Category: Equitablog

Today was the third and final day of the annual meeting of the Allied Social Science Associations. The conference, held in Philadelphia this year, 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 out the highlights from days one and two of the conference.  

“Demographics and Real Interest Rates: Inspecting the Mechanism”

Carlos Carvalho, Andrea Ferrero, and Fernanda Nechio

Abstract: The demographic transition can affect the equilibrium real interest rate through three channels. An increase in longevity—or expectations thereof—puts downward pressure on the real interest rate, as agents build up their savings in anticipation of a longer retirement period. A reduction in the population growth rate has two counteracting effects. On the one hand, capital per-worker rises, thus inducing lower real interest rates through a reduction in the marginal product of capital. On the other hand, the decline in population growth eventually leads to a higher dependency ratio (the fraction of retirees to workers). Because retirees save less than workers, this compositional effect lowers the aggregate savings rate and pushes real rates up. We calibrate a tractable life-cycle model to capture salient features of the demographic transition in developed economies, and find that its overall effect is a reduction of the equilibrium interest rate by at least one and a half percentage points between 1990 and 2014. Demographic trends have important implications for the conduct of monetary policy, especially in light of the zero lower bound on nominal interest rates. Other policies can offset the negative effects of the demographic transition on real rates with different degrees of success.

“Occupational Segregation by Sexual Orientation in the United States: Exploring its Economic Effects on Same-sex Couples”

Coral Del Rio and Olga Alonso-Villar

Abstract: This paper examines how important the occupational sorting of individuals in same-sex couples is in explaining the economic position of lesbians and gays beyond controlling for occupation in the estimation of their respective wage gaps. The analysis reveals that the distribution of partnered gay men across occupations brings them a remarkable positive earning gap (11% of the average wage of partnered workers), whereas the occupational sorting of partnered lesbian women only allows them to depart from the large losses that straight partnered women have since their earning gap, although positive, is close to zero. If gay men had the same educational achievements, immigration profile, racial composition, and age structure as straight partnered men have, the advantages of this group associated with their occupational sorting would disappear completely. Likewise, if lesbian women had the same characteristics, other than sex and gender orientation, as straight partnered men have, the small advantage that these women derive from their occupational sorting would not only vanish but would turn into disadvantages, leaving them with a loss with respect to the average wage of coupled workers similar to the one straight partnered women have after their corresponding homogenization. It is their higher educational attainments and, to a lower extent, their lower immigration profile, that prevents workers living in same-sex couples from having a disadvantaged occupational sorting.

“The Labor Market Impacts of Universal and Permanent Cash Transfers: Evidence From the Alaska Permanent Fund”

Damon Jones

Abstract: We estimate the labor market impacts of universal and permanent cash transfers. While an income transfer may typically be expected to decrease individual labor supply, it may alternatively reduce fixed costs of employment. Furthermore, a universal transfer may also have general equilibrium effects. Since 1982, all Alaskan residents are entitled to a yearly cash dividdnt from the Alaska Permanent Fund. We use the current Population Survey and a synthetic control method and fail to reject the null hypothesis of no effect on employment. Meanwhile, on the intensive margin, we find an increase in part-time work. We discuss the implications of these results on the effect of a universal basic income on the labor market.

“The Implicit Costs of Motherhood Over the Lifecycle: Cross-cohort Evidence From Administrative Longitudinal Data” 

Christian Neumeier, Todd A. Sorensen, and Douglas Webber

Abstract: It is well known that the explicit costs of raising a child have grown over the past several decades. Less well understood are the implicit costs of having a child, and how they have changed over time. In this paper, we are the first to examine the evolution of the implicit costs of motherhood over the lifecycle and across generations using high quality administrative data. We estimate that the lifetime labor market income gap between mothers and non-mothers decreases from around $350,000 to $280,000 between women born in the late 1940s and late 1960s. Gaps tend to increase monotonically over the lifecycle, and decrease monotonically between cohorts. Our evidence suggests that changes in the gaps are causes by changing labor force participation rates on the extensive margin.

“Intangibles, Investment and Efficiency”

Nicolas Crouzet and Janice Eberly

Abstract: Recent work on US macroeconomic trends has emphasized slowing capital investment, but strong business profits and valuations. The retail sector is a microcosm of these trends, and accounts for a large share of the increase in aggregate business concentration also observed over this time period. Moreover, retail has implemented a series of technology-driven changes in business practice, such as inventory management and distribution of goods, that are manifested in rising intangible investment, which is also evident in the macro data. Focusing on the retail sector, we show that the weak investment and rising concentration are associated with rising productivity. Stronger productivity is correlated with increasing investment in intangible capital, both over time and across sub-industries. These comovements suggest that weaker capital investment and increasing industry concentration may arise from technological change that favors intangible, rather than physical, capital.

