John Fernald,
Robert E. Hall, James H. Stock, Mark W. Watson, San Francisco FED: The
Disappointing Recovery in U.S. Output after 2009. U.S. output has expanded only slowly since the
recession trough in 2009, counter to normal expectations of a rapid cyclical
recovery. Removing cyclical
effects reveals that the deep recession was superimposed on a sharply slowing
trend in underlying growth. The slowing trend reflects two factors: slow growth
of innovation and declining labor force participation. Both of these
powerful adverse forces were in place before the recession and, thus, were not
the result of the financial crisis or policy changes since 2009.
Gregory Mankiw,
NYT: Why Economists Are Worried About International Trade. After analyzing the data, Mr. Frankel and Mr. Romer
concluded that “a rise of one percentage point in the ratio of trade to G.D.P.
increases income per person by at least one-half percent.” In other words,
nations should take the theories of Smith, Ricardo and Melitz seriously. To be sure, expanding trade
hurts some people in the short run, especially those in import-competing
sectors who have to find new jobs. That fact may call for a robust safety net
and effective retraining. But it does not undermine the conclusion that free
trade raises average living standards. That is the theory and evidence
regarding international trade. I don’t expect this academic work to persuade
Mr. Trump. But he is said to pay more attention to briefings that
contain his own name. So let’s return to Adam Smith’s birthplace and ponder
these questions: Should we impose a tariff on Americans vacationing at
Scotland’s Trump International Golf Links? Or should vacationers make their consumption
choices free from the heavy hand of government?
Menzie Chinn,
Economfact: Threats to U.S. Agriculture from U.S. Trade Policies. The Trump Administration initiated a process of
renegotiating the North American Free Trade Agreement (NAFTA) with Canada and
Mexico, which includes the option of exiting the deal altogether. In addition,
the United States has started a series of investigations of unfair practices leveled
against China, some of which have already resulted in the imposition of new
tariffs. These trade
policy initiatives threaten agricultural exports both because of the potential
increase of tariffs on exports to Canada and Mexico that would result from a
withdrawal from NAFTA as well as the very real threat of retaliation in
response to other proposed policies.
Susanne Frick,
Andrés Rodríguez-PoseVOX: Urban concentration and economic growth. Urban concentration is typically deemed to lead to
greater national economic growth. This column challenges this view, using an
original dataset covering 68 countries over the past three decades. Urban
concentration levels have decreased or remained stable on average, though these
averages hide widely diverging trends across countries. Although concentration has been beneficial for
high-income countries, this hasn’t been the case for for developing countries.
Tim Harford, The
Undercover Economist: What We Get Wrong About Technology. Blade Runner (1982) is a magnificent film, but
there’s something odd about it. The heroine, Rachael, seems to be a beautiful
young woman. In reality, she’s a piece of technology — an organic robot
designed by the Tyrell Corporation. Los Angeles police detective Rick Deckard
knows; in Rachael, Deckard
is faced with an artificial intelligence so beguiling, he finds himself falling
in love. Yet when he wants to invite Rachael out for a drink, what does he do?
He calls her up from a payphone. There is something revealing about the
contrast between the two technologies — the biotech miracle that is Rachael,
and the graffiti-scrawled videophone that Deckard uses to talk to her. It’s not
simply that Blade Runner fumbled its futurism by failing to anticipate the
smartphone. That’s a forgivable slip, and Blade Runner is hardly the only film
to make it.
Adam Davidson, The
New Yorker: Money, Power, and Deer Urine. How regulators start to serve special
interests. Deer farming doesn’t require
as much acreage as cows or crops, and there’s little need for technology. All
you have to do is throw up some fences, get pregnant does, and buy feed (the
deer like beans and corn). There are roughly ten thousand deer farms in North
America, and some thirty per cent are owned by the Amish. The deer are usually
raised for venison or hunting, but Lapp found another specialty: he is one of
America’s premier producers of deer urine. Lapp, along with the deer-farming
industry as a whole, is facing a crisis in the form of chronic wasting disease,
a plague that attacks white-tailed deer, elk, moose, reindeer, and other
members of the cervid family. The risk-mitigation plan, like all regulation,
isn’t based purely on science; it also takes into account politics and
economics. The plan’s
disparate treatment of urine and meat is an example of what economists call
regulatory capture: the process by which regulators, who are supposed to pursue
solely the public interest, instead become solicitous of the very industries
they regulate.
Noëmie Lisack, Rana Sajedi and Gregory Thwaites, BoE:
Population ageing and the macroeconomy. An unprecedented ageing process is unfolding in
industrialised economies. The share of the population over 65 has gone from 8%
in 1950 to almost 20% in 2015, and is projected to keep rising. What are the
macroeconomic implications of this change? What should we expect in the coming
years? In a recent staff working paper, we link population ageing to several key economic trends
over the last half century: the decline in real interest rates, the rise in
house prices and household debt, and the pattern of foreign asset holdings
among advanced economies. The effects of demographic change are not expected to
reverse so long as longevity, and in particular the average time spent in
retirement, remains high.
Elva Bova, Tidiane Kinda, Jaejoon Woo, VOX: Austerity
and inequality: The size and composition of fiscal adjustment matter. Understanding the
distributional consequences of fiscal adjustment measures is important for
equity, but also to ensure the sustainability of the measures. This column
shows that fiscal
adjustments increase inequality, including through unemployment. Spending-based
adjustments worsen inequality more significantly than tax-based adjustments.
Progressive taxation and targeted social benefits and subsidies introduced in
the context of a broader decline in spending can help offset some of the
distributional impact of fiscal adjustments.
