The annual meeting of the Allied Social Science Associations started today in Philadelphia. The conference features hundreds of sessions covering a wide variety of economics research. Interesting research is all over the place here, so below are some of the papers that caught the attention of Equitable Growth staffers during the first day. Check back tomorrow and Sunday evening for further highlights.

Domestic Outsourcing of Labor Services in the United States: 1996-2015

David Dorn, Johannes F. Schmieder, and James R. Spletzer 

Abstract: Over the last decades large firms across all sectors have been increasingly relying on contractors and temp-agencies to provide labor services that were formerly provided by regular employees in-house. This phenomenon of domestic outsourcing has thoroughly transformed the nature of the employment relationship for a vast number of jobs, ranging from relatively low skilled tasks such as cleaning and security to high skilled tasks such as human resources and accounting. While a growing amount of anecdotal and qualitative evidence suggests that outsourcing causes a deterioration of many aspects of job quality, quantitative evidence on the prevalence and consequences of domestic outsourcing in the United States is very scarce. To fill this empirical gap, one needs access to a large matched employer-employee panel, as well as a research design that can credibly control for job and worker characteristics when comparing outsourced to non-outsourced jobs.

In this paper, we use the Longitudinal Employer Household Dynamics (LEHD) data to provide credible causal estimates of domestic outsourcing on a number of important job characteristics. The main empirical strategy builds on Goldschmidt and Schmieder (forthcoming), who develop a new design to identify domestic outsourcing based on worker flows in linked employer-employee data. Using German data, Goldschmidt and Schmieder show that it is possible to identify events where firms outsource labor services by spinning off parts of their workforce into either new or existing business service providers. In this case, it is possible to observe the same worker before and after outsourcing and compare job characteristics to a comparable job that is not being outsourced. Our research will address two main questions: (1) What is the time series of domestic outsourcing events in the United States from 1996 to 2015, and (2) How does domestic outsourcing of labor services affect the earnings of the outsourced jobs?

Does Universal Preschool Hit the Target? Program Access and Preschool Impacts

Elizabeth U. Cascio

Abstract: This paper uses the rich diversity in state rules governing access to public preschool programs in the U.S. to study the relative cost efficacy of universal programs for poor populations. Using age-eligibility rules to construct an instrument for attendance, I find that universal preschool generates substantial cognitive test score gains for poor 4-year-olds. Preschool programs targeted toward poor children do not. These findings are robust to the definition of poverty, comparison group, and controls for test scores earlier in life, and cross-state differences in demographics and alternative care options are not decisive factors. Benefit-cost ratios of universal programs remain favorable despite their relatively high costs per poor child. An auxiliary analysis suggests that peer effects are an important contributor to universal programs’ higher productivity.

The Intertemporal Keynesian Cross

Adrien Auclert, Ludwig Straub, and Matthew Rognlie

Abstract: We derive a microfounded, dynamic version of the traditional Keynesian cross, which we call the intertemporal Keynesian cross. It characterizes the mapping from all partial equilibrium demand shocks to their general equilibrium outcomes. The aggregate demand feedbacks between periods can be interpreted as a network, and the linkages in the network can be generalized to reflect both the feedback from consumption and other dynamic forces, such as fiscal and monetary policy responses. We explore the general equilibrium amplification and propagation of impulses, and show how they vary with features of the economy. General equilibrium amplification is especially strong when agents are constrained, face uncertainty, or are unequally exposed to aggregate fluctuations, and it plays a crucial role in the transmission of monetary and fiscal policy.

Kinky Tax Policy and Abnormal Investment Behavior

Eric Zwick and Qiping Xu

Abstract: This paper documents tax-minimizing investment, in which firms accelerate capital purchases near fiscal year-end to reduce taxes. Between 1984 and 2013, average investment in the fourth fiscal quarter (Q4) is 37% higher than the average of the first three fiscal quarters. Q4 investment spikes also occur internationally. We use research designs based on variation in firm tax positions, the 1986 Tax Reform Act, and international tax changes to show tax minimization causes spikes. Spikes are larger when firms face financial constraints or higher option values of waiting until year-end. Models without a purchase-year, tax-minimization motive are unlikely to fit the data.