“The Long-Term Effects of Cash Assistance”

David Price and Jae Song

Abstract: We investigate the long-term effect of cash assistance for beneficiaries and their children by following up, after four decades, with participants in the Seattle-Denver Income Maintenance Experiment. Treated families in this randomized experiment received thousands of dollars per year in extra government benefits for three or five years in the 1970s. Using administrative data from the Social Security Administration and the Washington State Department of Health, we find that treatment caused adults to earn an average of $1,800 less per year after the experiment ended. Most of this effect on earned income is concentrated between ages 50 and 60, suggesting that it is related to retirement. Treated adults were also 6.3 percentage points more likely to apply for disability benefits, but were not significantly mroe likely to receive them, or to have died. These effects on parents, however, do not appear to be passed down to their children: children in treated families experienced no significant effects in any of the main variables studied. These results for children are estimated precisely enough to rule out effects found in other contexts and inform the literature on intergenerational mobility. Taken as a whole, these results suggest that policymakers should consider the long-term effects of cash assistance as they formulate policies to combat poverty.

Today was the second day of the three-day annual meeting of the Allied Social Science Associations. The conference, held in Philadelphia this year, 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 out yesterday’s highlights and come back tomorrow evening for even more.

“Housing Wealth Effects: The Long View”

Emi Nakamura, Jon Steinsson, Alisdair McKay, and Adam Guren

Abstract: We provide new, time-varying estimates of the housing wealth effect back to the 1980s. We exploit systematic differential city-level exposure to regional house price cycles to construct our estimates. Our main findings are that: 1) Large housing wealth effects are not new: we estimate large effects back to the 1980s; 2) There is no evidence that housing wealth effects were particularly large in the 2000s; if anything, they are larger prior to 2000; and 3) We find no evidence of a boom-bust asymmetry that might arise from households hitting their borrowing constraints. We compare these findings with the implications of a “new canonical model” of housing wealth effects. This model yields large housing wealth effects. It can also explain why housing wealth effects have not risen over time despite the “great leveraging” of households since the 1980s and, in particular, the sharp increase in leverage associated with the 2006-2009 housing bust.

“Leave-taking and Labor Market Attachment Under California’s Paid Family Leave Program: New Evidence From Administrative Data”

Maya Rossin-Slater, Sarah Bana, and Kelly Bedard

Abstract: More than half of American mothers and over 90 percent of American fathers of infants under the age of one are employed in the labor market. Yet the United States remains the only OECD country without a national paid family leave (PFL) policy, and only 12 percent of private sector workers have access to PFL through their employers. In July 2004, California enacted the first state-level PFL policy that provides six weeks of leave with 55 percent of usual pay replaced (currently up to a maximum weekly benefit of $1,137); since then, three other states (New Jersey, Rhode Island, and New York) have followed suit. We use detailed administrative data from the California Employment Development Department on nearly 2 million PFL claims over 2005-2014 linked to individual-level quarterly earnings data to provide novel insights about California’s first-in-the-nation experience with PFL.

Our analysis delivers four key take-aways. First, we can precisely document trends in CAPFL take-up separately for bonding with a new child (hereafter, “bonding”) and caring for an ill family member (hereafter, “caring”). Our calculations suggest that about 40 percent (4.5 percent) of employed new mothers (fathers) made a bonding claim in 2005, while 47 percent (12 percent) of employed new mothers (fathers) made a bonding claim in 2014. Second, we find that low earning men and women are less likely to take leave than their more advantaged counterparts, consistent with survey reports that too little pay serves as a barrier for taking leave (Fass, 2009) and with polls suggesting that awareness of the program is lowest among low-income voters (DiCamillo and Field, 2015). We also show that individuals in firms with fewer than 50 employees—who are not concurrently eligible for unpaid job protected leave with health insurance through the Family and Medical Leave Act—are substantially under-represented in the PFL claims data, which may reflect their reluctancy.

“Occupational Licensing Reduces Racial and Gender Wage Gaps: Evidence From the Survey of Income and Program Participation”

Peter Q. Blair and Bobby Chung

Abstract: In order to work legally, 29% of U.S. workers require an occupational license. We show that occupational licensing reduces the racial wage gap between white and black men by 35%, and the gender wage gap between women and white men by 42%. For black men, a license is a positive indicator of non-felony status that aids in firm screening of workers, whereas women experience differentially higher returns to the human capital that is bundled with occupational licenses. The information and human capital content of licenses enable firms to rely less on race and gender as predictors of worker productivity.

