#ASSA2017 Day 3 roundup

The annual meeting of the Allied Social Science Associations is this weekend in Chicago. The conference features hundreds of sessions covering a wide variety of economics research. Interesting papers are all over the place, so below are some of the papers that caught the eyes of Equitable Growth staffers during the last day of the conference. Check out the highlights from the first and second days of the conference.

How Does Unemployment Affect Consumer Spending?

Peter Ganong, Harvard University; Pascal Noel, Harvard University

Abstract: We study the spending of unemployed individuals using anonymized data on 210,000 checking
accounts that received a direct deposit of unemployment insurance (UI) benefits. The account holders are similar to a representative sample of U.S. UI recipients in terms of income, spending, assets, and age. Unemployment causes a large but short-lived drop in income, generating a need for liquidity. At onset of unemployment, monthly spending drops by 6%, and work-related expenses explain one-quarter of the drop. Spending declines by less than 1% with each additional month of UI receipt. When UI benefits are exhausted, spending falls sharply by 11%. Unemployment is a good setting to test alternative models of consumption because the change in income is large. We find that families do little self-insurance before or during unemployment, in the sense that spending is very sensitive to monthly income. We compare the spending data to three benchmark models; the drop in spending from UI onset through exhaustion fits the buffer stock model well, but spending falls much more than predicted by the permanent income model and much less than the hand-to- mouth model. We identify two failures of the buffer stock model relative to the data – it predicts higher assets at onset, and it predicts that spending will evolve smoothly around the largely predictable income drop at benefit exhaustion.

Management Practices, Workforce Selection and Productivity

Stefan Bender, Deutsche Bundesbank; Nicholas Bloom, Stanford University; David Card, University of California-Berkeley; John Van Reenen, Massachusetts Institute of Technology; Stefanie Wolter, Institute for Employment Research (IAB)

Abstract: Recent research suggests that much of the cross-firm variation in measured productivity is due to differences in use of advanced management practices. Many of these practices – including monitoring, goal setting, and the use of incentives – are mediated through employee decision-making and effort. To the extent that these practices are complementary with workers’ skills, better-managed firms will tend to recruit higher-ability workers and adopt pay practices to retain these employees. We use a unique data set that combines detailed survey data on the management practices of German manufacturing firms with longitudinal earnings records for their employees to study the relationship between productivity, management, worker ability, and pay. As documented by Bloom and Van Reenen (2007) there is a strong partial correlation between management practice scores and firm-level productivity in Germany. In our preferred TFP estimates only a small fraction of this correlation is explained by the higher human capital of the average employee at better-managed firms. A larger share (about 13%) is attributable to the human capital of the highest-paid workers, a group we interpret as representing the managers of the firm. And a similar amount is mediated through the pay premiums offered by better-managed firms. Looking at employee inflows and outflows, we confirm that better-managed firms systematically recruit and retain workers with higher average human capital. Overall, we conclude that workforce Selection and positive pay premiums explain just under 30% of the measured impact of management practices on productivity in German manufacturing.

Licensing and Service Quality: Evidence Using Yelp Consumer Reviews

Darwyyn Deyo , George Mason University;Thomas Stratmann , George Mason University

Abstract: A common justification for licensing is consumer protection, that is, quality and safety. We employ a unique dataset of individual Yelp business ratings to estimate the relationship between licensing and quality for four occupations. We test whether licensing impacts competition for these occupations using a negative binominal model and find a negative relationship between more licensing and the number of firms. We design a difference-in-differences model with state fixed effects, using business location near state borders as a treatment group and state requirements for licensing as the treatment. Yelp ratings are used as the measure of service quality. We find that having any licensing for an occupation or requiring any licensing exams significantly lowers quality within a state. We also find evidence for diminishing returns from licensing for education and training, licensing exams, and minimum school grade requirements. The results are robust to several specification tests.

Moved to Opportunity: The Long-Run Effect of Public Housing Demolition on Labor Market Outcomes of Children

Eric Chyn, University of Virginia

Abstract: This paper provides new evidence on the effects of moving out of disadvantaged neighborhoods on the long-run economic outcomes of children. My empirical strategy is based on public housing demolitions in Chicago which forced households to relocate to private market housing using vouchers. Specifically, I compare adult outcomes of children displaced by demolition to their peers who lived in nearby public housing that was not demolished. Displaced children are 9 percent more likely to be employed and earn 16 percent more as adults. These results contrast with the Moving to Opportunity (MTO) relocation study, which detected effects only for children who were young when their families moved. To explore this discrepancy, this paper also examines a housing voucher lottery program (similar to MTO) conducted in Chicago. I find no measurable impact on labor market outcomes for children in households that won vouchers. The contrast between the lottery and demolition estimates remains even after re-weighting the demolition sample to adjust for differences in observed characteristics. Overall, this evidence suggests lottery volunteers are negatively selected on the magnitude of their children’s gains from relocation. This implies that moving from disadvantaged neighborhoods may have substantially larger impact on children than what is suggested by results from voucher experiments where parents elect to participate.

Capturing the Productivity Impact of the ‘Free’ Apps and Other Ad-Supported Media

Leonard Nakamura, Federal Reserve Bank of Philadelphia; Jon Samuels, U.S. Bureau of Economic Analysis; Rachel Soloveichik, U.S. Bureau of Economic Analysis

“Free” consumer entertainment and information from the Internet, largely supported by advertising revenues, has had a major impact on consumer behavior. Some economists believe that measured GDP growth is badly underestimated because GDP excludes online entertainment (Brynjolfsson and Oh 2012; Ito 2013; Aeppel 2015). This paper introduces an experimental GDP methodology which includes advertising-supported media in both final output and business inputs. For example, Google Maps would be counted as final output when it is used by a consumer to plan vacation driving routes. On the other hand, the same website would be counted as a business input when it is used by a pizza restaurant to plan delivery routes. Contrary to BEA’s critics, including ‘free’ media in the input-output accounts has little impact on either GDP or TFP. Between 1998 and 2012, measured nominal GDP growth falls 0.005% per year, real GDP growth rises 0.009% per year and TFP growth rises 0.016% per year. The changes to nominal GDP, real GDP and TFP are even smaller before 1998. Our method for accounting for ‘free media’ is production oriented in the sense that it is a measure of the resource input into the entertainment (or other content) of the medium, rather than a measure of the consumer surplus arising from the content. BEA uses a similar production oriented approach when measured GDP. In contrast, other researchers used broader approaches to measure value (Brynjolfsson and Oh 2012), (Varian 2009) and (Bughin et. al 2011). We’ve also explored a more expansive accounting methodology which incorporates some of the network effects from online media. With this expansive accounting, the productivity boom from 1995 to 2000 becomes even stronger and the weak productivity growth of the past decade may be ameliorated somewhat

January 8, 2017


Nick Bunker
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