Camille Landais, Arash Nekoei, J Peter Nilsson, David
Seim, Johannes Spinnewijn, VOX: Unemployment insurance and adverse selection:
Evidence from Sweden. Unemployment
insurance is compulsory in almost all countries, with no choice for workers
over the level of coverage. But why restrict choice if it can improve the
targeting of individuals who value the insurance the most? This column uses
evidence from Sweden to examine whether the issue of adverse selection
justifies a universal mandate for unemployment insurance. Workers who purchased more
generous unemployment insurance were more than twice as likely to be unemployed
in the following year. A universal mandate combats such adverse selection, but
forces workers to buy insurance even when insurance costs are higher than the
value they assign to it.
Kenneth Rogoff, Project Syndicate: When Will Tech
Disrupt Higher Education? Universities pride
themselves on producing creative ideas that disrupt the rest of society, yet
higher-education teaching techniques continue to evolve at a glacial pace. Given education’s centrality to
raising productivity, shouldn’t efforts to reinvigorate today’s sclerotic
Western economies focus on how to reinvent higher education? Universities
and colleges are pivotal to the future of our societies. But, given impressive
and ongoing advances in technology and artificial intelligence, it is hard to
see how they can continue playing this role without reinventing themselves over
the next two decades.
Cody Cook, Rebecca Diamond, Jonathan Hall, John A.
List, Paul Oyer, Stanford: The Gender Earnings Gap in the Gig Economy: Evidence
from over a Million Rideshare Drivers. The growth of
the "gig" economy generates worker flexibility that, some have
speculated, will favor women. We explore one facet of the gig economy by
examining labor supply choices and earnings among more than a million rideshare
drivers on Uber in the U.S. Perhaps most surprisingly, we find that there is a
roughly 7% gender earnings gap amongst drivers. The uniqueness of our
data—knowing exactly the production and compensation functions—permits us to
completely unpack the underlying determinants of the gender earnings gap. We
find that the entire gender gap is caused by three factors: experience on the
platform (learning-by-doing), preferences over where/when to work, and
preferences for driving speed. Overall, our results suggest that, even in the gender-blind,
transactional, flexible environment of the gig economy, gender-based
preferences (especially the value of time not spent at paid work and, for drivers, preferences for driving
speed) can open gender earnings gaps. The preference differences that
contribute to pay differences in professional markets for lawyers and MBA’s
also lead to earnings gaps for drivers
on Uber, suggesting they are pervasive across the skill distribution and whether in the traditional or gig
workplace.
Yann Bramoulléa, Lorenzo Ductor, Journal of Economic
Behavior & Organization: Title length. We document strong and robust
negative correlations between the length of the title of an economics article
and different measures of scientific quality. Analyzing all articles
published between 1970 and 2011 and referenced in EconLit, we find that
articles with shorter titles tend to be published in better journals, to be
more cited and to be more innovative. These correlations hold controlling for
unobserved time-invariant and observed time-varying characteristics of teams of
authors.
Manon K. Schweinfurth, Michael Tabo, Current Biology: Reciprocal
Trading of Different Commodities in Norway Rats. The prevalence of reciprocal cooperation in non-human
animals is hotly debated. Part of this dispute rests on the assumption that
reciprocity means paying like with like. However, exchanges between social
partners may involve different commodities and services. Hitherto, there is no
experimental evidence that animals other than primates exchange different
commodities among conspecifics based on the decision rules of direct
reciprocity. Here, we show
that Norway rats (Rattus norvegicus) apply direct reciprocity rules when
exchanging two different social services: food provisioning and allogrooming.
Focal rats were made to experience partners either cooperating or
non-cooperating in one of the two commodities. Afterward, they had the
opportunity to reciprocate favors by the alternative service. Test rats traded
allogrooming against food provisioning, and vice versa, thereby acting by the
rules of direct reciprocity. This might indicate that reciprocal altruism among
non-human animals is much more widespread than currently assumed.
Alberto F.
Alesina, Carlo Favero, Francesco Giavazzi. NBER: What do we know about the
effects of Austerity? This paper
summarizes the results of a large recent literature on multi year fiscal plans
for deficit reduction (austerity). The key results are that deficit reduction policies based upon spending
cuts are much less costly in terms of short run output losses than tax based
adjustments. On average fiscal adjustment based upon spending cuts have very
small output costs and in some cases they are expansionary. We then
discuss which possible models can explain these findings and discuss how the
evidence can disentangle them.
Gene Amromin ,
Mariacristina De Nardi , Karl Schulze, Chicago FED: Inequality and Recessions. The increase in inequality over the past several
decades has received widespread attention from both academics and the public at
large. While much of this discourse centers on either the causes or normative
implications of increasing inequality, it is important to ask whether the
widening gap between the rich and poor has any direct effects on macroeconomic
aggregates and, in particular, on the severity of the Great Recession, when
output and consumption dropped precipitously and were slow to recover. Is it possible that the changing
distribution of wealth intensified and lengthened the effects of this downturn?
More broadly, should economists and policymakers concerned with macroeconomics
be worried about wealth inequality?
Edward N. Wolff,
NBER: Household Wealth Trends in the United States, 1962 to 2016: Has Middle
Class Wealth Recovered? Asset prices
plunged between 2007 and 2010 but then rebounded from 2010 to 2016. The most
telling finding is that median wealth plummeted by 44 percent over years 2007
to 2010. The inequality of net worth, after almost two decades of little
movement, went up sharply from 2007 to 2010, and relative indebtedness for the
middle class expanded. The
sharp fall in median net worth and the rise in overall wealth inequality over
these years are largely traceable to the high leverage of middle class families
and the high share of homes in their portfolio. Mean and median wealth
rebounded from 2010 to 2016, by 17 and 28 percent, respectively. While
mean wealth surpassed its previous peak in 2007, median wealth was still down
by 34 percent. More than 100 percent of the recovery in both was due to a high
return on wealth but this factor was offset by negative savings. Relative
indebtedness continued to fall for the middle class from 2010 to 2016, and
wealth inequality increased somewhat. The racial and ethnic disparity in wealth
holdings widened considerably between 2007 and 2016, and the wealth of
households under age 45 declined in relative terms.
