Brad DeLong: Worthy reads on equitable growth, January 26–February 1, 2021

Worthy reads from Equitable Growth:

1. The coronavirus recession continues to be a disaster for low-paid workers in jobs requiring personal contact. How permanent will this be? Human smiles and social intelligence are a powerful way people can add value. But there is an ongoing shift substituting information technology for human guidance in retail. Is this trend going to accelerate because of the pandemic? Read Kate Bahn and Carmen Sanchez Cumming, “U.S. retail sector’s recession experiences highlight continuing labor market travails,” in which they write: “Public health measures require limiting in-person services, and as a result, many industries saw sharp declines in employment … We examine … the retail industry … [which] in December 2020 … employed 410,000 fewer workers than in February of that year … sports, hobby, book, and music stores shrunk more than 17 percent between February 2020 and December 2020. Almost 1 in 4 clothing store jobs have been lost … Garden supply stores, nonstore retailers, and general merchandise … have actually grown … Workers employed in nonessential businesses and holding jobs that require face-to-face interactions … [are] more exposed … The downturn could be accelerating dynamics that were reshaping the retail sector well before the onset of the recession … Retail jobs are often the first rung in workers’ career ladders, making good jobs in retail an important piece of career advancement and influencing lifetime earnings growth. And while many workers transition out of the retail sector when switching jobs, workers of color in general and Black women in particular are less likely.”

2. This is rather pleasing news. Formal employer monopsony power as measured by standard concentration ratios does not appear to be a big deal in shifting income from labor to capital in the United States today. Of course, there remains the substantial puzzle that firms are not price takers even where buyers are not concentrated, but that is something that this very good paper cannot address. Read Gregor Schubert, Anna Stansbury, and Bledi Taska, “Employer Concentration and Outside Options,” in which they write: “We develop an instrument for employer concentration … estimate the effect of plausibly exogenous variation in employer concentration on wages across the large majority of U.S. occupations and metropolitan areas. Second, we … identify … relevant job options outside a worker’s own occupation using new occupational mobility data constructed from 16 million resumes … Moving from the median to the 95th percentile of employer concentration reduces wages by 3 percent. But we also reveal substantial heterogeneity: the effect of employer concentration is at least four times higher for low outward mobility occupations than those with high outward mobility. Since the majority of U.S. workers are not in highly concentrated labor markets, the aggregate effects of concentration on wages do not appear large enough to have substantial explanatory power for income inequality or wage stagnation. Nonetheless, our estimates suggest that a material subset of workers experience meaningful negative wage effects.”

3. I have never understood why anybody would ever have imagined that noncompete clauses could be a good thing for an economy. What is the externality that cannot otherwise be contracted around that such are supposed to fix? Only when an employee has knowledge that would allow a competitor that learns it to route around intellectual property protections would there be a case. That case would seem to hinge on the belief that our intellectual property protections are less than efficiently strong—an argument I do not see made often. Read David Balan, “Why noncompete clauses in employment contracts are by and large harmful to U.S. workers & the U.S. economy,” in which he writes: “For a firm to succeed in attracting workers by not requiring a noncompete, it would likely have to make the absence of a noncompete a central element of its recruiting message to the exclusion of other, likely more effective messages. Moreover, if only one or a few firms did not require a noncompete, then they would tend to attract the workers who care the most about avoiding a noncompete … The specific claims of positive effects … that they facilitate efficient transfer of knowledge … they facilitate efficient worker-funded employee training … Much information sharing will occur with or without a noncompete simply because it is impossible to operate the business any other way. The efficiency benefit is only the increment of information sharing … By the same logic that the noncompete increases the firm’s incentive to generate new knowledge, it decreases the worker’s incentive to do so … Noncompetes also impede the efficient flow of people across firms … Some training will occur with or without the noncompete simply because it is impossible to operate the business any other way … Standard economic theory indicates that, in a competitive labor market, training with benefits that exceed the costs will occur regardless. With a noncompete, the firm will pay the cost and receive the benefit, but without a noncompete, the worker will pay the cost (through formal schooling and/or lower wages early in a career) and receive the benefit. The training will occur regardless.”

Worthy reads not from Equitable Growth:

1. Interesting and very useful numbers about the likely effects of the Biden administration’s economic support plan. If the U.S. economy recovers more rapidly than expected, well and good, the Federal Reserve can handle any excess aggregate demand problems. But if the economy does not recover more rapidly than expected, this looks to be a very welcome thing for the U.S.  economy over the next several years. Read Wendy Edelberg and Louise Sheiner, “The macroeconomic implications of Biden’s $1.9 trillion fiscal package,” in which they write: “We estimate that the package would boost economic activity, as measured by the level of real gross domestic product, by about 4 percent at the end of 2021 and 2 percent at the end of 2022, relative to a projection that assumes no additional fiscal support. We project that if the Biden package were enacted, GDP would reach the Congressional Budget Office’s pre-pandemic GDP projection after the third quarter of 2021, exceeding it by 1 percent in the fourth quarter. In the middle of 2022, GDP would show a temporary and shallow decline and then grow at an annual rate of about 1.5 percent, coming close to the path projected just before the pandemic.”

2. The health of an economy is different from the health of its manufacturing sector. The health of manufacturing as a productive enterprise is different from the number of workers employed in manufacturing. And the subunits and regional units of manufacturing are very, very different things as well. Do not presume that any of these are identical or even highly correlated with any of the others. Read Scott Lincicome, “Busting the ‘Deindustrialization’ Myth.” in which he writes: “Since trade often gets the blame for manufacturing job losses, it’s good to add Robert Lawrence’s 2020 examination of 60 developed and developing countries between 1995 and 2011, which found that nations with manufacturing trade surpluses actually experienced slightly larger declines in manufacturing employment than those with manufacturing trade deficits. He also found that manufacturing job losses were as large in countries with “improving” manufacturing trade balances over this period as those with “worsening” ones. Why? Because manufacturing job loss is less a story of “deindustrialization” and more one of economic development. In general, all countries generally follow the same “inverted-U” pattern of development, first adding and then losing manufacturing jobs as they get richer (and gaining services jobs over the same timeframe).”

February 1, 2021


Brad DeLong


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