood
education and childcare. In it, we go beyond meta-analysis and reanalyze
primary data sources in a common framework.
We consider the evidence from means-tested demonstration programs,
large-scale means-tested programs and universal programs without means testing.
We discuss which programs are beneficial and whether they are cost-effective
for certain populations. The evidence
from high-quality demonstration programs targeted toward disadvantaged children
shows beneficial effects. Returns exceed
costs, even accounting for the deadweight loss of collecting taxes. When proper policy counterfactuals are
constructed, Head Start has beneficial effects on disadvantaged children
compared to home alternatives. Universal programs benefit disadvantaged
children.
Michael Coelli, Domenico
Tabasso, IZA: Where Are the Returns to Lifelong Learning? We investigate the labour market determinants and
outcomes of adult participation in formal education (lifelong learning) in
Australia, a country with high levels of adult education. Employing
longitudinal data and fixed effects methods allows identification of effects on
outcomes free of ability bias. Different trends in outcomes across groups are
also allowed for. The impacts of adult education differ by gender and level of
study, with small or zero labour market returns in many cases. Wage rates only
increase for males undertaking university studies. For men, vocational
education and training (VET) lead to higher job satisfaction and fewer weekly
hours. For women, VET is linked to higher levels of satisfaction with
employment opportunities and higher employment probabilities.
Peter B. Berg et al, IZA:
The Relationship Between Establishment Training and the Retention of Older
Workers: Evidence from Germany .In the coming years, a substantial portion of Germany's workforce will
retire, making it difficult for businesses to meet human capital needs.
Training older workers may be a successful strategy for managing this
demographic transition. This study examines relationships between establishment
training programs, wages, and retirement among older men and women. Using
unique matched establishment-employee data from Germany, the authors find that
when establishments offer special training programs targeted at older workers,
women – and especially lower wage women – are less likely to retire. Results
suggest this relationship may be due to greater wage growth. For men, findings
suggest establishment offer of inclusion in standard training programs may
improve retention of low wage men, but analysis of pre-existing differences in
establishment retirement patterns suggests this relationship may not be causal.
Our research suggests targeted training programs likely play an important role
in retaining and advancing careers of low wage older women.
W.
Bradford Wilcox, Robert I. Lerman, Joseph Price, Brookings: Strong families,
prosperous states: Do healthy families affect the wealth of states? Economics has its roots in the Greek word oikonomia,
which means the “management of the household.” Yet economists across the
ideological spectrum have paid little attention to the links between household
family structure and the macroeconomic outcomes of nations, states, and
societies. This is a major oversight because, as this report shows, shifts in
marriage and family structure are important factors in states’ economic
performance, including their economic growth, economic mobility, child poverty,
and median family income.
Richard
V. Reeves, Brookings: Realism trumps purism. The report, Opportunity, Responsibility, and
Security: A Consensus Plan for Reducing Poverty and Restoring the American
Dream, is the result of a year’s work by scholars of different ideological
stripes and interests. Here are six of the ideas contained in the report which
could make a serious dent in poverty: 1. An increase in the minimum wage
(“large enough to substantially improve the rewards associated with work among
the less-skilled”). 2. Tougher work requirements in welfare, especially for
TANF and SNAP recipients. 3. More charter schools. 4. More resources to help
low-income students to and through college. 5. A clear public commitment to the
importance of marriage for raising children. 6. Greater access to contraception
and parenting support.
Raj
Chetty, Nathaniel Hendren, Harvard University: The Impacts of Neighborhoods on
Intergenerational Mobility Childhood Exposure Effects and County-Level
Estimates. To what
extent are children’s opportunities for upward economic mobility shaped by the
neighborhoods in which they grow up? We study this question using data from
de-identified tax records on more than five million children whose families
moved across counties between 1996 and 2012. The study consists of two parts.
