Kenneth
Rogoff , Project Syndicate: Crypto-Fool’s Gold? The price of Bitcoin is up 600% over the past 12 months, and 1,600% in
the past 24 months. But the long history of currency tells us that what the private sector
innovates, the state eventually regulates and appropriates – and there is no
reason to expect virtual currency to avoid a similar fate.
Francesca Gino,
Harvard Business Review: The Rise of Behavioral Economics and Its Influence on
Organizations. Nudges can solve
all sorts of problems governments and businesses alike consider important. Here
are some examples. A few years ago, for instance, General Electric’s leaders
wanted to address the issue of smoking, believing that it impacted its
employees negatively. So, in collaboration with Kevin Volpp and his co-authors,
they conducted a randomized controlled trial (think: field experiment).
Employees in the treatment group each received $250 if they stopped for six
months and $400 if they stopped for 12 months. Those in the control group did
not receive any incentive. The
researchers found that the treatment group had three times the success rate of
the control, and that the effect persisted even after the incentives were
discontinued after 12 months. Based on this work, GE changed its policy
and started using this approach for its then-152,000 employees.
Vitor Gaspar,
Mercedes Garcia-Escribano, IMF: Inequality: Fiscal Policy Can Make the
Difference. Fiscal policy accounts for a large share of
differences in inequality across countries. In advanced economies, fiscal
policy offsets about a third of income inequality before taxes and transfers—commonly
known as market income inequality—with 75 percent coming from transfers.
Spending on education and health also affects market income inequality over
time by promoting social mobility, including across generations. In developing
economies, fiscal redistribution is much weaker, given lower and less
progressive taxes and spending
Eduardo Porter,
NYT: Why Big Cities Thrive, and Smaller Ones Are Being Left Behind. The dismal performance is not surprising. Built on
coal and steel, Steubenville and Weirton were ill suited to survive the
transformations brought about by globalization and the information economy.
They have been losing population since the 1980s. To prove his point, Mr. Muro
compared the 100 largest metropolitan areas in the country, those with
populations above 550,000, with the 182 smallest, which have populations
ranging from 80,000 to about 215,000. The difference in performance widened: Private employment grew almost
twice as fast in large metropolitan areas as it did in small ones from the
trough of the recession, in 2009, to 2015. Income grew 50 percent faster. And
the labor participation rate — the share of the working-age population in the
labor force — shrank only half as much. “Economic transitions work against
smaller America.”
Atila
Abdulkadiroglu, Parag A. Pathak, Jonathan Schellenberg, Christopher R. Walters,
NBER: Do Parents Value School Effectiveness? School choice may lead to improvements in school productivity if
parents' choices reward effective schools and punish ineffective ones. This
mechanism requires parents to choose schools based on causal effectiveness
rather than peer characteristics. We study relationships among parent
preferences, peer quality, and causal effects on outcomes for applicants to New
York City's centralized high school assignment mechanism. We use applicants'
rank-ordered choice lists to measure preferences and to construct
selection-corrected estimates of treatment effects on test scores and high
school graduation. We also estimate impacts on college attendance and college
quality. Parents prefer
schools that enroll high-achieving peers, and these schools generate larger
improvements in short- and long-run student outcomes. We find no relationship
between preferences and school effectiveness after controlling for peer quality.
Petra Thiemann,
Lund University and IZA: The Persistent Effects of Short-Term Peer Groups in
Higher Education. This paper
demonstrates that short-term peer exposure can generate achievement effects which
persist for several months and years. I study a mandatory freshmen week for
firstyear undergraduates and exploit the random assignment of students to
freshmen teams. I find
that the freshmen week contributes to the formation of persistent social ties.
Furthermore, peers’ observable characteristics impact college achievement for
up to three years. Ability peer effects are non-linear, i.e. very high
or low levels of average peer ability in a group harm students’ grades. These
effects are most pronounced for low-ability students.
Josue Ortega,
Philipp Hergovich, University of Essex: The Strength of Absent Ties: Social
Integration via Online Dating. We used to
marry people to which we were somehow connected to: friends of friends,
schoolmates, neighbours. Since we were more connected to people similar to us,
we were likely to marry someone from our own race. However, online dating has
changed this pattern: people who meet online tend to be complete strangers.
