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.
Carmen Reinhart,
Project Syndicate: The Persistence of Global Imbalances. The US has recorded external surpluses in only three
of the 38 years since 1980. Tax policy has favored debt accumulation by
households at the expense of saving, and a significant productivity slowdown is
affecting US international competitiveness. As Ethan Ilzetzky, Kenneth Rogoff,
and I document, because of the absence of alternatives, the dollar’s status as the world’s major reserve
currency remains unchallenged, making it easy for the US to continue to finance
current-account deficits. But the fact that it is easy does not make it a good
idea.
Gordon Hanson,
Chen Liu, Craig McIntosh, NBER: The Rise and Fall of U.S. Low-Skilled
Immigration. From the 1970s to the early
2000s, the United States experienced an epochal wave of low-skilled
immigration. Since the Great Recession, however, U.S. borders have become a far
less active place when it comes to the net arrival of foreign workers. The number
of undocumented immigrants has declined in absolute terms, while the overall
population of low-skilled, foreign-born workers has remained stable. We examine
how the scale and composition of low-skilled immigration in the United States
have evolved over time, and how relative income growth and demographic shifts
in the Western Hemisphere have contributed to the recent immigration slowdown. Because major source countries
for U.S. immigration are now seeing and will continue to see weak growth of the
labor supply relative to the United States, future immigration rates of young,
low-skilled workers appear unlikely to rebound, whether or not U.S. immigration
policies tighten further.
Richard Florida,
NYT: The Urban Revival Is Over. While many, if not most, large cities grew faster than their suburbs
between 2000 and 2015, in the last two years the suburbs outgrew cities in
two-thirds of America’s large metropolitan areas. Several factors have come together to potentially stymie
the urban revival. Foremost is a recent uptick in violent crime. And, of
course, the most desirable cities have become incredibly expensive places to
live. Finally, the anti-urban mood in Washington and many state
legislatures is making things worse for cities at the worst possible time.
Badly needed investments in transit, bridges and tunnels, affordable housing
and job upgrading and training are not being made. Stopping or reversing the
urban revival would not just be bad for cities. It would be a disaster for all
of us.
Naci H. Mocan, Han
Yu, NBER: Can Superstition Create a Self-Fulfilling Prophecy? School Outcomes
of Dragon Children of China. In Chinese
culture those who are born in the year of the Dragon under the zodiac calendar
are believed to be destined for good fortune and greatness, and parents prefer
their kids to be born in a Dragon year. Using province level panel data we show
that the number of marriages goes up during the two years preceding a Dragon
year and that births jump up in a Dragon year. Using three recently collected
micro data sets from China we show that those born in a Dragon year are more
likely to have a college education, and that they obtain higher scores at the
university entrance exam. Similarly, Chinese middle school students have higher
test scores if they are born in a Dragon year. We show that these results are
not because of family background, student cognitive ability, self-esteem or
students’ expectations about their future. We find, however, that the “Dragon”
effect on test scores is eliminated when we account for parents’ expectations
about their children’s educational and professional success. We find that parents of Dragon
children have higher expectations for their children in comparison to other
parents, and that they invest more heavily in their children in terms of time
and money. Even though neither the Dragon children nor their families are
inherently different from other children and families, the belief in the
prophecy of success and the ensuing investment become self-fulfilling.
Ellyn Terry, Atlanta
Fed: Is Poor Health Hindering Economic Growth? So how might poor health hinder economic growth? Health factors
account for a significant part of the decline in labor force participation
since at least the late 1990s. After controlling for demographic changes, the
share of people too sick or disabled to work is about 1.6 percentage points
higher today than it was two decades ago. Other things equal, if this trend reversed itself
during the next year, it could increase the workforce by up to 4 million
people, and add around 2.6 percentage points to gross domestic product.
Quoctrung Bui,
NYT: Why Some Men Don’t Work: Video Games Have Gotten Really Good. If innovations in housework helped free women to
enter the labor force in the 1960s and 1970s, could innovations in leisure —
like League of Legends — be taking men out of the labor force today? By 2015,
American men 31 to 55 were working about 163 fewer hours a year than that same
age group did in 2000. Men 21 to 30 were working 203 fewer hours a year. One
puzzle is why the working hours for young men fell so much more than those of their
older counterparts. The gap between the two groups grew by about 40 hours a
year, or a full workweek on average. Between 2004 and 2015, young men’s leisure time grew by 2.3 hours a
week. A majority of that increase — 60 percent — was spent playing video games,
according to government time use surveys. In contrast, young women’s leisure
time grew by 1.4 hours a week. A negligible amount of that extra time was spent
on video games.
