JANUARY 15 2016

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.