Going blind to see
more clearly: unconscious bias in Australian, Behavioural Economics Team of The
Australian Government: We found that the public
servants engaged in positive (not negative) discrimination towards female and
minority candidates: Participants were 2.9% more likely to shortlist female
candidates and 3.2% less likely to shortlist male applicants when they were
identifiable, compared with when they were de-identified. Minority males
were 5.8% more likely to be shortlisted and minority females were 8.6% more likely to be shortlisted when identifiable compared to when
applications were de-identified. The positive discrimination was strongest for
Indigenous female candidates who were 22.2% more likely to be shortlisted when
identifiable compared to when the applications were de-identified. Interestingly,
male reviewers displayed
markedly more positive discrimination in favour of minority candidates than did
female counterparts, and reviewers aged 40+ displayed much stronger
affirmative action in favour for both women and minorities than did younger
ones.
Eduardo Porter,
NYT: Is the Populist Revolt Over? Not if Robots Have Their Way. As the world’s oligarchy gathered last week in
Davos, Switzerland, to worry about the troubles of the middle class, the real
question on every plutocrat’s mind was whether the populist upheaval that
delivered the presidency to the intemperate mogul might mercifully be over. If
it was globalization — or, more precisely, the shock of imports from China —
that moved voters to put Mr. Trump in the White House, could politicians get
back to supporting the market-oriented order once the China shock played out? Economists studying the changes
in the nature of work that produced such an angry political response suggest,
however, that another wave of disruption is about to wash across the world
economy, knocking out entire new classes of jobs: artificial intelligence. This
could provide decades’ worth of fuel to the revolt against the global elites
and their notions of market democracy.
Karen Weintraub,
NYT: Elephants Are Very Scared of Bees. That Could Save Their Lives. Elephants are afraid of bees. Let that
sink in for a second. The largest animal on land is so terrified of a tiny
insect that it will flap its ears, stir up dust and make noises when it hears
the buzz of a beehive. In recent years, researchers and advocates have
persuaded farmers to use
the elephant’s fear of bees as a potential fence line to protect crops. By
stringing beehives every 20 meters — alternating with fake hives — a team of
researchers in Africa has shown that they can keep 80 percent of elephants away
from farmland.
Catherine Chapman,
Dailymail: The self-parking slippers by Nissan: 'Smart' Japanese hotel offers guests footwear that moves back into
position when not being worn using car sensor technology. Nissan has created smart
slippers to drive onto the feet of hotel guests in Japan. The product is using
the automaker's ProPilot Park technology to move around. The
self-parking slippers are meant to raise awareness of autonomous vehicles.
Douglas Clement,
Minneapolis FED: Equity and Efficiency in Space. If the rich are richer partly because they live in more productive
locations, does a progressive federal income tax result in a poorer economy? In
this study the economists focus on the variation in productivity from one
location to another across the United States. Productivity is higher in Boston,
for example, than Akron. Wages reflect that difference. “Our results suggest that a
progressive income tax code can reduce between-group welfare inequality without
decreasing total worker welfare.” How do progressive taxes both reduce
inequality and improve worker well-being? “By shifting the distribution of
workers toward cities with more elastic housing supply.” Workers migrate
toward cheaper housing; benefits that landowners would reap from a flat tax
flow toward workers instead.
David Deming,
Econofact: Automation and the Growing Importance of Social Skills in the Labor
Market. What is relatively new is
that, since 2000, there appears to be a slowdown in higher-paying, skilled jobs
and that technological change could be playing a role in this shift. After two
decades of expansion, growth in the share of workers employed in high-skill
"cognitive" occupations (those classified as managerial,
professional, and technical categories by the U.S. Census) slowed down. Changing trend is driven by a
decline in the share of jobs in science, technology, engineering and
mathematics — the so-called STEM fields — which shrank by a total of 0.12
percentage points as a share of the U.S. labor force be. Jobs requiring social
skills have experienced strong relative employment and wage growth.
Christopher
Pissarides, Jacques Bughin, Project Syndivate: Embracing the New Age of Automation. With rapid advances in automation and artificial
intelligence in recent years, many are worried about a jobless future and
sky-high levels of inequality. But the large-scale technologically driven shift
currently underway should be welcomed, and its adverse effects should be
managed with proactive policies to reinvest in workers. It is imperative that we reinvest AI-driven
productivity gains in as many economic sectors as possible. Such reinvestment
is the primary reason why technological change has benefited employment in the
past. But without a strong local AI ecosystem, today’s productivity gains may
not be reinvested in a way that fuels spending and boosts demand for labor.
Policymakers urgently need to ensure that strong incentives for reinvestment
are in Place.
Pierre-André
Chiappori, Bernard Salanié, Yoram Weiss, AER: Partner Choice, Investment in
Children, and the Marital College Premium. We construct a model of household decision-making in
which agents consume a private and a public good, interpreted as children's
welfare. Children's utility depends on their human capital, which depends on
the time their parents spend with them and on the parents' human capital. We
first show that as returns to human capital increase, couples at the top of the
income distribution should spend more time with their children. This in turn
should reinforce assortative matching, in a sense that we precisely define. We
then embed the model into a transferable utility matching framework with random
preferences, a la Choo and Siow (2006), which we estimate using US marriage
data for individuals born between 1943 and 1972. We find that the preference for partners of the same
education has significantly increased for white individuals, particularly for
the highly educated. We find no evidence of such an increase for black
individuals. Moreover, in line with theoretical predictions, we find that the
"marital college-plus premium" has increased for women but not for
men.
Henrik Kleven,
Camille Landais, Jakob Egholt Søgaard, NBER:
Children and Gender Inequality: Evidence from Denmark. Despite considerable gender convergence over time,
substantial gender inequality persists in all countries. Using Danish
administrative data from 1980-2013 and an event study approach, we show that
most of the remaining gender inequality in earnings is due to children. The
arrival of children creates a gender gap in earnings of around 20% in the long
run, driven in roughly equal proportions by labor force participation, hours of
work, and wage rates. Underlying these “child penalties”, we find clear dynamic
impacts on occupation, promotion to manager, sector, and the family
friendliness of the firm for women relative to men. Based on a dynamic
decomposition framework, we
show that the fraction of gender inequality caused by child penalties has
increased dramatically over time, from about 40% in 1980 to about 80% in 2013.