Larry Summers,
Blog: Issues under discussion at Jackson Hole. The fatal flaw here is failure to recognize the importance of
fluctuations in the neutral rate and market perceptions of its future
level. Suppose as has been true in
recent years that the neutral rate falls.
That reflects a decrease in investment demand relative to saving supply
and so is a reason other things equal for easier money. What will happen to some financial conditions
index? Stock prices will rise because of
a lower discount factor. The dollar will
fall because of lower rates. Long rates
will fall because of reduced real rate expectations. Financial conditions indices will show great ease even when
developments call for more easing.
Kenneth Rogoff,
Project Syndicate: Protectionism Will Not Protect Jobs Anywhere. Countries that go too far in closing themselves off
to foreign competition eventually lose their edge, with innovation, jobs, and
growth suffering. Brazil and India, for example, have historically suffered
from inward-looking trade policies, though both have become more open in recent
years. Another problem is that most Western economies have long since become
deeply intertwined in global supply chains. Even the Trump administration had to reconsider its plan
to pull out of the North American Free Trade Agreement when it finally realized
that a lot of US imports from Mexico have substantial US content. Erecting high
tariff barriers might cost as many US jobs as Mexican jobs. And, of course, if
the US were to raise its import tariffs sharply, a large part of the costs
would be passed on to consumers in the form of higher prices.
Matthew C Klein,
FT: The myth of the German jobs miracle. Germany’s jobs growth is more myth than miracle. Yes, the number of Germans
listed as having a job has grown by about 15 per cent since the lows in the
mid-1990s. But the total number of hours worked is less than 2 per cent higher
over the same period and still significantly lower than in the early 1990s.
This wouldn’t necessarily be a problem if an employment boom happened to
coincide with a widespread desire to spend less time on the job. But this is
unlikely, since the disconnect between jobs and hours worked went hand in hand
with a large increase in the share of Germans at risk of poverty. German taxes
on low-paid workers were among the highest in the world when the data began in
2000 and they’ve stayed that way ever since. No wonder German consumers have
been so miserly! This isn’t just bad for German workers, but for the whole
world.
Paolo Pinotti,
Microeconomic Insights: Opportunity and access: how legal work status affects
immigrant crime rates. Immigrants in
Italy represent less than 10 percent of the country’s population, but 34
percent of its people in prison. When taking a closer look at the immigrant
prison population, it becomes apparent that the over-representation is
attributed to irregular immigrants lacking legal work status. In fact, regular immigrants – those who
have been granted a legal work permit – exhibit crime rates in line with those
of the native population. By comparing the outcomes of immigrants who were
randomly assigned legal work permits in Italy, I show that a lack of legal
access to the official labor market increases the likelihood that immigrants
will engage in criminal activity. Immigrant males, who were randomly
granted legal access to work in Italy, reduced their rate of criminal behavior
by 0.7 percent after receiving resident status compared to similar immigrants, who
were randomly denied a work permit.
Per-Anders Edin,
Peter Fredriksson, Martin Nybom, Björn Öckert, IZA: The Rising Return to
Non-Cognitive Skill. We examine the
changes in the relative rewards to cognitive and non-cognitive skill during the
time period 1992–2013. Using unique administrative data for Sweden, we document
a secular increase in the returns to non-cognitive skill, which is particularly
pronounced in the private sector and at the upper-end of the wage distribution.
Workers with an abundance
of non-cognitive skill were increasingly sorted into occupations that were
intensive in: cognitive skill; as well as abstract, non-routine, social,
non-automatable and offshorable tasks. Such occupations were also the types of
occupations which saw greater increases in the relative return to non-cognitive
skill. Moreover, we show that greater emphasis is placed on noncognitive
skills in the promotion to leadership positions over time. These pieces of
evidence are consistent with a framework where non-cognitive, inter-personal,
skills are increasingly required to coordinate production within and across
workplaces.
Alex Tuckett, BoE:
Imports and the composition of expenditure. A fall in the real exchange rate can increase demand for domestic
output in two main ways. The volume of exports – which become cheaper – is
boosted. And goods and services that were previously imported can instead be
supplied by domestic producers, which become more competitive as the price of
imports rises. Economists call the second effect ‘import substitution’. Using
data from Supply-Use tables can help us better understand the process of import
substitution, in particular by examining how the composition of expenditure has influenced imports.
Doing so shows that the import substitution effect of the 2008-09 depreciation
was partly masked by other, co-incident factors.