Given that one-third of modern marriages start online, we investigate
theoretically, using random graphs and matching theory, the effects of those
previously absent ties in the diversity of modern societies. We find that when a society
benefits from previously absent ties, social integration occurs rapidly, even
if the number of partners met online is small. Our findings are consistent with
the sharp increase in interracial marriages in the U.S. in the last two decades.
Eran Yashiv, VOX:
The value of top footballers, bubbles, and pitfalls of the free market. The €222 million transfer of Neymar to PSG calls
into question whether football superstars are a good investment. Using the financial details of
the transfer, this column argues that, at the price paid, Neymar has a negative
net present value. While there are other explanations for PSG's
willingness to pay, in purely economic terms his contract seems a bad
investment. Policymakers might use this type of calculation to justify
intervening in the transfer market through regulation and taxation.
Larry Summers:
Central Bank Independence. It is clear in a
way that was not the case prior to the financial crisis that central bank
policy is about much more than turning an interest rate dial. Much of what is new, is by its nature,
political and in need of integration with other policies. I suspect that over time we will
see some “drawing closer together” of Treasuries and central banks and perhaps
more devices like inflation targets where politically accountable officials
establish frameworks in which central banks can act. And central bankers will
find themselves in closer consultation with governments and engaged in more
joint endeavors. The end of debate over central bank mandates, like the
debate over the end of history, is destined to go on for a long time.
Youssef Benzarti,
Dorian Carloni, NBER: Who Really Benefits from Consumption Tax Cuts? Evidence
from a Large VAT Reform in France. In this paper we evaluate the incidence of a large cut in value-added
taxes (VAT) for French sit-down restaurants. In contrast to previous studies
that focus on prices only, we estimate its effect on four groups: workers, firm
owners, consumers and suppliers of material goods. Using a difference-in-differences strategy on
firm-level data we find that: (1) the effect on consumers was limited, (2)
employees and sellers of material goods shared 25 and 16 percent of the total
benefit, and (3) the reform mostly benefited owners of sit-down restaurants,
who pocketed 41 percent of the tax cut.
Brad Hershbein,
Lisa B. Kahn, Harvard Business Review: Drastically Changed the Skills Employers
Want. Previous research has suggested that a primary driver
of this job polarization is something called routine-biased technological
change (RBTC). In recent research we investigate how the demand for skills
changed over the Great Recession (2007-09). Using nearly all electronically
posted job vacancies in 2007 and 2010–2015 collected by the analytics company
Burning Glass Technologies, as well as geographic differences in economic
conditions, we establish a new fact: the skill requirements of job ads increased in metro areas that
suffered larger employment shocks in the Great Recession, relative to the same
areas before the shock and to other areas that experienced smaller shocks.
Our estimates imply that ads posted in a hard-hit metro area are about 5
percentage points (16%) more likely to contain education and experience
requirements and about 2–3 percentage points (8‒12%) more likely to include
requirements for analytical and computer skills.
Anne Boschini,
Kristin Gunnarsson, Jesper Roine, IZA: Women in Top Incomes: Evidence from
Sweden 1974–2013. Using a large, register-based panel data set
we study gender differences in top incomes in Sweden over the period 1974–2013.
We find that, while women
are still a minority of the top decile group, and make up a smaller share the
higher up in the distribution we move, their presence has steadily increased in
all top groups over the past four decades. Top income women are
wealthier and rely more on capital incomes, but the difference, relative to
men, has decreased since the 1970s. Over this period capital incomes have in
general become more important in the top, but the share of working-rich women
has gone up, while the opposite is true for men.
Jamie Cullen, The
Atlantic: When Working From Home Doesn’t Work. The expectation was that information technology would flatten the
so-called Allen Curve. But Ben Waber, a visiting scientist at MIT, recently
found that it hasn’t. The
communications tools that were supposed to erase distance, it turns out, are
used largely among people who see one another face-to-face. In one study
of software developers, Waber, working alongside researchers from IBM, found
that workers in the same office traded an average of 38 communications about
each potential trouble spot they confronted, versus roughly eight
communications between workers in different locations.
The Optimizing
Government Project: This Project draws
together researchers from across the University of Pennsylvania and the
Philadelphia area to collaborate on studying the implementation of machine
learning by government. The project aims to assess the technical, legal, ethical, and political
challenges associated with machine learning in government, promoting
collaboration between government, the private sector, and the academy.