In part one, we show that the area in which a child grows up has significant
causal effects on her prospects for upward mobility. In part two, we present
estimates of the causal effect of each county in the United States on a child’s
chances of success. Using these results, we identify the properties of high-
vs. low-opportunity areas to obtain insights into policies that can increase
economic opportunity.
Shilo
Rea, CMU: Not Mere Trickery: Effects of Behavioral Nudges Persist Despite
Disclosure. Nudging
people toward particular decisions by presenting one option as the default can
influence important life choices. However, many policymakers and some critics
of behavioral interventions have raised serious ethical concerns, arguing that
nudging people toward an option without their awareness is unethical, and that
defaults only work because people are not aware that they are being manipulated
by them. George Loewenstein investigated whether the common assumption that
defaults don’t work if people are aware of them is true. The researchers found
that warning people that they were about to be nudged, or informing them after
the fact and allowing them to change their decisions, did not significantly
diminish the effectiveness of the default option.
Ben
S. Bernanke, Brookings: Fed emergency lending.
We faced a
serious stigma problem during the recent crisis, and, collectively, the reforms
to the Fed’s lending authorities have probably made the problem worse. An
example is the effect of new reporting requirements. Dodd-Frank requires that
the identities of all borrowers (including non-emergency borrowers through the
discount window) be disclosed within two years, or within one year after the
termination of a lending program, whichever is earlier. In addition, the rule
approved this week confirms that the Fed must provide detailed information to
Congress about broad-based lending programs, including the names of borrowers,
within seven days—although, very importantly, the names of borrowers can be
kept confidential at the request of the Fed chairman. By increasing the risk of early disclosure of
borrowers’ identities, these requirements will probably reduce the willingness
of firms to borrow from the Fed in a panic and thus potentially impair the
effectiveness of the government’s crisis response.
Olivier
Blanchard, Jonathan D. Ostry, Atish R. Ghosh, Marcos Chamon, IMF: Are Capital
Flows Expansionary or Contractionary? It Depends What Kind. Theory suggests that, for a given policy rate, bond
inflows lead to currency appreciation and are contractionary, while non-bond
inflows lead to an appreciation but also to a decrease in the cost of
borrowing, and thus may be expansionary. The empirical evidence is broadly
supportive. Exogenous bond inflows appear to have on average small negative
effects on output, while exogenous non-bond inflows appear to have a positive
effect. Our analysis, if correct, has important implications for the use of
policy tools to deal with inflows. Different combinations of tools must be used
depending on the nature of the flows.
Ryan
A. Decker et al, NBER: Where Has All The
Skewness Gone? The Decline In High-Growth (Young) Firms In The U.S.
The pace of
business dynamism and entrepreneurship in the U.S. has declined over recent
decades. We show that the character of that decline changed around 2000. Since
2000 the decline in dynamism and entrepreneurship has been accompanied by a
decline in high-growth young firms. Prior research has shown that the sustained
contribution of business startups to job creation stems from a relatively small
fraction of high-growth young firms. The presence of these high-growth young
firms contributes to a highly (positively) skewed firm growth rate
distribution. In 1999, a firm at the 90th percentile of the employment growth
rate distribution grew about 31 percent faster than the median firm. Moreover,
the 90-50 differential was 16 percent larger than the 50-10 differential
reflecting the positive skewness of the employment growth rate distribution. We
show that the shape of the firm employment growth distribution changes
substantially in the post-2000 period. By 2007, the 90-50 differential was only
4 percent larger than the 50-10, and it continued to exhibit a trend decline
through 2011. The reflects a sharp drop in the 90th percentile of the growth
rate distribution accounted for by the declining share of young firms and the
declining propensity for young firms to be high-growth firms.
Matteo
Picchio, Sigrid Suetens, Jan van Ours, VOX: Labour supply effects of winning a
lottery. The
impact of wage and income shocks on labour supply is difficult to measure. Some
studies therefore use lottery prizes as an exogenous shock on income. This
column looks at the effect of the size of the prize won on employment status
and salaried earnings, using data from Dutch lotteries. The findings show that
lottery prizes lead to a reduction of working hours but not to a decrease in
the employment rate.
