JANUARY 25 2017

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.

Conor Friedersdorf, The Atlantic: Why Can't People Hear What Jordan Peterson Is Saying? A British broadcaster doggedly tried to put words into the academic’s mouth (video). My first introduction to Jordan B. Peterson, a University of Toronto clinical psychologist, came by way of an interview that began trending on social media last week. Peterson was pressed by the British journalist Cathy Newman to explain several of his controversial views. But what struck me, far more than any position he took, was the method his interviewer employed. It was the most prominent, striking example I’ve seen yet of an unfortunate trend in modern communication. (Jordan Peterson home page and the famous biblical lectures)

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