Should Reads:
One of life’s great certainties, Tax Day, is just around the corner. This annual rite is usually a time for reflection about the state of the federal tax code, its level, and the various rates—marginal, effective, and average—that we all pay. But there’s another angle that rarely, if ever, gets noted. After you submit your tax filing, you’ll be contributing to an important resource: administrative data.
Administrative data can be thought of as the publicly controlled side of “big data.” When you file your taxes, your returns become part of a dataset at the U.S. Department of the Treasury that includes everyone else who filed that year. And the years before that. Unlike datasets that come from the Current Population Survey, which only samples some of the population, administrative data can sometimes cover a larger portion of the population under study. The annual income data from the March Current Population Survey, for example, comes from a sample of roughly 160,000 observations. The IRS has annual earnings data on more than 140 million tax units.
For researchers, data of this size and accuracy offer a lot of opportunity. And just the tax dataset alone has been the source of some important economics research. Because these data do a better job at capturing top incomes than survey data, administrative tax data are the core of estimates of top-end income inequality from Thomas Piketty and Equitable Growth Steering Committee member Emmanuel Saez, and of top-end wealth inequality by Saez and Gabriel Zucman of the University of California, Berkeley. The same data source underlies the research by Raj Chetty of Stanford University and our Steering Committee, Saez, and others on economic mobility, as well as other research on the changes in the sources of business income.
The problem with administrative data is that it’s not easy to obtain access to. Unlike the Current Population Survey and other datasets like it, the data aren’t freely available for download on the Internet. Due to important concerns about privacy, the data are kept on a much tighter lease. Researchers have much taller hurdles to jump when it comes to accessing administrative tax data.
Access is also a significant problem for other datasets, such as data from the Social Security Administration. These large datasets are important for understanding topics such as the rise of inter-firm inequality in the United States, but it’s far from easy to get access to these data. There are concerns about privacy, and sometimes, as a result, individual researchers have to write their code with artificial data and have agency staffers run the code for them. This creates a bottleneck for researchers, leaving only a few researchers able to be accommodated at a time. Staff economists at these agencies have direct access to the data, so they are spared that inconvenience. This is one reason why Treasury or Social Security Administration economists are often co-authors on these projects.
It’s different in other countries. Take a look at some administrative data-driven research abroad and you’ll notice quite a few papers using data from Germany, where administrative data linking workers to their employers are much more readily available. The relatively easier access to data in Germany means we’re seeing researchers in the United States focusing on that country, while research on the United States lags behind. And when research abroad is done, it’s hard to replicate it in the United States to see what the results would be here without access to U.S. administrative data.
Unfortunately, some policymakers have tried to restrict the amount of data researchers and the public already have easy access to—even though the gains from the data almost certainly make up for the costs of collection. Additionally, expanding access to administrative data would help increase the amount of research and our knowledge of the U.S. economy. If we’re all contributing to these datasets, then we might as well have more access.
Must-Read: : On Twitter:
More evidence on benefits of welfare payments. Recipients' sons die later, study longer & earn more. Via @ThewissenS pic.twitter.com/AjCNeZAiZF
— Dina D. Pomeranz (@dinapomeranz) March 29, 2016
This, from Paul Krugman, strikes me as… inadequate:
: Why Monetarism Failed: “Right-wingers insisted–Friedman taught them to insist–that government intervention was always bad, always made things worse…
…Monetarism added the clause, ‘except for monetary expansion to fight recessions.’ Sooner or later gold bugs and Austrians, with their pure message, were going to write that escape clause out of the acceptable doctrine. So we have the most likely non-Trump GOP nominee calling for a gold standard, and the chairman of Ways and Means demanding that the Fed abandon its concerns about unemployment and focus only on controlling the never-materializing threat of inflation.
What about the reformicons, who pushed for neo-monetarism? We can sum up their fate in two words: Marco Rubio. There is no home for the kind of return to realism they were seeking…. The monetarist idea no longer serves any useful purpose, intellectually or politically. Hicksian macro–IS-LM or something like it–remains an extremely useful tool of both analysis and policy formulation; that tool is not helped by trying to state it in terms of monetary velocity and all that. And if you want macro policy that isn’t dictated by Ayn Rand logic, you have to turn to a Democrat; on the other side, there’s nobody rational to talk to.
Sad!
This is an issue I have worried at like a dog at a worn-out glove for a decade now. So let me worry at it again:
There were gold bugs and Austrians in the 1950s, 1960s, 1970s, and even 1980s too. But Arthur Burns, Milton Friedman, Alan Greenspan and company kicked them up and down the street with gay abandon. And the Ordoliberal Germans would, when you cornered them, would admit that somebody else had to take on the job of stabilizing aggregate demand for the North Atlantic economy as a whole for their doctrines to work.