Carlos Carvalho, Andrea
Ferrero, Fernanda Nechio, San Francisco FED: Demographic Transition and Low
U.S. Interest Rates. Interest rates
have been trending down for more than two decades. One possible explanation is
the dramatic worldwide demographic transition, with people living longer and
population growth rates declining. This demographic transition in the United States—particularly the
steady increase in life expectancy—put significant downward pressure on
interest rates between 1990 and 2016. Because demographic movements tend to be
long-lasting, their ongoing effects could keep interest rates near the lower
bound longer. This has the potential to limit the scope for central
banks to respond to future recessionary shocks.
Claire Cain
Miller, NYT: How Did Marriage Become a Mark of Privilege? Marriage, which used to be the default way to form a
family in the United States, regardless of income or education, has become yet
another part of American life reserved for those who are most privileged. Fewer Americans are marrying
over all, and whether they do so is more tied to socioeconomic status than ever
before. In recent years, marriage has sharply declined among people without
college degrees, while staying steady among college graduates with higher
incomes. Currently, 26 percent of poor adults, 39 percent of
working-class adults and 56 percent of middle- and upper-class adults ages 18
to 55 are married, according to a research brief published from two think
tanks, the American Enterprise Institute and Opportunity America.
George J. Borjas,
LaborEcon, Who Emigrates From Denmark? The paper makes a neat theoretical contribution. It derives the
conditions that determine whether the skill distribution of the emigrants
stochastically dominates (or is stochastically dominated by) the skill
distribution of the stayers. Because
the rewards to skills in Denmark are low (relative to practically all possible
destinations), the model predicts that the emigrants will be positively
selected, and that the skill distribution of the movers will stochastically
dominate that of the stayers. Our analysis of administrative data for the
entire Danish population between 1995 and 2010 strongly confirms the
implications of the model. Denmark is indeed seeing an outflow of its most
skilled workers. And that is one of the consequences that a very generous
welfare state must learn to live with.
World Bank warns
of 'learning crisis' in global education. Millions of young students in low and middle-income countries face the
prospect of lost opportunity and lower wages in later life because their
primary and secondary schools are failing to educate them to succeed in life.
Warning of ‘a learning crisis’ in global education, a new Bank report said
schooling without learning was not just a wasted development opportunity, but
also a great injustice to children and young people worldwide. According to the
report, when third grade
students in Kenya, Tanzania, and Uganda were asked recently to read a sentence
such as “The name of the dog is Puppy” in English or Kiswahili, three-quarters
did not understand what it said. In rural India, nearly three-quarters of
students in grade 3 could not solve a two-digit subtraction such as “46 – 17”—and
by grade 5, half still could not do so.
Erik Brynjolfsson,
Daniel Rock Chad Syverson, MIT Sloan School of Management: Artificial
Intelligence and the Modern Productivity Paradox: A Clash of Expectations and
Statistics. Systems using artificial intelligence match or surpass
human level performance in more and more domains, leveraging rapid advances in
other technologies and driving soaring stock prices. Yet measured productivity
growth has fallen in half over the past decade, and real income has stagnated
since the late 1990s for a majority of Americans. We describe four potential
explanations for this clash of expectations and statistics: false hopes, mismeasurement,
redistribution, and implementation lags. While a case can be made for each
explanation, we argue that lags
are likely to be the biggest reason for paradox. The most impressive
capabilities of AI, particularly those based on machine learning, have not yet
diffused widely. More importantly, like other general purpose technologies,
their full effects won’t be realized until waves of complementary innovations
are developed and implemented. A portion of the value of this intangible
capital is already reflected in the market value of firms. However, most
national statistics will fail to capture the full benefits of the new
technologies and some may even have the wrong sign.
Digitopoly:
Remarks from Daniel Kahneman on AI and deep learning (video). Kahnemans brilliant comments starts by stating that
AI and deep learning have developed much faster the last eight years than
anyone would have expected. There is no reason that AI could not perform
anything that a human mind could. On the contrary, human brains are very random
noisy and always do different predictions on the same question. Already AI do better predictions
and decisions in most areas, and humans should be replaced with machines as
soon as possible. AI will excel in logic, emotional intelligence and wisdom
very soon. Most elderly will prefer being taking care of by a nice robot
instead of a grumpy child or relative.