Yana
Galleny, Northwestern University: The Gender Productivity Gap. Using Danish matched employer-employee data, this
paper estimates the relative productivity of men and women and finds that the
gender “productivity gap” is 12 percent–seventy five percent of the 16 percent
residual pay gap can be accounted for by productivity differences between men
and women. I measure the productivity gap by estimating the efficiency units
lost in a firm-level production function if a laborer is female, holding other
explanatory covariates such as age, education, experience, and hours worked
constant. To study the mechanisms behind the 4 percent gap in pay that is
unexplained by productivity, I use data on parenthood and age. Mothers are paid
much lower wages than men, but their estimated productivity gap completely
explains their pay gap. In contrast, women without children are estimated to be
as productive as men but they are not compensated at the same rate as men. The
decoupling of pay and productivity for women without children happens during
their prime-child bearing years.
Eric
A. Hanushek, Jens Ruhose, Ludger Woessmann, NBER: Economic Gains for U.S.
States from Educational Reform. There is limited existing evidence justifying the economic case for
state education policy. Using newly-developed measures of the human capital of
each state that allow for internal migration and foreign immigration, we
estimate growth regressions that incorporate worker skills. We find that
educational achievement strongly predicts economic growth across U.S. states
over the past four decades. Based on projections from our growth models, we
show the enormous scope for state economic development through improving the
quality of schools. While we consider the impact for each state of a range of
educational reforms, an improvement that moves each state to the
best-performing state would in the aggregate yield a present value of long-run
economic gains of over four times current GDP.
Pernilla Andersson Joona,
Alma W. Lanninger, Marianne Sundström, IZA: Improving the Integration of
Refugees: An Early Evaluation of a Swedish Reform. This paper is an early evaluation of the Swedish
Establishment Reform which was enacted in 2010 with the goal of facilitating
and speeding up the integration of refugees and their family into the labor
market and the society. Our approach is to compare the outcomes of the
treatment group, which took part in establishment activities and arrived
between December 1, 2010 and December 31, 2011, to those of the comparison
group, which arrived in the eleven months preceding the Reform and participated
in municipal introduction programs, controlling for a rich set of observables, including
country of birth and date of residence permit. Outcomes are measured in terms
of employment and earnings in 2012 for the treatment group and in 2011 for the
comparison group. We find no significant difference in employment or earnings
between the treatment group and the comparison group
David
Halpern, The Behavioural Insights Team (BIT): Can psychology help reduce the
gap between the rich and poor kids? It is perhaps unsurprising to find that the link
between children’s test scores at age 11 and their likelihood of getting a
degree is swamped by family income. Putnam points out that a swath of variables
including income and capital inequality, associational life, intermarriage by
class, progressivity of taxation, and so on, all showed a steady rise in the
first two-thirds of the twentieth century in the USA, before all falling from
the mid-1960s. He argues that something big happened in society that led to
these seismic changes. He also notes that the economic indicators lag the
social ones, strongly suggesting that the causality runs from socio-political
to economic, not the other way around. Can we identify the subtle social-psychological
pathways involved, and to try to do something about them? A glimpse into one
such attempt has just been published in a great new special section in
Perspectives on Psychological Science, in which APS boldly makes the case for a
“Council of Psychological Science Advisors”. It includes pieces on child
development, schooling, public health and other issues, each combining latest
research with specific policy suggestions.
Lawrence
H. Summers, Harvard University: Conference - Making Sense of the Productivity
Slowdown. Peterson Institute for International Economics. If technical change is a major source of
dis-employment, it is hard to see how it could be a major source of
dis-employment without also being a major source of productivity improvement.
In part, if the technology is replacing people that means that productivity
should be expected to go up at least if you measure simple labor productivity.