As a possible explanation for the persistence of child penalties, we show that
they are transmitted through generations, from parents to daughters (but not
sons), consistent with an influence of childhood environment in the formation
of women’s preferences over family and career.
Harold James,
Project Syndicate: The Stupid Economy. Worse still, ample evidence shows that people may
have reason to regret retiring from mentally demanding jobs and embarking on a
life of leisure. It turns out that not having to think on a regular basis is
neither restful nor enjoyable. On the contrary, it tends to lead to poor mental
and physical health, and a deteriorating quality of life. The elimination of
countless cognitive tasks has alarming implications for the future. Just as the Industrial
Revolution made most humans physically weaker, the AI revolution will make us
collectively duller. In addition to flabby waistlines, we will have flabby
minds. It’s not the economy, stupid; it’s the stupid economy. Already,
central banks are urgently exploring new ways to dumb down their statements for
an increasingly unsophisticated public. Mass stupidity will be driven by
technology
Yuliya Baranova,
Carsten Jung, Joseph Noss, BoE: The tip of the iceberg: the implications of
climate change on financial markets. There has been a recent increase in awareness of investors that
limiting emissions to prevent climate change might leave a substantial
proportion of the world’s carbon reserves unusable, and that this could lead to
revaluations across a range of financial assets. If risks are left unaddressed,
this could result in large losses for some investors. But is this adjustment in
financial market prices likely to be abrupt?
And – even if it is – is it likely to pose risks to financial
stability? We argue that the answer to both these questions
could be yes: financial valuations can
move sharply even if the transition to sustainable energy were smooth. And exposures are sufficiently large to
warrant attention from both investors and policymakers.
Ross Levine, Yona
Rubinstein, The Quarterly Journal of Economics: Smart and Illicit: Who Becomes
an Entrepreneur and Do They Earn More? We disaggregate the self-employed into incorporated and unincorporated
to distinguish between “entrepreneurs” and other business owners. We show that
the incorporated self-employed and their businesses engage in activities that
demand comparatively strong nonroutine cognitive abilities, while the
unincorporated and their firms perform tasks demanding relatively strong manual
skills. People who become incorporated business owners tend to be more educated
and—as teenagers—score higher on learning aptitude tests, exhibit greater
self-esteem, and engage in more illicit activities than others. The combination of “smart” and
“illicit” tendencies as youths accounts for both entry into entrepreneurship
and the comparative earnings of entrepreneurs. Individuals tend to experience a
material increase in earnings when becoming entrepreneurs, and this increase
occurs at each decile of the distribution.
Giuseppe Forte,
Jonathan Portes, IZA: Macroeconomic Determinants of International Migration to
the UK. This paper examines the
determinants of long-term international migration to the UK; we explore the
extent to which migration is driven by macroeconomic variables (GDP per capita,
unemployment rate) as well as law and policy (the existence of "free
movement" rights for EEA nationals). We find a very large impact from free movement within the
EEA. We also find that macroeconomic variables – UK GDP growth and GDP at
origin – are significant drivers of migration flows; evidence for the impact of
the unemployment rate in countries of origin, or of the exchange rate, however,
is weak. We conclude that, while future migration flows will be driven
by a number of factors, macroeconomic and otherwise, Brexit and the end of free
movement will result in a large fall in immigration from EEA countries to the
UK.
Michael A.
Clemens, IZA: Violence, Development and Migration Waves: Evidence from Central
American Child Migrant Apprehensions. A recent surge
in child migration to the U.S. from Honduras, El Salvador, and Guatemala has
occurred in the context of high rates of regional violence. But little
quantitative evidence exists on the causal relationship between violence and
international emigration in this or any other region. This paper studies the
relationship between violence in the Northern Triangle and child migration to
the United States using novel, individual-level, anonymized data on all 178,825
U.S. apprehensions of unaccompanied child migrants from these countries between
2011 and 2016. It finds
that one additional homicide per year in the region, sustained over the whole
period – that is, a cumulative total of six additional homicides – caused a
cumulative total of 3.7 additional unaccompanied child apprehensions in the
United States. The explanatory power of short-term increases in violence is
roughly equal to the explanatory power of long-term economic characteristics
like average income and poverty. Due to diffusion of migration
experience and assistance through social networks, violence can cause waves of
migration that snowball over time, continuing to rise even when violence levels
do not.
David G.
Blanchflower, Andrew J. Oswald, IZA: Do Humans Suffer a Psychological Low in
Midlife? Two Approaches (With and Without Controls) in Seven Data Sets. Using seven recent data sets, covering 51 countries
and 1.3 million randomly sampled people, the paper examines the pattern of
psychological well-being from approximately age 20 to age 90. Two conceptual
approaches to this issue are possible. Despite what has been argued in the
literature, neither is the 'correct' one, because they measure different
things. One studies raw numbers on well-being and age. This is the descriptive
approach. The second studies the patterns in regression equations for
well-being (that is, adjusting for other influences). This is the
ceteris-paribus analytical approach. The paper applies each to large
cross-sections and compares the patterns of life-satisfaction and happiness. Using the first method, there is
evidence of a midlife low in five of the seven data sets. Using the second
method, all seven data sets produce evidence consistent with a midlife low. The
scientific explanation for the approximate U-shape currently remains unknown.