The Demise of the Treaty of Detroit and (Dis)inflation Dynamics

Isabel Cairo and Jae Sim

Abstract: A canonical New Keynesian Phillips curve predicts that the current inflation rate is the present value of future unit labor cost, a.k.a. labor income share. According to this framework, disinflation in 1980s and 1990s was possible only if labor income share was expected to fall. In other words, to achieve disinflation, real wage growth must fall behind productivity growth. Hence, the cost of disinflation falls disproportionately on workers. Macroeconomists have not considered the distributional consequences of disinflation. This is partly because most workhorse models analyze the macroeconomic consequences of disinflation from the perspective of a representative agent. What happens if the workers are not the owners of the firms? Disinflation necessarily redistributes national income from workers to the owners of the firms. In this paper, we assume that the labor income share has fallen owing to the decline of workers’ bargaining power. We show that disinflation policy is the most effective and the most regressive when the central bank gives up the dual mandate effectively or fails to revise down the natural rate of unemployment in a timely manner.

The New Higher Minimum Wages: Effects in Seven Cities

Sylvia A. Allegretto, Anna Godøy, and Michael Reich

Abstract: Dozens of cities and eight states throughout the U.S. have enacted bold policies that will gradually phase in minimum wages in the $12 to $15 range over the next several years. These policies will have much larger bites than previous minimum wage increases. We examine early evidence on the wage and employment effects of these policies in seven large cities that have a) already exceeded the $10 level, and b) for which we will have sufficient post-treatment data by late 2017: Chicago, Los Angeles, Oakland, San Francisco, San Jose, Seattle and Washington, DC. We use only publicly-available data or data that is currently available to all researchers: the Quarterly Census of Employment and Wages for counties and cities. Our methods include a) comparisons of restaurant pay and employment trends with surrounding or adjoining counties and b) applying the synthetic control approach using donor counties. For the nearby county estimator, we examine whether trends are parallel in the pre-treatment period. For the synthetic control estimator, we use as long a training period as the available data allow and examine the robustness of our results to the length of this period. We also pay special attention to possible wage spillover issues with the donors, to whether the synthetic control provides a good-enough fit with the treatment city, and to tests of significance. To avoid contamination effects, our potential sample of donor counties varies for each city, depending on whether the city indexed its minimum wage in prior years and state policy. Our results suggest a range of treatment effects on wages and employment among the seven cities. When we pool the results across the seven cities, we find significantly positive effects on wages and small effects on employment, consistent with many previous studies.

Small and Large Firms Over the Business Cycle

Nicolas Crouzet and Neil Mehhrotra

Abstract: Drawing from new, confidential data on income statements and balance sheets of US manufacturing firms, we provide evidence on the relationship between size, cyclicality and financial frictions. First, while sales and investment of smaller firms tend to fluctuate more over the business cycle, the difference is too small to have an impact on aggregates — especially given the high and rising degree of skewness of the firm size distribution. Second, the size effect remains unchanged when directly conditioning on firm-level proxies for financial strength; moreover, while there is a size effect for sales and investment, there is none for measures of external financing. This evidence suggests that the relative behavior of small firms may not be informative about the role of financing frictions in amplifying business cycles.

Publishing While Female

Erin Hengel

Abstract: I use readability scores to test if women are held to higher standards in academic peer review. I find: (i) female-authored papers are 1–6 percent better written than equivalent papers by men; (ii) the gap is almost two times higher in published articles than in earlier, draft versions of the same papers; (iii) women’s writing gradually improves but men’s does not—meaning the readability gap grows over authors’ careers. Within a subjective expected utility framework, I exploit authors’ decisions to show that tougher editorial standards and/or biased referee assignment are uniquely consistent with the observed pattern of choices. A conservative causal estimate derived from the model suggests senior female economists write at least 9 percent more clearly than they otherwise would. I then document evidence that higher standards affect behaviour and lower productivity. First, female-authored papers take half a year longer in peer review. Second, as women update beliefs about referees’ standards, they increasingly meet those standards before peer review. Finally, I discuss channels that potentially motivate discrimination by referees and/or editors and present correlation evidence for one.