And if more of that is happening than used to be happening, then you would expect
productivity to be rising more rapidly than it used to be rising. There is the
further wonkier, but not that wonky observation that if the lower tail of the
workforce is increasingly not working, than if you remove the least productive
people, the average productivity of those who remain should be increasing. So,
I think, the largest thing that I do not understand in this area, is how to
square the “new economy is producing substantial dis-employment” view, with the
“productivity growth is slowing” view.
Stephen
J. Dubner, Freakonomics: Does “Early Education” Come Way Too Late?
“Kids could be
really high achievers in terms of math and reading but gain nothing from our
program if they didn’t have these sort of sit-still skills. But on the other
hand if you were above average on these non-cognitive skills, you got huge
benefits from our program. So what does this mean? Well, for one thing, I think
it intuitively makes sense — that there’s a threshold for being able to learn.
If the kids can’t concentrate, it’s hard for them to learn and no matter how
hard the parents try it’s going to be hard to make gains. On the other hand,
what it’s really valuable for from the perspective of public policy is that it
really tells you where to target your resources.”
Roland
Fryer, NBER: What Makes Charter Schools Work? For Whom Do They Work Best? Charter schools one of the most innovative
developments in education reform in the past few decades.
James
Surowiecki, The New Yorker: The Rise and Fall of For-Profit Schools. Not
too long ago, for-profit colleges looked like the future of education.
Targeting so-called “nontraditional students”—who are typically older, often
have jobs, and don’t necessarily go to school full time—they advertised
aggressively to attract business, claiming to impart marketable skills that
would lead to good jobs. They invested heavily in online learning, which
enabled them to operate nationwide and to keep costs down….Today, the
for-profit-education bubble is deflating. Regulators have been cracking down on
the industry’s misdeeds—most notably, lying about job-placement rates. In May,
Corinthian Colleges, once the second-largest for-profit chain in the country,
went bankrupt. Enrollment at the University of Phoenix has fallen by more than
half since 2010; a few weeks ago, the Department of Defense said that it
wouldn’t fund troops who enrolled there. Other institutions have experienced
similar declines.
Paul
Krugman, NYT: Hyperglobalization and Global Inequality. I’ve mentioned before that I’m a big fan of work by
my CUNY colleague Branko Milanovic showing that if you look at income growth by
percentile of the whole world population for the past 25 years, you see “twin
peaks”: rapid growth near the middle, representing China’s middle class, and at
the top, representing the global elite, with a sag in the region representing
the OECD working class. But was it always thus? I asked Branko what a similar
picture looked like for the previous generation — and he has obliged.
Davide
Furceri, Prakash Loungani, IMF: Openness and Inequality: Distributional Impacts
of Capital Account Liberalization. It is well accepted that trade generates winners and
losers. The past few decades have seen increases not just in trade in goods and
services but trade in assets, as countries relax restrictions on the ability of
capital to flow across national boundaries. Surprisingly, while the impact of
trade in goods and services on inequality has been extensively studied, little
attention has been paid to the distributional impacts of opening up capital
markets. Our paper fills this gap. Using a data set for nearly 150 countries
from 1970 to 2010, we show that increases in capital account liberalization are
followed by increases in inequality, as measured by the Gini coefficient.
However, we also show two channels where evidence of this association is
limited: First, the impact of liberalization on inequality is smaller for
countries with higher levels of financial development and inclusion. Second,
the impact is also smaller in cases where the liberalization is not followed by
a crisis.
Henry
J. Aaron, Gary Burtless, Brookings: Potential Effects of the Affordable Care
Act on Income Inequality.
The Affordable Care Act (ACA) will improve the well-being and incomes of
Americans in the bottom fifth of the income distribution. Under our broadest
and most comprehensive income measure we project that incomes in the bottom
one-fifth of the distribution will increase almost 6%; those in the bottom
one-tenth of the distribution will rise more than 7%. These estimated gains
represent averages. Most people already have insurance coverage that will be
left largely unaffected by reform. Those who gain subsidized insurance will see
bigger percentage gains in their income.