Denis Paiste, MIT
News: Using evolutionary dynamics and game theory to understand personal
relations. MIT biophysicists apply
mathematics from evolutionary biology to describe a surprising aspect of human
behavior. This model is a
solid contribution to our understanding of principles of behavior, cooperation,
and morality, and more generally fits within a wider literature that is
important and insightful which uses game theoretic models and models of
learning and evolutionary processes to understand puzzling aspects of human
social behavior,” Hoffman says. “How else can we understand our social
species if we don't try and uncover the hidden function behind what they do
think and believe? And what better tools to do that than models of game theory,
learning and evolutionary processes.
Gene Amromin,
Mariacristina De Nardi, Karl Schulze, VOX: Household inequality and the
consumption response to aggregate real shocks. A widening gap between rich and poor has been extensively documented
for many countries and economies. This column explores how the wealth gap
affects output and consumption changes in response to aggregate shocks. Lower- and higher-wealth
households face different borrowing constraints, and have different marginal
propensities to consume. Different levels of access to financial liquidity thus
play a major role in the overall consumption dynamics during an economic
downturn.
Dani Rodrik,
Project Syndicate: In Defense of Economic Populism. Populists’ aversion to institutional restraints
extends to the economy, where they oppose obstacles placed in their way by autonomous regulatory
agencies, independent central banks, and global trade rules. But while
populism in the political domain is almost always harmful, economic populism
can sometimes be justified.
Ann Huff Stevens,
Econofacts: Employment and Poverty. Calls to increase
work requirements among those receiving government assistance should recognize
that most poor adults are already working, looking for work, or are disabled or
ill. Increasing work among the poor may require addressing barriers to
work including work-limiting disability or illness. While work may be a policy
goal on its own, requiring work will not necessarily raise families above the
poverty line. Given the level of wages in the lower fifth of the wage
distribution, many workers, especially those who are parents, will need 50
weeks or more of full-time work to reach the poverty line.
Amanda Y. Agan
Michael D. Makowsky, SSRN: The Minimum Wage, EITC, and Criminal Recidivism. For recently
released prisoners, the minimum wage and the availability of state Earned
Income Tax Credits (EITCs) can influence both their ability to find employment
and their potential legal wages relative to illegal sources of income, in turn
affecting the probability they return to prison. Using administrative prison
release records from nearly six million offenders released between 2000 and
2014, we use a difference-in-differences strategy to identify the effect of
over two hundred state and federal minimum wage increases, as well as 21 state
EITC programs, on recidivism. We find that the average minimum wage increase of 8% reduces the
probability that men and women return to prison within 1 year by 2%. This
implies that on average the wage effect, drawing at least some ex-offenders
into the legal labor market, dominates any reduced employment in this
population due to the minimum wage. These reductions in re-convictions
are observed for the potentially revenue generating crime categories of
property and drug crimes; prison reentry for violent crimes are unchanged,
supporting our framing that minimum wages affect crime that serves as a source
of income. The availability of state EITCs also reduces recidivism, but only
for women.
Anuschka de Rohan,
Guardian: Why dolphins are deep thinkers. Kelly the dolphin has built up quite a reputation. All the dolphins at
the institute are trained to hold onto any litter that falls into their pools
until they see a trainer, when they can trade the litter for fish. In this way,
the dolphins help to keep their pools clean. Kelly has taken this task one step
further. When people drop
paper into the water she hides it under a rock at the bottom of the pool. The
next time a trainer passes, she goes down to the rock and tears off a piece of
paper to give to the trainer. After a fish reward, she goes back down, tears
off another piece of paper, gets another fish, and so on.
Jean M. Twenge,
The Atlantic Essay: Have Smartphones Destroyed a Generation? The aim of generational study, however, is not to
succumb to nostalgia for the way things used to be; it’s to understand how they
are now. Some generational changes are positive, some are negative, and many
are both. More comfortable in their bedrooms than in a car or at a party,
today’s teens are physically safer than teens have ever been. They’re markedly
less likely to get into a car accident and, having less of a taste for alcohol
than their predecessors, are less susceptible to drinking’s attendant ills. Psychologically, however, they
are more vulnerable than Millennials were: Rates of teen depression and suicide
have skyrocketed since 2011. It’s not an exaggeration to describe iGen as being
on the brink of the worst mental-health crisis in decades. Much of this
deterioration can be traced to their phones.
Robert Macfarlane,
DW: Crown Shyness - When trees don't want to touch each other. Without a doubt, it's sometimes very worthwhile to
venture out into nature. Not just for of a gulp of fresh air but also because
you may see a very special, instagrammable behavior if only you would raise
your eyes heavenward. If
you look in the right place, you might just spot small and large gaps between
the tops of trees, as if they are somehow trying to avoid touching each other.
Or to put a more positive spin on it: as if the trees are trying to give each
other space. That's nice, isn't it? This is actually a well-documented
phenomenon. It's believed to occur primarily in trees of the same species,
although, the behavior has also been observed across species. Where it occurs,
it's immediately recognizable by the narrow yet clear gaps between the tree
crowns. It looks as though the canopy was torn and moved slightly.
J. Bradford
DeLong, Project Syndicate: Why Low Inflation Is No Surprise. The persistence of low inflation in developed
countries in recent years has confounded central bankers and economic
policymakers, because they believe that declining unemployment should drive up
aggregate demand, and thus prices. But what if many of the assumptions
underlying the conventional wisdom about inflation no longer apply? Those who have used the
prevailing economic fable about the 1970s to predict upward outbreaks of
inflation in the 1990s, the 2000s, and now the 2010s have all been proven
wrong. Why, then, does the narrative still have such a hold on us today?
Òscar Jordà et
al., VOX: The rate of return on everything. The rate of return on capital plays a pivotal role in shaping current
macroeconomic debates. This column presents findings from a new dataset
covering returns of major asset classes in the advanced economies over the last
150 years. The data offer
new insights on several long-standing puzzles in economics, and uncover new
relationships that seem at odds with some fundamental economic tenets.