American Economic
Association: The resource curse in action. In a study appearing in this month’s issue of the American Economic
Review, the authors look at geocoded data on violent incidents and note the
proximity of each incident to mining clusters. In theory, productive mines
could potentially lead to violence for a number of reasons – profitable mines
are a natural target for warring factions, and a captured mine can provide
financial support to a rebel group looking to expand its reach. The researchers
find that rising commodity
prices did lead to greater violence, especially near sites where the profitable
minerals like platinum and nickel were being extracted. The map below
indicates regions where conflict would have been less likely to occur in 2010
if commodity prices had remained at their lower 1990s levels.
William R. Emmons
, Lowell R. Ricketts, FED St.Louis: College Inadvertently Increases Racial and
Ethnic Disparity in Income and Wealth. Growing gaps in college-attainment rates, together with large
differences in the economic and financial returns associated with any given
level of education, suggest that racial and ethnic income and wealth gaps are
likely to grow larger in the future.Successive generations of Hispanics and
blacks are falling further behind their white and Asian counterparts in
obtaining four-year college degrees. Second, the payoffs for increasing levels of education obtained
by Hispanics and blacks generally are lower than those for whites and Asians.
As a consequence of these quantity and quality gaps, higher education
unintentionally has become an engine for widening disparities rather than for
accelerating the convergence of economic and financial opportunities across
races and ethnicities.
Laura Tyson,
Project Syndicate:Labor Markets in the Age of Automation. Advances in artificial intelligence and robotics are
powering a new wave of automation, with machines matching or outperforming
humans in a fast-growing range of tasks, including some that require complex
cognitive capabilities and advanced degrees. This process has outpaced the
expectations of experts; not surprisingly, its possible adverse effects on both
the quantity and quality of employment have raised serious concerns. Winner-take-all effects that
bring massive benefits to superstars and the luckiest few, as well as rents
from imperfect competition and first-mover advantages in networked systems.
Returns to digital capital
tend to exceed the returns to physical capital and reflect power-law
distributions, with an outsize share of returns again accruing to relatively
few actors.
Emmanuel Saez,
NBER: Taxing the Rich More: Preliminary Evidence from the 2013 Tax Increase. This paper provides preliminary evidence on
behavioral responses to taxation around the 2013 tax increase that raised top
marginal tax rates on capital income by about 9.5 points and on labor income by
about 6.5 points. Using published tabulated tax statistics from the Statistics
of Income division of the IRS, we find that reported top 1% incomes were
significantly higher in 2012 than in 2013, implying a large short-run
elasticity of reported income with respect to the net-of-tax rate in excess of
one. This large short-run elasticity is due to income retiming for tax
avoidance purposes and is particularly high for realized capital gains and
dividends, and highest at the very top of the income distribution. However,
comparing 2011 and 2015 top incomes uncovers only a small medium-term response
to the tax increase as top income shares resumed their upward trend after 2013. Overall, we estimate that at
most 20% of the projected tax revenue increase from the 2013 tax reform is lost
through behavioral responses. This implies that the 2013 tax increase was an
efficient way to raise revenue.
Paul A. Gompers, Sophie
Q. Wang, Harvard
University: And the Children Shall Lead: Gender Diversity and Performance in
Venture Capital. With an overall
lack of gender and ethnic diversity in the innovation sector documented in Gompers
and Wang (2017), we ask the natural next question: Does increased diversity
lead to better firm performances? In this paper, we attempt to answer this
question using a unique dataset of the gender of venture capital partners’
children. First, we find
strong evidence that parenting more daughters leads to an increased propensity
to hire female partners by venture capital firms. Second, using an instrumental
variable set-up, we also show that improved gender diversity, induced by
parenting more daughters, improves deal and fund performances. These effects
concentrate overwhelmingly on the daughters of senior partners than junior
partners. Taken together, our findings have profound implications on how the
capital markets could function better with improved diversity.
Simen Markussen,
Knut Røed, IZA: Egalitarianism under Pressure: Toward Lower Economic Mobility
in the Knowledge Economy? Based on complete
population data, with the exact same definitions of family class background and
economic outcomes for a large number of birth cohorts, we examine post-war
trends in intergenerational economic mobility in Norway. Despite only mild
fluctuations in standard rank-based summary statistics, we show that men and
women born into the lowest parts of the parental earnings rank distribution
have fallen considerably behind in terms of several quality-of-life outcomes,
such as earnings rank, earnings share, employment propensity, educational
attainment, and the establishment of a family. In particular, the prime-age employment rates
of lower class sons have declined spectacularly, both because their rank
outcomes have deteriorated and because the lowest ranks to an increasing extent
have become associated with non-employment rather than low-wage employment.