But in 2009 the Lucases and the Prescotts and the Cochranes and the Famas and the Boldrins and the Levines and the Steils and the Taylors and all the others and even the Zingaleses (but we can excuse Luigi on the grounds that if you are (a) Italian and (b) view Berlusconi as the modal politician a certain reluctance to engage in fiscal policy is understandable)–crawled out from their caves and stood in the light of day. And the few remaining students of Milton Friedman got as little respect as the Stewards of Gondor gave to the leaders of the Dunedain.
Yes, there is an intellectual tension between believing in laissez faire as a rule and believing in activist monetary management to set the market interest rate equal to the Wicksellian neutral interest rate. But why is that tension unsustainable? Once you have swallowed a government that assigns property rights, sustains contracts, and enforces weights and measures, why is this extra step a bridge too far?
Must-Read: For the most part, an excellent piece by Megan McArdle. But…
McMegan: There is a lot of good reason to think that the elasticity of labor demand at the low end is about -0.2! That higher minimum wages of the magnitude we are talking about throw not a lot but a few people out of work–that the actual low-wage household societal welfare gain is roughly 80% of the naive estimate.
And maternity leave makes even not-good jobs much better…
And the point is not to send everyone to a four-year college, but to send enough people to a four-year college to reduce the four-year college wage premium from its current 90% back to the 30% or so it was in the 1970s…
Otherwise: perfect:
: Listen to the Victims of the Free Market: “The arguments for market liberalism are bound to sound a lot less convincing…
…when they invariably issue from the folks who aren’t expected to take one for the team–who are, in fact, being made better off, thanks to skills… prize… and thanks to trade, automation and immigration…. Academic economists and policy analysts are among the knowledge workers who have benefited greatly from liberalization…. Let’s look at something that elites consistently fail to talk about in any meaningful way: good jobs…. We talk around those things… about inequality… paid leave… education… ritual obeisances toward the necessity of decent work, promising that some policy laughably inadequate to the task…. But neither party has any meaningful policy to foster good work…. The closest either party comes is the $15-an-hour minimum wage, a policy with the slight drawback that it may throw a lot of people out of work….
Elites of both parties focus on the things they want for themselves. Republicans offer tax cuts and deregulation, as if everyone in America were going to become an entrepreneur. Democrats offer free college tuition and paid maternity leave, as if these things were a great benefit to people who don’t have the ability, preparation or inclination to sit through four years of college, and as a result, can’t find a decent job from which to take their leave…. The implicit assumption of elites in both parties is that the solution for the rest of the country is to become more like us, either through education or entrepreneurship. Rarely does anyone discuss how we might build an economy that works for people who aren’t like us and don’t want to turn into us….
Even if they are still consuming the same amount of stuff, even if their incomes are all right for the moment, if people feel that they cannot count on work, then they will feel helpless and frightened, and they will turn to politicians who can assuage those fears by pointing to specific enemies who can be vanquished to secure their safety. Democrats convinced that they have the answer to populism in the form of more social welfare programs are as gravely mistaken as the Republicans who focused on the same old pro-business program…. People are worried about their physical security and their ability to make a decent life for themselves. And ‘for themselves’ is the important phrase in that sentence…. There is no better example of the folly of the elites than the current fashion for a universal basic income among both liberals and libertarians…. I will give the universal basic income people this much; even if they aren’t really grappling with the need for work, at least they understand that there is a problem…. That’s more than you’d gather from the major speeches or the policy programs….
Start thinking about how to listen and talk to everyone else. Don’t answer every question about jobs with boilerplate about clean energy, or entrepreneurship, or… assum[ing] that the solution to our problems is to somehow arrange for everyone in America to get a four-year degree. Don’t assume that the rest of the country is full of Morlocks who do not need what you have for yourself: a stable job that connects you… gives you a sense of usefulness and security, and offers you some chance at an even better future…. That improved conversation is not an answer to either the political or the economic problems that Americans are facing. But at least it’s a start.
We are all Polanyiites now…
The damage the U.S. labor market endured during and after the Great Recession was massive. The unemployment rate, after rising for 29 months, spiked at 10 percent in October 2009—a level not seen since the early 1980s. With such a big jump in unemployment, policymakers took steps to significantly expand the unemployment insurance system. They dramatically increased the duration of the program, allowing eligible workers to receive benefits for up to 99 weeks in some cases.
Such a response made sense. With unemployment sharply on the rise and then remaining elevated, it is important for workers looking for a job—and for the aggregate demand in general—to be able to collect benefits if finding a job is difficult. But there’s been some concern that by reducing the incentive to find work, expanding unemployment insurance itself actually increases the unemployment rate. According to a new paper on the subject, that may be true but it also is of minimal importance at most.
But first, let’s put the new paper in context. In studying the effect of unemployment insurance on unemployment, economists have generally gone in two directions. The first is to look at the microeconomic effects and try to understand how the benefits affect the decisions of individual workers. Research in this vein after the Great Recession finds that unemployment insurance does increase the unemployment rate, but that’s because workers remain in the labor force as they look for work.