Jesper
Roine, Ekonomistas: Är det verkligen sant att ”vi arbetar mer än någonsin och
mår dåligt”? Vi arbetar
mer än någonsin och mår dåligt. Så varför ska vi ens – när maskinerna kan sköta
jobbet – bry oss?”. Så börjar en uppmärksammad intervju med Roland Paulsen i modemagasinet
Bon som publicerades häromveckan. Den inledningen har två iögonfallande fel och
antyder dessutom en tredje missuppfattning om vad ”arbete” betyder. Det första
och mest uppenbara felet har förstås att göra med konstaterandet att vi
”arbetar mer än någonsin”.
Abhijit Banerjee, Esther Duflo,
NBER: Under the Thumb of History? Political Institutions and the Scope for
Action. This paper discusses the two leading views of
history and political institutions. For some scholars, institutions are mainly
products of historical logic, while for others, accidents, leaders, and
decisions have a significant impact. We argue that while there is clear
evidence that history matters and has long-term effects, there is not enough
data to help us distinguish between the two views. Faced with this uncertainty,
what is a social scientist to do? We argue that given the possibility that
policy decisions indeed make a difference, it makes sense to assume they do and
to try to improve policymaking
Thomas
Klitgaard, Patrick Russo, Fed NY: The Importance of Commodity Prices in Understanding
U.S. Import Prices and Inflation. A breakdown by
type of good shows that import prices for autos, consumer goods, and capital
goods tend not to move much with changes in the dollar as foreign firms choose
to keep the prices of their goods stable in the U.S. market. Instead, the
connection between import prices and the dollar largely reflects the tendency
for commodity prices to fall in dollar terms when the dollar strengthens. As a
consequence, the dampening effect of a stronger dollar on U.S. inflation is
transmitted much more through falling commodity prices than through cheaper
imported cars and consumer goods.
Richard
Baldwin et al, VOX: Rebooting the Eurozone: Step 1 – Agreeing a Crisis
narrative. The
Eurozone needs fixing, but it is impossible to agree upon the steps to be taken
without agreement on what went wrong. This column introduces a new CEPR Policy
Insight that presents a consensus-narrative of the causes of the EZ Crisis. It
was authored by a dozen leading economists from across the spectrum. The
consensus narrative is supported by a long and growing list of economists.
Gopi
Shah Goda, Shanthi Ramnath, John B. Shoven, Sita Nataraj Slavov, NBER: The
Financial Feasibility of Delaying Social Security: Evidence from Administrative
Tax Data. Despite
the large and growing returns to deferring Social Security benefits, most
individuals claim Social Security before the full retirement age, currently age
66. In this paper, we use a panel of administrative tax data on likely primary
earners to explore some potential hypotheses of why individuals fail to delay
claiming Social Security, including liquidity constraints and private
information regarding one’s expected future lifetime. We find that
approximately 31-34% of beneficiaries who claim prior to the full retirement
age have assets in Individual Retirement Accounts (IRAs) that would fund at
least 2 additional years of Social Security benefits, and 24-26% could fund at
least 4 years of Social Security deferral with IRA assets alone. Our analysis
suggests that these percentages would be considerably higher if other assets
were taken into account. We find evidence that those who claim prior to the
full retirement age have higher subjective and actual mortality rates than
those who claim later, suggesting that private information about expected
future lifetimes may influence claiming behavior.
Lisa
D. Cook, Trevon D. Logan, John M. Parman, VOX: Black names: Past, present, and
future. Much research
has gone into trying to establish a connection in the US between having a
distinctively black name and disadvantage over a lifetime. This column
highlights a striking difference between the historical effects of having a
black name and today’s effects. While modern black names show up in modern
empirical studies as an albatross around the neck of those possessing them,
either because those with such names come from worse socioeconomic conditions
or face discrimination later in life, historical black names conveyed a large
advantage accumulating over an individual’s lifetime.
