MARCH 3 2016

Larry Summers, Capital Ideas Blog: Four common-sense ideas for economic growth. Let me begin with two facts that I think should be cause for concern. First, since the summer of 2009, the US economy has grown at about 2 percent. Two percent isn't a very good growth rate. Second, the 10-year interest rate at the end of trading today ... was just a bit below 1.8 percent. ...What’s the way to think about these two facts together? I believe that we are dealing with a situation that goes beyond the usual cyclical issues associated with recession—and for many years the policy debate has been confounded by that. The Fed has been substantially too optimistic in its one-year-ahead forecast every year for the last six, and its forecasts are pretty close to the consensus forecasts. The prevailing expectation in markets has always been that significant tightening will take place in nine months. That’s been true for the last six years. It has not happened yet.

Srdan Tatomir, BoE: How do firms adjust to falls in demand? One important aspect of adjusting labour costs is via workers’ pay. When asked which methods of adjustment became more difficult over time, firms reported the striking result that they were less able to change wages. During 2010-2013, many firms experienced falls in demand and had to adjust wages downwards.  When wages are perfectly flexible, the distribution of wage changes should be symmetric.  But when there is DNWR, there will be a floor at 0%. According to the survey, the overall incidence of wage freezes was relatively high at around 25% of firms in 2010, although by 2014 this had fallen to around 10%. 

Giovanni Ganelli, Juha Tervala, IMF: The Welfare Multiplier of Public Infrastructure Investment. We analyze the welfare multipliers of public spending (the consumption equivalent change in welfare for one dollar change in public spending) in a DSGE model. The welfare multipliers of public infrastructure investment are positive if infrastructure is sufficiently effective. When the medium-term output multipliers are consistent with the empirical estimates (1-1.4), the welfare multiplier is 0.8. That is, a dollar spent by the government for investment raises domestic welfare by equivalent of 0.8 dollars of private consumption. This suggests that the welfare gains of public infrastructure investment, if chosen wisely, may be substantial.

Anna Louie Sussman, WSJ: How a Less-Skilled American Workforce May Be Holding Back Growth. Theories abound as to why U.S. productivity growth has stalled. Economists attribute it to everything from a slowdown in business investment to inadequate measurement techniques that fail to capture efficiency gains from new technologies. A recent research note from J.P. Morgan Chase offers another theory: It’s at least partly because the American workforce as a whole is simply less skilled than it used to be.

Stephen B. Billings, David J. Deming, Stephen L. Ross, NBER: Partners in Crime: Schools, Neighborhoods and the Formation of Criminal Networks. Why do crime rates differ greatly across neighborhoods and schools? Comparing youth who were assigned to opposite sides of newly drawn school boundaries, we show that concentrating disadvantaged youth together in the same schools and neighborhoods increases total crime. We then show that these youth are more likely to be arrested for committing crimes together – to be “partners in crime”. Our results suggest that direct peer interaction is a key mechanism for social multipliers in criminal behavior. As a result, policies that increase residential and school segregation will – all else equal – increase crime through the formation of denser criminal networks.

Bernt Bratsberg, Oddbjørn Raaum, Knut Røed, IZA: Job Loss and Immigrant Labor Market Performance. While integration policies typically focus on labor market entry, we present evidence showing that immigrants from low-income countries tend to have more precarious jobs, and face more severe consequences of job loss, than natives. For immigrant workers in the Norwegian private sector, the probability of job loss in the near future is twice that of native workers. Using corporate bankruptcy for identification, we find that the adverse effects of job loss on future employment and earnings are more than twice as large for immigrant employees.

Mevlude Akbulut-Yuksel, Adriana Kugler, IZA: Intergenerational Persistence of Health in the U.S.: Do Immigrants Get Healthier as They Assimilate? It is well known that a substantial part of income and education is passed on from parents to children, generating substantial persistence in socio-economic status across generations. In this paper, we examine whether another form of human capital, health, is also largely transmitted from generation to generation, contributing to limited socio-economic mobility. We find that the longer immigrants remain in the U.S., the less intergenerational persistence there is and the more immigrants look like native children. Unfortunately, the more generations immigrant families remain in the U.S., the more children of immigrants resemble natives' higher weights, higher BMI and increased propensity to suffer from asthma.