Sam Benson Smith,
Readers Digest: Why September Babies Are More Successful, According to Science. At young ages, this natural several-month leg-up is
crucial, as childhood development grows in leaps and bounds relative to any
other time in one’s life. The National Bureau of Economic Research conducted
the study which confirmed the cutoff-date advantage, taking into account
success metrics of the observed children (ages 6 to 15). Children born in September were
more likely to get into a better college, more likely to have higher overall
test scores, and were less likely to be incarcerated for crimes. As a
child’s birthdate got farther and farther from September, college quality
dropped, test scores dipped, and incarceration rates climbed.
Chiranjit
Chakraborty, Andreas Joseph, BoE: Machine learning at central banks. We present popular modelling approaches, such as
artificial neural networks, tree-based models, support vector machines,
recommender systems and different clustering techniques. Important concepts like
the bias-variance trade-off, optimal model complexity, regularisation and
cross-validation are discussed to enrich the econometrics toolbox in their own
right. We present three case studies relevant to central bank policy, financial
regulation and economic modelling more widely. First, we model the detection of
alerts on the balance sheets of financial institutions in the context of
banking supervision. Second, we perform a projection exercise for UK CPI
inflation on a medium-term horizon of two years. Here, we introduce a simple
training-testing framework for time series analyses. Third, we investigate the
funding patterns of technology start-ups with the aim to detect potentially
disruptive innovators in financial technology. Machine learning models generally outperform traditional
modelling approaches in prediction tasks, while open research questions remain
with regard to their causal inference properties.
Wolfgang Dauth,
Sebastian Findeisen, Jens Südekum, Nicole Woessner, VOX: The rise of robots in
the German labour market. Recent research
has shown that industrial robots have caused severe job and earnings losses in
the US. This column explores the impact of robots on the labour market in
Germany, which has many more robots than the US and a much larger manufacturing
employment share. Robots
have had no aggregate effect on German employment, and robot exposure is found
to actually increase the chances of workers staying with their original
employer. This effect seems to be largely down to efforts of work
councils and labour unions, but is also the result of fewer young workers
entering manufacturing careers.
Seth Wynes,
Kimberly A Nicholas, Environmental Research Letters: The climate mitigation
gap: education and government recommendations miss the most effective
individual actions. Current
anthropogenic climate change is the result of greenhouse gas accumulation in
the atmosphere, which records the aggregation of billions of individual
decisions. Here we consider a broad range of individual lifestyle choices and
calculate their potential to reduce greenhouse gas emissions in developed
countries, based on 148 scenarios from 39 sources. We recommend four widely applicable high-impact
(i.e. low emissions) actions with the potential to contribute to systemic
change and substantially reduce annual personal emissions: having one fewer child
(an average for developed countries of 58.6 tonnes CO2-equivalent (tCO2e)
emission reductions per year), living car-free (2.4 tCO2e saved per year),
avoiding airplane travel (1.6 tCO2e saved per roundtrip transatlantic flight)
and eating a plant-based diet (0.8 tCO2e saved per year). These actions
have much greater potential to reduce emissions than commonly promoted
strategies like comprehensive recycling (four times less effective than a
plant-based diet) or changing household lightbulbs (eight times less). Though
adolescents poised to establish lifelong patterns are an important target group
for promoting high-impact actions, we find that ten high school science
textbooks from Canada largely fail to mention these actions (they account for
4% of their recommended actions), instead focusing on incremental changes with
much smaller potential emissions reductions. Government resources on climate change from the EU, USA,
Canada, and Australia also focus recommendations on lower-impact actions.
We conclude that there are opportunities to improve existing educational and
communication structures to promote the most effective emission-reduction
strategies and close this mitigation gap.
Noam Scheiber,
NYT: The Shkreli Syndrome: Youthful Trouble, Tech Success, Then a Fall. People who become entrepreneurs are not only apt to
have had high self-esteem while growing up (and to have been white, male and
financially secure). They are also more likely than others to have been
intelligent people who engaged in illicit activities in their teenage years and
early 20s. And those indiscretions have not been limited to using drugs or
skipping school, but have included antisocial acts like taking property by
force or stealing goods worth less than $50. In light of the recent troubles of Mr. Shkreli and other
scandal-ridden entrepreneurs like Travis Kalanick, the former Uber chief
executive, and Parker Conrad, a founder and ousted chief executive of the
multibillion-dollar human resources software firm Zenefits, the question is
whether youthful rule-breaking might have foreshadowed not only their rise, but
also their fall.