Bonnie
Brimstone, Institute for Fiscal Studies: Graduates who went to private schools
earn more than graduates who did not. Graduates who
went to private schools earn substantially more than those who went to state
schools. Part of that difference is explained by the fact that, on average,
they attend more prestigious universities and study subjects which tend to be
more highly rewarded. But even amongst graduates who went to the same university
to study the same subject and who left with the same degree class, those who
went to private schools still earn 7% more, on average, three and a half years
after graduation than their state-educated contemporaries.
Gary
Becker Milton Friedman Institute for Research in Economics. Understanding Inequality and
What to Do About It.
Differing education, environments, interactions drive unequal outcomes, experts
say. Income inequality has been growing around the globe in recent decades,
with the steepest spikes seen in the United States. Few issues are more
gripping than the question of inequality in society, yet we don’t fully
understand the mechanisms driving the increase. A recent panel (Thomas Piketty,
Steven Durlauf, Kevin Murphy) discussion on the University of Chicago campus
brought together experts who have been studying the question for decades to
explore the forces driving inequality and possible policy responses.
William
G. Gale, Melissa S. Kearney, Peter R. Orszag, Brookings: Would a significant
increase in the top income tax rate substantially alter income inequality?
The high level
of income inequality in the United States is at the forefront of policy
attention. This paper focuses on one potential policy response: an increase in
the top personal income tax rate. We conduct a simulation analysis using the
Tax Policy Center (TPC) microsimulation model to determine how much of a
reduction in income inequality would be achieved from increasing the top
individual tax rate to as much as 50 percent. We calculate the resulting change
in income inequality assuming an explicit redistribution of all new revenue to
households in the bottom 20 percent of the income distribution. The resulting
effects on overall income inequality are exceedingly modest. That such a
sizable increase in top income tax rates leads to such a limited reduction in
income inequality speaks to the limitations of this particular approach to
addressing the broader challenge. To be sure, our results do not speak to the
general desirability of a more progressive tax-and-transfer schedule, just to
the fact that even a significant tax increase on high-income households and
corresponding transfer to low-income households has a small effect on overall
inequality.
Lori
Chandler, Big Think: Why We Need Friends Now More Than Ever. In an age obsessed with popularity, where how many
friends you have on social media has become a bragging right, one has to stop
and wonder: What are the value of friends, and can’t we have too many? Many of
us are familiar with Dunbar’s Number, which states that we can only maintain 150
relationships in our minds at any given time in our lives. But many experts say
we are better off with a quality-over-quantity attitude, which may come as a relief
to those of us who, after the gotta-collect-’em-all approach of our 20s, have
entered a phase of wanting fewer, but closer friends.
Olivier
Blanchard, Eugenio Cerutti, Lawrence Summers NBER: Inflation and Activity – Two
Explorations And Their Monetary Policy Implications. We explore two issues triggered by the crisis. First,
in most advanced countries, output remains far below the pre-recession trend,
suggesting hysteresis. Second, while inflation has decreased, it has decreased less
than anticipated, suggesting a breakdown of the relation between inflation and activity.
To examine the first, we look at 122 recessions over the past 50 years in 23
countries. We find that a high proportion of them have been followed by lower
output or even lower growth. To examine the second, we estimate a Phillips
curve relation over the past 50 years for 20 countries. We find that the effect
of unemployment on inflation, for given expected inflation, decreased until the
early 1990s, but has remained roughly stable since then. We draw implications
of our findings for monetary policy.