Charles R. Hulten, NBER: The Importance of Education
and Skill Development for Economic Growth in the Information Era. The neoclassical growth accounting model used by the
BLS to sort out the contributions of the various sources of growth in the U.S.
economy accords a relatively small role to education. This result seems at variance
with the revolution in information technology and the emergence of the
“knowledge economy”, or with the increase in educational attainment and the
growth in the wage premium for higher education. This paper revisits this
result using “old fashioned” activity analysis, rather than the neoclassical
production function, as the technology underlying economic growth. An important
feature of this activity-based technology is that labor and capital are strong
complements, and both inputs are therefore necessary for the operation of an
activity. The composition of the activities in operation at any point in time
is thus a strong determinant of the demand for labor skills, and changes in the
composition driven by technical innovation are a source of the increase in the
demand for more complex skills documented in the literature. A key result of this paper is
that the empirical sources-of-growth results reported by BLS could equally have
been generated by the activity-analysis model. This allows the BLS results to
be interpreted in a very different way, one that assigns a greater importance
to labor skills and education.
Nicholas A.
Valentino et al., British Journal of Political Science: Economic and Cultural
Drivers of Immigrant Support Worldwide. Employing a
comparative experimental design drawing on over 18,000 interviews across eleven
countries on four continents, this article revisits the discussion about the
economic and cultural drivers of attitudes towards immigrants in advanced
democracies. Experiments manipulate the occupational status, skin tone and
national origin of immigrants in short vignettes. The results are most
consistent with a Sociotropic Economic Threat thesis: In all countries, higher-skilled immigrants are
preferred to their lower-skilled counterparts at all levels of native
socio-economic status (SES). There is little support for the Labor Market
Competition hypothesis, since respondents are not more opposed to immigrants in
their own SES stratum. While skin tone itself has little effect in any country,
immigrants from Muslim-majority countries do elicit significantly lower levels
of support, and racial animus remains a powerful force.
Patrick Honner,
Wired: Why Symmetry Continues to Beguile Mathematicians. 30 years later, string theorists—physicists studying
how all fundamental forces and particles might be explained by tiny strings
vibrating in hidden dimensions—are looking to connect the monster to their
physical questions. What is it about this collection of more than 1053 elements
that excites both mathematicians and physicists? The study of algebraic groups like the monster helps make
sense of the mathematical structures of symmetries, and hidden symmetries offer
clues for building new physical theories. Group theory in many ways epitomizes
mathematical abstraction, yet it underlies some of our most familiar
mathematical experiences. Let’s explore the basics of symmetries and the
algebra that illuminates their structure.
Evan Osnos, The
New Yorker: Making China Great Again. As Donald Trump surrenders America’s global commitments, Xi Jinping is learning
to pick up the pieces. In the city of Shenzhen, the local government uses
facial recognition to deter jaywalkers. (At busy intersections, it posts their
names and I.D. pictures on a screen at the roadside.) In Beijing, the government uses facial-recognition
machines in public rest rooms to stop people from stealing toilet paper; it
limits users to sixty centimetres within a nine-minute period.
Yves Smith, Naked
Capitalism: How Nutrition “Science” Made the US and Other Countries Fatter. The nutrition “scientists” are typical of how science
operates, that it is a social enterprise, where dominant personalities,
group-think, pressures to conform, fear of admitting to mistakes, create
intellectual inertia. The
difficulty of holding science to truly scientific standards, the pressure on
young researchers to produce (and therefore over-hype or even fabricate)
important findings, and in recent decades, the too-often successful efforts of
industry groups to pay for flattering studies, all have eroded the image of
science in the public eye, even before you get to attacks by corporate
interests when scientists announce results that they see as harmful to their
commercial interests. Thus when a “science” that barely deserves the name like
nutrition science spectacularly blows up, and drug “research” that barely
deserves the name because it is so badly manipulated by Big Pharma deservedly
tarnishes the image of science, it makes it all the easier for the likes of Big
Oil to foster doubt in the scientific basis of climate change. So the cost of decades
of bad dietary advice is even higher than it seems.
Grace Lordan,
David Neumark, NBER: People Versus Machines: The Impact of Minimum Wages on
Automatable Jobs. We study the
effect of minimum wage increases on employment in automatable jobs – jobs in
which employers may find it easier to substitute machines for people – focusing
on low-skilled workers from whom such substitution may be spurred by minimum
wage increases. Based on CPS data from 1980-2015, we find that increasing the minimum wage
decreases significantly the share of automatable employment held by low-skilled
workers, and increases the likelihood that low-skilled workers in automatable
jobs become unemployed. The average effects mask significant
heterogeneity by industry and demographic group, including substantive adverse
effects for older, low-skilled workers in manufacturing. The findings imply
that groups often ignored in the minimum wage literature are in fact quite
vulnerable to employment changes and job loss because of automation following a
minimum wage increase.
Manudeep Bhuller,
Magne Mogstad, Kjell G. Salvanes, NHH: Life Cycle Earnings, Education Premiums
and Internal Rates of Return. This paper
exploits Norwegian population panel data with nearly career long earnings
histories to answer these important questions. We provide a detailed picture of
the causal relationship between schooling and earnings over the life cycle,
following individuals over their working lifespan. To account for endogeneity
of schooling, we apply three commonly used identification strategies. Our estimates show that
additional schooling gives higher lifetime earnings and steeper age-earnings
profile, in line with predictions from human capital theory. These estimates
imply an internal rate of return of around 10 percent, after taking into
account income taxes and earnings-related pension entitlements. Under
standard conditions, this finding suggests it was financially profitable to
take additional schooling because the rates of return were substantially higher
than the market interest rates.
Øystein
Hernæs, Simen Markussen, Knut Røed, JHR:
Television, Cognitive Ability, and High School Completion. We exploit
supply-driven heterogeneity in the expansion of cable television across
Norwegian municipalities to identify developmental effects of commercial
television exposure during childhood. We find that higher exposure to commercial television reduces
cognitive ability and high school graduation rates for boys. The effects appear
to be driven by consumption of light television entertainment crowding out more
cognitively stimulating activities. Point estimates suggest that the
effects are most negative for boys from more educated families. We find no
effect on high school completion for girls, pointing to the growth of
non-educational media as a factor in the widening educational gender gap.