Micha Kaiser,
Mirjam Reutter, Alfonso Sousa-Poza, Kristina Strohmaier, IZA: Smoking and the
Business Cycle: Evidence from Germany. In this paper, we use data from the German Socio-Economic Panel to
investigate the effect on cigarette consumption of macro-economic conditions in
the form of regional unemployment rates. The results from our panel data
models, several of which control for selection bias, indicate that the propensity to become a smoker
increases significantly during an economic downturn, with an approximately 0.7
percentage point increase for each one percentage point rise in the
unemployment rate. Conversely, conditional on the individual being a smoker,
cigarette consumption decreases during recessions, with a one percentage
point increase in the regional unemployment rate leading to an up to 0.8
percent decrease in consumption.
Roland G. Fryer
J., Harvard University: Management and Student Achievement: Evidence from a
Randomized Field Experiment. This study
examines the impact on student achievement of implementing management training
for principals in traditional public schools in Houston, Texas, using a school-level
randomized field experiment. Across two years, principals were provided 300
hours of training on lesson planning, data-driven instruction, and teacher
observation and coaching. The findings show that offering management training
to principals significantly increases student achievement in all subjects in
year one and has an insignificant effect in year two. We argue that the results
in year two are driven by principal turnover, coupled with the cumulative
nature of the training. Schools
with principals who are predicted to remain in their positions for both years
of the experiment demonstrate large treatment effects in both years –
particularly those with principals who are also predicted to implement the
training with high fidelity – while those with principals that are predicted to
leave have statistically insignificant effects in each year of treatment.
Daniel Charbonneau
, Takao Sasaki, Anna Dornhaus, PLOS: Who needs ‘lazy’ workers? Inactive workers
act as a ‘reserve’ labor force replacing active workers, but inactive workers
are not replaced when they are removed. Social insect colonies are highly successful, self-organized complex
systems. Surprisingly however, most social insect colonies contain large
numbers of highly inactive workers. Although this may seem inefficient, it may
be that inactive workers actually contribute to colony function. Indeed, the
most commonly proposed explanation for inactive workers is that they form a
‘reserve’ labor force that becomes active when needed, thus helping mitigate
the effects of colony workload fluctuations or worker loss. Thus, it may be
that inactive workers facilitate colony flexibility and resilience. However,
this idea has not been empirically confirmed. Here we test whether colonies of
Temnothorax rugatulus ants replace highly active (spending large proportions of
time on specific tasks) or highly inactive (spending large proportions of time
completely immobile) workers when they are experimentally removed. We show that colonies maintained
pre-removal activity levels even after active workers were removed, and that
previously inactive workers became active subsequent to the removal of active
workers. Conversely, when inactive workers were removed, inactivity levels
decreased and remained lower post-removal.
Regis Barnichon,
Christian Matthes, David A. Price, Richmond FED: Are the Effects of Fiscal
Policy Asymmetric? Economic research
on the size of the fiscal multiplier has assumed that the effects of changes in
government spending are symmetric — that is, they influence economic output to
the same degree whether the change is an increase or a decrease. Richmond Fed
research indicates that this is not the case; the fiscal multiplier does vary according to the
direction of the fiscal action and also varies with the stage of the economic
cycle. This finding sheds light on likely outcomes of fiscal policies and helps
account for inconsistent estimates of the multiplier in the literature.
Mary C. Daly, Bart
Hobijn, Joseph H. Pedtke, San Francisco FED: Disappointing Facts about the
Black-White Wage Gap. More than half a
century since the Civil Rights Act became law, U.S. workers continue to
experience different levels of success depending on their race. Analysis using
microdata on earnings shows that black men and women earn persistently lower wages compared with their
white counterparts and that these gaps cannot be fully explained by differences
in age, education, job type, or location. Especially troubling is the growing
unexplained portion of the divergence in earnings for blacks relative to
whites.