We provide suggestive evidence that higher educational requirements in the
labor market has increased the importance of parental encouragement and support
and thus enlarged the handicap of being born into a less resourceful family.
There is no evidence whatsoever of a relative decline in the lower classes'
cognitive abilities.
Arthur Waldron,
SupChina: There is no Thucydides Trap. Since the attack on Scarborough Shoal, now six years ago, my own
opinion is that China expected to have occupied a lot more. Her slightly
delusional view of her claims, first made explicit in ASEAN’s winter meeting of
2010 in Hanoi, was that “small” countries would all bow respectfully to China’s
new pre-eminence. This has failed to occur. All of China’s neighbors are now building up strong
military capabilities. Japanese and South Korean nuclear weapons are even a
possibility. Over-relying on their traditional concept of awesomeness (威 wēi), the
Chinese expected a cake walk. They have got instead an arms race with neighbors
including Japan and other American allies and India too. With so much firepower now in place the danger of accident, pilot
error, faulty command and control, etc. must be considered.
Alix Spiegel, NPR:
Eager To Burst His Own Bubble, A Techie Made Apps To Randomize His Life. In San Francisco, the life Max Hawkins lived was
arguably perfect. He was employed by Google, surrounded by friends and had his
routine nailed down. He woke to artisanal coffee, biked to work along the
beautiful Embarcadero waterfront roadway, lunched on Google's famed free food
("like four different kinds of kale" level) and — possibly the true
mark of a successful millennial — got invited to many happy hours. But
something was missing. Max started small, with an app that integrated Uber.
He would press a button in the app and a car would arrive. But then, a twist: He couldn't select a drop-off
location; the app would choose a spot within a range without disclosing it. The
only thing the rider had to do was enjoy the journey — and hope for a good
destination. From there, Max's applications became more complex. He built an
app that used a Facebook search function for public events to find ones near
him. Then the app would randomly choose which event Max would attend.
Jan Kabátek, David
C. Ribar, IZA: Not Your Lucky Day: Romantically and Numerically Special Wedding
Date Divorce Risks. Characteristics
of couples on or about their wedding day and characteristics of weddings have
been shown to predict marital outcomes. Little is known, however, about how the
dates of the weddings predict marriage durability. Using Dutch marriage and
divorce registries from 1999-2013, this study compares the durations of
marriages that began on Valentine's Day and numerically special days (dates
with the same or sequential number values, e.g., 9.9.99, 1.2.03) with marriages
on other dates. In the Netherlands, the incidence of weddings was 137-509%
higher on special dates than ordinary dates, on an adjusted basis, and the
hazard odds of divorce for special-date marriages were 18-36% higher. Sorting on couples' observable
characteristics accounts for part of this increase, but even after controlling
for these characteristics, special-date marriages were more vulnerable, with
11-18% higher divorce odds compared to ordinary dates. This relation is even
stronger for couples who have not married before.
Mitch Prinstein,
NYT: Popular People Live Longer. Julianne Holt-Lunstad, a psychologist at Brigham Young University,
consolidated data from 148 investigations published over 28 years on the
effects of social relationships, collectively including over 308,000
participants between the ages of 6 and 92 from all over the world. The results revealed that being
unpopular — feeling isolated, disconnected, lonely — predicts our life span.
More surprising is just how powerful this effect can be. Dr. Holt-Lunstad found
that people who had larger networks of friends had a 50 percent increased
chance of survival by the end of the study they were in. And those who
had good-quality relationships had a 91 percent higher survival rate. This
suggests that being unpopular increases our chance of death more strongly than
obesity, physical inactivity or binge drinking. In fact, the only comparable
health hazard is smoking.
Cecchetti &
Schoenholtz, Banking&Finance: Labor's Declining Share: A Primer. Does
the global decline in labor’s share in recent decades reflect a general shift
of activity away from industries or sectors that have higher labor shares? The
answer generally is no. Conventional analysis of the data shows that
most of the decline occurs within-industry or within-sector, rather than
resulting from a compositional shift of activity. So, after decades of apparent
stability, what has been causing the recent decline of the aggregate labor
share? Will the decline continue? And how is it affecting welfare? A truly
compelling explanation (and prediction) must be consistent with the timing of
the measured decline (especially the larger drop in the past two decades), with
its geographic breadth (including both advanced and emerging economies), with
its sectoral and geographic diversity, and with the within-industry pattern
observed. This is a very tall challenge to which researchers are beginning to
respond.