The second way to look at unemployment insurance is in the macro sense to see how it affects aggregate unemployment when the insurance is extended during a recession. The micro approach only captures what economists call “partial equilibrium” effects, so macro approaches try to see how the unemployment rate is changed after the extension at the macro level, estimating the “general equilibrium” effects. Some of the papers looking at macroeconomic outcomes find a small effect of UI extensions on unemployment, while others find large negative effects.
That’s where the new paper by Gabriel Chodorow-Reich of Harvard University and Loukas Karabarbounis of the University of Chicago fits in. And as you could guess from its title—“The Limited Macroeconomic Effects of Unemployment Benefit Extensions”—the paper finds only a slight macroeconomic effect of increasing the duration of unemployment insurance. How they find this result is quite interesting. A problem with figuring out how much unemployment benefits increase unemployment is that they get extended when unemployment is going up. So it’s hard to figure out which way the causation runs in the relationship: Is the extension causing a rise in the rate or vice versa?
Chodorow-Reich and Karabarbounis figure out a nifty way of untangling the causation. Unemployment benefits “trigger on” once the unemployment rate in a state has been over a defined threshold for a certain amount of time. But sometimes there are measurement issues with state unemployment rates that cause the benefits to trigger on when the underlying economic situation wouldn’t call for it or vice versa. The changes in this measurement error are random, which means the authors can measure the causal impact of the extensions. Their empirical results imply that the increases in the duration of unemployment benefits increased the unemployment rate by 0.3 percentage points.
The unemployment rate increased overall by 5 percentage points during the Great Recession, so the extended unemployment benefits were behind only 6 percent of the overall increase in the unemployment rate between December 2007 and June 2009. Concerns, then, that policies designed to help fight unemployment actually increase it are way overblown. Our concerns about the unemployment insurance system might be better directed toward other areas.
Must-Read: : Why Has Regional Income Convergence in the U.S. Declined?: “The past thirty years have seen a dramatic decline in the rate of income convergence…
across states and in population flows to wealthy places. These changes coincide with (1) an increase in housing prices in productive areas, (2) a divergence in the skill-specific returns to living in those places, and (3) a redirection of unskilled migration away from productive places. We develop a model in which rising housing prices in wealthy areas deter unskilled migration and slow income convergence. Using a new panel measure of housing supply regulations, we demonstrate the importance of this channel in the data. Income convergence continues in less-regulated places, while it has mostly stopped in places with more regulation.
Should-reads:
Must-Read: : How American Cities Can Make America Great Again: “Even if the federal government were a monarchy…
…some of the most significant policy decisions happen at the local and state level, where federal power holds little sway. The president cannot force richer cities to raise their minimum wages above the national minimum, nor can the executive branch alone force states to spend more money on poor neighborhoods’ public schools. But perhaps the best example is America’s housing policy. As much as tax policy or defense spending can shape the economic fortunes of families and generations, people are not just products of the District’s mandates. They are also products of local geography—which is determined city by city, and block by block….
Several major cities have missed out almost entirely from the recovery. In Detroit, Memphis, and Toledo, the number of businesses declined between 2010 and 2013. In Cleveland and Cincinnati, total employment shrunk as well. In other cities… the recovery has been so frothy that the housing market is back to its pre-crash highs…. Austin, Buffalo, Denver, Honolulu, Nashville, Pittsburgh, [and] San Francisco. In three other metros, prices are within 5 percent of their all-time highs: Durham-Chapel Hill, Houston, [and] San Jose…. The return of record-high home prices in metros rich with new college grads is both an achievement and a warning. It’s an achievement, because there is a strong relationship between long-term growth and cities that assemble smart people…. But it’s a warning, too, because long-term growth requires that those people can afford to stay in the city….
There are some good reasons why expensive cities tend to be on the water. It’s hard to builds apartments on the ocean. But restrictive housing policies—for example, height restrictions and rules prohibiting the construction of new homes or multifamily housing— are a man-made tax on agglomeration, pricing smart people out of places they want to live and the places where they could best work. This, in turn, deprives some cities of the very job multiplier that Moretti hailed…. This isn’t a concern on the level of a city, but of the nation as a whole…
Must-Read: : Supply-Side Policies in the Depression: Evidence from France: “The effects of supply-side policies in depressed economies are controversial…
…We shed light on this debate using evidence from France in the 1930s. In 1936, France departed from the gold standard and implemented mandatory wage increases and hours restrictions. Deflation ended but output stagnated. We present time-series and cross-sectional evidence that these supply-side policies, in particular the 40-hour law, contributed to French stagflation. These results are inconsistent both with the standard one-sector new Keynesian model and with a medium scale, multi-sector model calibrated to match our cross-sectional estimates. We conclude that the new Keynesian model is a poor guide to the effects of supply-side shocks in depressed economies.