Joelle Emerson,
Harvard Business Review: Colorblind Diversity Efforts Don’t Work. As organizations struggle with stalled diversity
efforts, some are considering moving toward a “colorblind” approach: deemphasizing
initiatives focused on specific demographic groups in favor of more general
inclusion efforts. For some, this approach seems like an appealing strategy for
engaging majority group members and company leaders, while reducing the
tensions that can arise when efforts are focused explicitly on identities like
race and gender. Some studies have shown, for example, that even though many companies’ existing
diversity efforts aren’t helping more women or people of color to get ahead,
they still make white men think they aren’t being treated fairly. But
colorblindness is not the answer to this problem. It will almost certainly
backfire, ultimately undermining the very inclusion efforts it’s designed to
improve.
Anna Raute, NBER:
Can Financial Incentives Reduce the Baby Gap? Evidence from a Reform in
Maternity Leave Benefits. To assess
whether earnings-dependent maternity leave positively impacts fertility and narrows
the baby gap between high educated (high earning) and low educated (low
earning) women, I exploit a major maternity leave benefit reform in Germany
that considerably increases the financial incentives for higher educated and
higher earning women to have a child. In particular, I use the large
differential changes in maternity leave benefits across education and income
groups to estimate the effects on fertility up to 5 years post reform. In
addition to demonstrating an up to 22% increase in the fertility of tertiary
educated versus low educated women, I find a positive, statistically significant effect of increased
benefits on fertility, driven mainly by women at the middle and upper end of
the education and income distributions. Overall, the results suggest
that earnings-dependent maternity leave benefits, which compensate women
commensurate with their opportunity cost of childbearing, could successfully
reduce the fertility rate disparity related to mothers’ education and earnings.
Angela K. Dills,
Sietse Goffard, Jeffrey Miron, NBER: The Effects of Marijuana Liberalizations:
Evidence from Monitoring the Future. By the end of 2016, 28 states had liberalized their marijuana laws: by
decriminalizing possession, by legalizing for medical purposes, or by
legalizing more broadly. Yet evidence on these liberalizations remains scarce,
in part due to data limitations. We use data from Monitoring the Future’s annual
surveys of high school seniors to evaluate the impact of marijuana
liberalizations on marijuana use, other substance use, alcohol consumption,
attitudes surrounding substance use, youth health outcomes, crime rates, and
traffic accidents. These data have several advantages over those used in prior
analyses. We find that
marijuana liberalizations have had minimal impact on the examined outcomes.
Notably, many of the outcomes predicted by critics of liberalizations, such as
increases in youth drug use and youth criminal behavior, have failed to
materialize in the wake of marijuana liberalizations.
Martin G. Kocher,
Simeon Schudy, Lisa Spantig, Management Science: I Lie? We Lie! Why? Experimental
Evidence on a Dishonesty Shift in Groups. Unethical behavior such as dishonesty, cheating and corruption occurs
frequently in organizations or groups. Recent experimental evidence suggests
that there is a stronger inclination to behave immorally in groups than
individually. We ask if this is the case, and if so, why. Using a parsimonious
laboratory setup, we study
how individual behavior changes when deciding as a group member. We observe a
strong dishonesty shift. This shift is mainly driven by communication within
groups and turns out to be independent of whether group members face payoff
commonality or not (i.e., whether other group members benefit from one’s
lie). Group members come up with and exchange more arguments for being
dishonest than for complying with the norm of honesty. Thereby, group
membership shifts the perception of the validity of the honesty norm and of its
distribution in the population.
Raul Caruso, Marco
Di Domizio, David A. Savage, KYKLOS: Differences in National Identity, Violence
and Conflict in International Sport Tournaments: Hic Sunt Leones! This work examines the relationship between national
identity and conflict during international sporting tournaments and the impact
of referees as an institutional countermeasure. The empirical analysis covers
the FIFA World, Confederations and Under 20's World Cups and Olympic
tournaments from 1994 to 2014, resulting in 1152 individual matches. We use the
issuing of cards (red and yellow) and the number of sanctions (fouls) as a
conflict proxy, plus macro-level national identity markers to determine between
team variations. Our results indicate that national identity is robustly significant in the
prediction of conflict, whereas the match-specific variables seem to be of less
importance. Additionally, we observe that referees are a highly successful
control of on-field aggression.