Nicholas Bloom, Erik Brynjolfsson et al. IZA: What Drives
Differences in Management? Partnering with
the Census we implement a new survey of "structured" management
practices in 32,000 US manufacturing plants. We find an enormous dispersion of management practices
across plants, with 40% of this variation across plants within the same firm.
This management variation accounts for about a fifth of the spread of
productivity, a similar fraction as that accounted for by R&D, and twice as
much as explained by IT. We find evidence for four "drivers"
of management: competition, business environment, learning spillovers and human
capital. Collectively, these drivers account for about a third of the
dispersion of structured management practices.
Derek Thompson,
The Atlantic: So, Where Are All Those Robots? Lots of people think that the robots are coming to steal everybody’s
jobs. But another story is emerging from several recent papers and columns by
economists and economic writers. Instead of a world without work, they say, there is currently more
evidence for a world with too much work—and not enough humans to do it all.
Rather than high-flying investment in machines and similarly high unemployment,
there is strangely low investment and happily low joblessness. How can
anybody say robots are killing jobs when the killer is nowhere to be seen and
the supposed victim isn’t even dead?
Jonathan M.V.
Davis, Sara B. Heller, NBER: Rethinking the Benefits of Youth Employment
Programs: The Heterogeneous Effects of Summer Jobs. This
paper reports the results of two randomized field experiments, each offering
different populations of youth a supported summer job in Chicago. In both
experiments, the program dramatically reduces violent-crime arrests, even after
the summer. It does so without improving employment, schooling, or other types
of crime; if anything, property crime increases over 2-3 post-program
years. To explore mechanisms, we implement a machine learning method that
predicts treatment heterogeneity using observables. The method identifies a
subgroup of youth with positive employment impacts, whose characteristics
differ from the disconnected youth served in most employment programs. We find
that employment benefiters commit more property crime than their control
counterparts, and non-benefiters also show a decline in violent crime.
Erling Barth, Sari
Pekkala Kerr, Claudia Olivetti, NBER: The Dynamics of Gender Earnings
Differentials: Evidence from Establishment Data. We use a unique match between the 2000 Decennial
Census of the United States and the Longitudinal Employer Household Dynamics
(LEHD) data to analyze how much of the increase in the gender earnings gap over
the lifecycle comes from shifts in the sorting of men and women across high-
and low-pay establishments and how much is due to differential earnings growth
within establishments. We find that for the college educated the increase is substantial and, for the most
part, due to differential earnings growth within establishment by gender. The
between component is also important. Differential mobility between
establishments by gender can explain 27 percent of the widening of the pay gap
for this group. For those with no college, the, relatively small,
increase of the gender gap over the lifecycle can be fully explained by
differential moves by gender across establishments. The evidence suggests that,
for both education groups, the between-establishment component of the
increasing wage gap is due almost entirely to those who are married.
David Autor,
Andreas Ravndal Kostol, Magne Mogstad, Bradley Setzler, NBER: Disability
Benefits, Consumption Insurance, and Household Labor Supply.We comprehensively assess these missing margins in
the context of Norway's DI system, drawing on two strengths of the Norwegian
environment. First, Norwegian register data allow us to characterize the
household impacts and fiscal costs of disability receipt by linking employment,
taxation, benefits receipt, and assets at the person and household level.
Second, random assignment of DI applicants to Norwegian judges who differ
systematically in their leniency allows us to recover the causal effects of DI
allowance on individuals at the margin of program entry. Accounting for the total effect
of DI allowances on both household labor supply and net payments across all
public transfer programs substantially alters our picture of the consumption
benefits and fiscal costs of disability receipt. While DI allowance causes a
significant increase in household income and consumption on average, it has
little impact on income or consumption of married applicants because spousal
earnings responses (via the added worker effect) and benefit substitution
entirely offset DI benefit payments among those who are allowed relative to
those who are denied.
Yannis
Paschalidis, Harvard Business Review: How Machine Learning Is Helping Us
Predict Heart Disease and Diabetes. In an ongoing effort with Boston-area hospitals, including the Boston
Medical Center and the Brigham and Women’s Hospital, we found that we could predict hospitalizations
due to these two chronic diseases about a year in advance with an accuracy rate
of as much as 82%. This will give care providers the chance to intervene
much earlier and head off hospitalizations. Our team is also working with the
Department of Surgery at the Boston Medical Center and can predict readmissions
within 30 days of general surgery; the hope is to guide postoperative care in order
to prevent them.