“Sources of Displaced Workers’ Long-term Earnings Losses”

Marta Lachowska, Alexandre Mas, and Stephen A. Woodbury

Abstract: We estimate the earnings losses of a cohort of workers displaced during the Great Recession and decompose those long-term losses into components attributable to fewer work hours and to reduced hourly wage rates. We also examine the extent to which the reduced earnings, work hours, and wages of these displaced workers can be attributed to factors specific to pre- and postdisplacement employers; that is, to employer-specific fixed effects. The analysis is based on employer-employee linked panel data from Washington State assembled from 2002–2014 administrative wage and unemployment insurance (UI) records.

Three main findings emerge from the empirical work. First, five years after job loss, the earnings of these displaced workers were 16 percent less than those of comparison groups of nondisplaced workers. Second, earnings losses within a year of displacement can be explained almost entirely by lost work hours; however, five years after displacement, the relative earnings deficit of displaced workers can be attributed roughly 40 percent to reduced hourly wages and 60 percent to reduced work hours. Third, for the average displaced worker, lost employer-specific premiums account for about 11 percent of long-term earnings losses and nearly 25 percent of lower long-term hourly wages. For workers displaced from employers paying top-quintile earnings premiums (about 60 percent of the displaced workers in the sample), lost employer specific premiums account for more than half of long-term earnings losses and 83 percent of lower long-term hourly wages.

“Missing Women and African Americans, Innovation, and Economic Growth”

Lisa Cook and Yanyan Yang

Abstract: The process of converting invention to innovation is fundamental to economic growth but remains poorly understood. This paper uses data from the Survey of Doctoral Recipients to examine the determinants of patent and commercialization activity among PhD-holders and, more importantly, for the first time, those who commercialize their inventions over time. Recent studies have shown that rates of patenting and commercialization of ideas by women and African Americans have lagged those of U.S. inventors. What accounts for these differences in patenting and commercialization? Consistent with earlier research, we find that African Americans and women apply for patents 54 and 55 percent less than men, patent 54 and 60 percent less than men, and commercialize their patents 55 and 60 percent than men. We find that those who commercialize their patents over time are productive in research, are at large firms, are in the physical sciences and engineering, and are largely neither women nor African Americans. Given the important progression from basic research to invention to commercialization of ideas to higher living standards, we estimate that GDP per capita could rise by 0.88 percent to 4.6 percent with the inclusion of more women and African Americans in the initial stages of the process of innovation.

“Road to Despair and the Geography of the America Left Behind”

Mark Partridge and Alexandra Tsvetkova

Abstract: The United States has always experienced spatial differentials in economic activity and wellbeing. Yet, a long-running force that mitigated these disparities was economic convergence. However, beginning in the 1980s, such convergence forces weakened and economic activity and well-being began to widely diverge. In particular, in the wake of the Great Recession, this divergence is increasingly leading to large regions that appear to be left behind. This study will assess economic conditions in the 21th century by splitting the time periods before and after the Great Recession in appraising the causes for the post-recession decline in economic activity in these “forgotten” places. The analysis will occur over the 2001-2016 period using metropolitan and nonmetropolitan county-level data. We ask whether these distressed places are simply suffering from continued deindustrialization hitting manufacturing and (coal) mining-dependent locations, or is it more related to the occupational mix, human capital, and lack of entrepreneurial conditions that mean that struggling communities lack the basic foundation and resilience to adjust to adverse economic shocks? Likewise, some of these disadvantages may relate to long-term issues related to remoteness and the lack of agglomeration economies that will be extremely difficult to address through public policy. The economic outcomes that will be examined will focus on job growth, but there will also be some assessment of health outcomes, poverty rates, inequality, median household income, and average wages to further address issues of well-being.

“Making Financial Globalization More Inclusive”

Jonathan D. Ostry, Davide Furceri, and Prakash Loungani

Abstract: The distributional effects of financial globalization, unlike those of trade, have gone largely unrecognized. In fact, however, episodes of capital account liberalization are followed by an increase in the Gini coefficient and top income shares and declines in the labor share of income. These distributional effects hold with a de jure measure of liberalization and only get stronger when this measure is scaled by the extent of the capital flows that ensue in the aftermath of liberalization. Financial globalization emerges as a robust determinant of inequality, even after accounting for the effects of trade, technology and other drivers. At the same time, the output effects of financial globalization remain elusive and appear to be restricted to cases where financial depth and inclusion are high and where liberalization is not followed by a crisis. Financial globalization thus poses very difficult equity-efficiency tradeoffs and making it more inclusive requires, as a start, recognition of this fact.

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.