Øystein Hernaes,
IZA: Activation against Absenteeism: Evidence from a Sickness Insurance Reform
in Norway. I evaluate a
program aimed at strictly enforcing a requirement that people on long-term sick
leave be partly back at work unless explicitly defined as an exception.
Employing the synthetic control method, I find that the reform reduced work-hours lost due to
absenteeism by 12 % in the reform region compared to a comparison unit created
by a weighted average of similar regions. The effect is driven by both
increased part-time presence of temporary disabled workers and accelerated
recovery. Musculoskeletal disorders was the diagnosis group declining
the most. The findings imply large savings in social security expenditures.
Miles Corak, IZA: ‘Inequality Is the Root of Social Evil,’or Maybe Not?
Two Stories about Inequality and Public Policy. Income inequality is on the rise, and everyone, from
President Obama and Pope Francis to Prince Charles and Standard & Poor's,
is talking about it. But
these conversations about what are arguably the most significant changes in the
distribution of incomes and earnings since the 1940s are leading to very
different views on how public policy should respond. This is as true in
Canada as it is in almost all of the other rich countries where inequality has
risen. In this paper I tell two stories about inequality – one from the
perspective of those who feel it is not a problem worth the worry, and the
other from the perspective of those who see it as "the defining challenge of
our time" – in order to clarify the issues facing Canadians, and what
public policy should do about them.
James Suzman,
Guardian: How Neolithic farming sowed the seeds of modern inequality 10,000
years ago. A recent research paper examining inequality in early
Neolithic societies confirms what early-20th century anthropologists already
knew, on the basis of comparative studies of farming societies: that the
greater the surpluses a society produced, the greater the levels of inequality
in that society. The new research maps the relative sizes of people’s
homes in 63 Neolithic societies between 9000BC and 1500 AD. It finds a clear
correlation between levels of material inequality – based on the size of
household dwellings in each community – and the use of draught animals, which
enabled people to put far greater energy into their fields.
Wenqi Wei et
al., Nature: Regional ambient temperature is associated with human personality. Human personality traits differ across geographical
regions. However, it remains unclear what generates these geographical
personality differences. Because humans constantly experience and react to
ambient temperature, we propose that temperature is a crucial environmental
factor that is associated with individuals’ habitual behavioural patterns and,
therefore, with fundamental dimensions of personality. To test the relationship
between ambient temperature and personality, we conducted two large-scale
studies in two geographically large yet culturally distinct countries: China
and the United States. Using data from 59 Chinese cities (N = 5,587),
multilevel analyses and machine learning analyses revealed that compared with individuals who grew
up in regions with less clement temperatures, individuals who grew up in regions
with more clement temperatures (that is, closer to 22 °C) scored higher on
personality factors related to socialization and stability (agreeableness,
conscientiousness, and emotional stability) and personal growth and plasticity
(extraversion and openness to experience). Taken together, our findings
provide a perspective on how and why personalities vary across geographical
regions beyond past theories (subsistence style theory, selective migration
theory and pathogen prevalence theory). As climate change continues across the
world, we may also observe concomitant changes in human personality.
Ben S. Bernanke,
PIIE: What Can Central Banks Do To Manage the Next Financial Crisis? Former
Fed chairman Ben Bernanke discusses unconventional monetary policies and
proposes a new framework for how central banks should manage severe recessions.
He also argues for central bank independence to maintain long-term stability
and forward-looking credibility.
Olivier Armantier,
John J. Conlon, and Wilbert van der Klaauw, NY FED: Political Polarization in
Consumer Expectations. Following the 2016 presidential election, as noted on
this blog and many other outlets, Americans’ political and economic outlook changed dramatically
depending on partisan affiliation. Immediately after the election, Republicans
became substantially more optimistic relative to Democrats. In this blog
post, we revisit the issue of polarization over the past twelve months using
data from the New York Fed’s Survey of Consumer Expectations (SCE)—also the
focus of a detailed technical overview in the latest edition of the Bank’s
journal, the Economic Policy Review.
Nicholas Bloom,
Charles I. Jones, John Van Reenen, Michael Webb, NBER: Are Ideas Getting Harder
to Find? In many growth models,
economic growth arises from people creating ideas, and the long-run growth rate
is the product of two terms: the effective number of researchers and their
research productivity. We present a wide range of evidence from various industries,
products, and firms showing that research effort is rising substantially while
research productivity is declining sharply. A good example is Moore's Law. The
number of researchers required today to achieve the famous doubling every two
years of the density of computer chips is more than 18 times larger than the
number required in the early 1970s. Across a broad range of case studies at various levels of
(dis)aggregation, we find that ideas — and in particular the exponential growth
they imply — are getting harder and harder to find. Exponential growth results
from the large increases in research effort that offset its declining
productivity.
Oguzhan Akgun,
Boris Cournède, Jean-Marc Fournier, OECD: The effects of the tax mix on
inequality and growth. Can reforms that
shift the balance among different taxes in the revenue mix lastingly influence
the overall prosperity of an economy and the distribution of income across
households? The present study takes this question to the data, using the
experience of 34 OECD countries over 1980-2014 to assess the effects of changes
in the tax structure on the long-term level of average output per capita and
the distribution of disposable income across households. Changing the revenue
mix while keeping government size constant typically lift long-term output per
capita when they involve cuts in the labour tax wedge below or above average
incomes, cuts in corporate income taxes or increases in property taxes. The relative-income effects of
revenue-neutral reductions in labour tax wedges are broadly in line with
intuition: the relative position of those benefitting from them typically
improves. In absolute terms, however, nearly all the income distribution
benefits from revenue-neutral reductions in labour tax wedges, be they focused
on below or average income earners.