Sascha
O. Becker, Marc-Andreas Muendler, U Warwick and CEPR: Trade and Tasks: An
Exploration over Three Decades in Germany. This paper combines representative worker-level data
that cover time-varying job-level task characteristics of an economy over
several decades with sector-level bilateral trade data for merchandise and
services. We carefully create longitudinally consistent workplace
characteristics from the German Qualification and Career Survey 1979-2006 and
prepare trade flow statistics from varying sources. Four main facts emerge: (i)
intermediate inputs constitute a major share of imports and dominate German
imports since at least the 1970s; (ii) the German workforce increasingly
specializes in workplace activities and job requirements that are typically considered
non-offshorable, mainly within and not between sectors and occupations; (iii) the
imputed activity and job requirement content of German imports grows relatively
more intensive in work characteristics typically considered offshorable; and
(iv) labour-market institutions at German trade partners are largely unrelated
to the changing task content of German imports but German sector-level outcomes
exhibit some covariation consistent with faster task offshoring in sectors
exposed to lower labour-market tightness.
David
J. Deming, NBER: The Growing Importance of Social Skills in the Labor Market. The slow growth of high-paying jobs in the U.S.
since 2000 and rapid advances in computer technology have sparked fears that
human labor will eventually be rendered obsolete. Yet while computers perform
cognitive tasks of rapidly increasing complexity, simple human interaction has
proven difficult to automate. In this paper, I show that the labor market
increasingly rewards social skills. Since 1980, jobs with high social skill
requirements have experienced greater relative growth throughout the wage
distribution. Moreover, employment and wage growth has been strongest in jobs
that require high levels of both cognitive skill and social skill. To
understand these patterns, I develop a model of team production where workers
“trade tasks” to exploit their comparative advantage. In the model, social
skills reduce coordination costs, allowing workers to specialize and trade more
efficiently. The model generates predictions about sorting and the relative
returns to skill across occupations, which I test and confirm using data from
the NLSY79. The female advantage in social skills may have played some role in
the narrowing of gender gaps in labor market outcomes since 1980.
John Gibson et al, IZA: The
Long-Term Impacts of International Migration: Evidence from a Lottery. We examine the long-term impacts of international
migration by comparing immigrants who had successful ballot entries in a
migration lottery program, and first moved almost a decade ago, with people who
had unsuccessful entries into those same ballots. The long-term gain in income
is found to be similar in magnitude to the gain in the first year, despite
migrants upgrading their education and changing their locations and
occupations. This results in large sustained benefits to their immediate
family, who have substantially higher consumption, durable asset ownership,
savings, and dietary diversity. In contrast we find no measureable impact on
extended family.
Giacomo
De Giorgi, Maxim Pinkovskiy, NY FED: Health Inequality. The income gradient of health is increasing over the
time period considered: in 1989, a 10 percent increase in personal income (at
the county level) would be associated with an increase in life expectancy of
about 0.29 years; the same association increases to 0.57 years in 2007. From this result, we conclude that raising
life expectancy out of the lower tail would be a much more welfare-improving
intervention than fully equalizing consumption. (We get analogous results if we
ask by how much the decision maker would need to have all consumption levels
raised in order to be indifferent between the current consumption and life
expectancy distribution and the proposed intervention).
Carol
Graham, Julia Ruiz Pozuelo, Brookings: Is happiness just a matter of waiting
for the right age?
Happiness declines with age for about two decades from early adulthood up until
roughly the middle-age years, and then turns upward and increases with age.
Although the exact shape differs across countries, the bottom of the curve (or,
the nadir of happiness) ranges from 40 to 60 plus years old. We explored how
this relationship varies across countries throughout the world, based on
nationally representative household surveys, again from Gallup data
(2005-2014), with observations per country pooled over the years, with an
average of 6,400 observations per country. We find that curves turn earlier in
happier places. This means that in those places, people have more happy life
years on average. Examples of this are Australia, the United Kingdom, or
Denmark, where turning points are around 44 years old. By contrast, countries that rank among the
lowest in happiness, such as Russia, Poland, and Kosovo, have curves with
higher turning points—from 61 to as high as 75 years in Russia! Even more
worrisome is the fact that these countries also exhibit lower life expectancy
(from 71 years in Russia and Kosovo to 77 in Poland), which means that there is
just less happy life overall.