Gregori
Galofré-Vilà, Christopher M. Meissner, Martin McKee, David Stuckler, NBER:
Austerity and the rise of the Nazi party. It has been speculated that fiscally contractionary austerity
measures, including spending cuts and tax rises, contributed to votes for the
Nazi party especially among middle- and upper-classes who had more to lose from
them. We use voting data from 1,024 districts in Germany on votes cast for the
Nazi and rival Communist and Center parties between 1930 and 1933, evaluating
whether radical austerity measures, measured as the combination of tax
increases and spending cuts, contributed to the rise of the Nazis. Our analysis shows that
chancellor Brüning’s austerity measures were positively associated with
increasing vote shares for the Nazi party. Depending on how we measure
austerity and the elections we consider, each 1 standard deviation increase in
austerity is associated with a 2 to 5 percentage point increase in vote share
for the Nazis. Consistent with existing evidence, we find that
unemployment rates were linked with greater votes for the Communist party. The
coalition that allowed a majority to form government in March 1933 might not
have been able to form had fiscal policy been more expansionary.
Maria D.
Fitzpatrick, Timothy J. Moore, NBER: The Mortality Effects of Retirement:
Evidence from Social Security Eligibility at Age 62. Social Security eligibility begins at age 62, and
approximately one third of Americans immediately claim at that age. We examine
whether age 62 is associated with a discontinuous change in aggregate
mortality, a key measure of population health. Using mortality data that covers the entire U.S.
population and includes exact dates of birth and death, we document a robust
two percent increase in male mortality immediately after age 62. The change in
female mortality is smaller and imprecisely estimated. Additional analysis
suggests that the increase in male mortality is connected to retirement from
the labor force and associated lifestyle Changes.
Erich Battistin,
Lorenzo Neri, IZA: School Performance, Score Inflation and Economic Geography. We show that
grading standards for primary school exams in England have triggered an
inflation of quality indicators in the national performance tables for almost
two decades. The cumulative effects have resulted in significant differences in
the quality signaled to parents for otherwise identical schools. These differences are as good as
random, with score inflation resulting from discretion in the grading of
randomly assigned external markers. We find large housing price gains from the
school quality improvements artificially signaled by inflation as well as lower
deprivation and more businesses catering to families in local neighborhoods.
The design ensures improved external validity for the valuation of school
quality with respect to boundary discontinuities and has the potential for
replication outside of our specific case study.
Murat Iyigun,
Nathan Nunn, Nancy Qian, NBER: The Long-run Effects of Agricultural
Productivity on Conflict, 1400-1900. This paper provides evidence of the long-run effects of a permanent
increase in agricultural productivity on conflict. We construct a newly
digitized and geo-referenced dataset of battles in Europe, the Near East and
North Africa covering the period between 1400 and 1900 CE. For variation in
permanent improvements in agricultural productivity, we exploit the
introduction of potatoes from the Americas to the Old World after the Columbian
Exchange. We find that the
introduction of potatoes permanently reduced conflict for roughly two
centuries. The results are driven by a reduction in civil conflicts.
Zuzana Irsova,
Tomas Havranek, Dominik Herman, Project Syndicate: Daylight saving saves no
energy. The original rationale for daylight saving time was
energy savings. This column reveals, however, that the modern empirical literature on the topic finds
no savings on average. The extent of savings is related to latitude – regions
at higher latitude enjoy slightly more savings, but subtropical regions consume
more energy because of daylight saving time. Even in Scandinavia, the savings
amount to just 0.3% of annual energy consumption. Policymakers must look
at other effects of daylight saving time to justify the continued use of the
policy.
Bjørn Lomborg,
Project Syndicate: A Climate Cure Worse than the Disease. The climate
policies lauded in Paris at the One Planet Summit this month are essentially
high-cost, low-effect gestures. While the EU will devote 20% of its budget this year to climate-related
action, even fully achieving the accord's emissions targets throughout this
century would prevent just 0.053°C of global warming by 2100.
Hunt Allcott,
Rebecca Diamond, Jean-Pierre Dubé, NBER: The Geography of Poverty and
Nutrition: Food Deserts and Food Choices Across the United States. We study the causes of “nutritional inequality”: why
the wealthy tend to eat more healthfully than the poor in the U.S. Using two
event study designs exploiting entry of new supermarkets and households' moves
to healthier neighborhoods, we reject that neighborhood environments have
economically meaningful effects on healthy eating. Using a structural demand
model, we find that exposing
low-income households to the same food availability and prices experienced by
high-income households would reduce nutritional inequality by only 9%, while
the remaining 91% is driven by differences in demand. In turn, these
income-related demand differences are partially explained by education,
nutrition knowledge, and regional preferences. These findings contrast
with discussions of nutritional inequality that emphasize supply-side issues
such as food deserts.
David Ignatius,
Washington Post: How to protect against fake ‘facts’. Amid the slithering mess of problems that emerged in
2017, the one that bothers me most is that people don’t seem to know what’s
true anymore. “Facts” this year got put in quotation marks. All the other
political difficulties of the Donald Trump era are subsumed in this one. If we aren’t sure what’s true,
how can we act to make things better? If we don’t know where we are on the map,
how do we know which way to move? Democracy assumes a well-informed citizenry
that argues about solutions — not about facts.
Tim Harford, The
Undercover Economist: Fatal Attraction of Fake Facts Sours Political Debate. It
is hard to overstate how corrosive this development is. Reasoned conversation
becomes impossible; the debaters hardly have time to clear their throats before
a fly-blown moggie hits the table with a rancid thud. Nor is it easy to
neutralise a big, politicised lie. Trustworthy nerds can refute it, of
course: the fact-checkers, the independent think-tanks, or statutory bodies
such as the UK Statistics Authority. But a politician who is unafraid to lie is
also unafraid to smear these organisations with claims of bias or corruption —
and then one problem has become two. The Statistics Authority and other
watchdogs need to guard jealously their reputation for truthfulness; the
politicians they contradict often have no such reputation to worry about.
