Weekend reading: “labor markets and income” edition

This is a weekly post we publish on Fridays with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth published this week and the second is the work we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.

Equitable Growth round-up

Tax reform is unlikely to benefit workers, argues Kimberly Clausing. Cutting corporate tax rates is an indirect mechanism with no guarantee it will translate into higher wages for workers, versus cuts to payroll and labor income tax cuts.

The release this week of the U.S. Census Bureau’s annual report on income and poverty underscores why better official measures of economic inequality are sorely needed, write Heather Boushey and Austin Clemens. The incorporation of higher-quality data and inclusion of more sources of income into the official measurement of inequality would allow for a better understanding of how income and wealth inequality are growing and changing.

Nick Bunker discusses a new working paper that examines the rise in price markups by companies in the United States as an indicator of increasing market power and the macroeconomic implications of that rise, including the decrease in wages for less-educated workers, falling labor force participation, and a decline in aggregate output.

The U.S. Bureau of Labor Statistics released new data on hiring, firing, and other labor market flows from the Job Openings and Labor Turnover Survey, better known as JOLTS. Check out the key graphs from the report chosen by Equitable Growth staff.

In a new brief, Greg Leiserson shows how the tax rate on business-level capital income is much lower than the 35 percent statutory rate. In fact, the average effective marginal tax rate is only 8 percent under current law.

Links from around the web

What do people mean when they say we need to revive antitrust? Matt Yglesias rounds up the most common policy ideas and areas of consensus/debate on this hot topic. [vox]

Why do workers pay twice as much in taxes as wealthy investors?  Ben Steverman breaks down how income from wages versus investments is taxed, how we got here, and what tax reform might mean for these rates. [Bloomberg]

Were we closer than we ever realized to having a universal basic income in the United States?  Ezra Klein and Dylan Matthews reveal that Hillary Clinton’s presidential campaign seriously considered adopting the policy in its platform—but couldn’t make the numbers work. [vox]

There’s a record-high level of job openings according to the latest numbers from the U.S. Department of Labor.  But that doesn’t necessarily mean the labor market is tighter, explains Eric Morath. A number of factors, including the ease of posting jobs on the internet and a skills mismatch, could explain openings continuing to outpace hiring. [wsj]

New analysis of the Panama Papers by researchers Annette Alstadsaeter, Niels Johannesen, and Gabriel Zucman finds that global wealth inequality is even worse than it appears in standard, publicly available economic data due to the use of offshore tax havens. [business insider]

Friday figure

Figure is from Equitable Growth’s “Latest official estimates underreport extent of inequality in the U.S.

Do “They” Really Say: “Technological Progress Is Slowing Down”?

Apple

Consider the 256 GB memory iPhone X: Implemented in vacuum tubes in 1957, the transistors in an iPhoneX alone would have:

  • cost 150 trillion of today’s dollars: one and a half times today’s global annual product
  • taken up a hundred-story square building 300 meters high, and 3 kilometers long and wide
  • drawn 150 terawatts of power—30 times the world’s current generating capacity

iPhoneX:

  • 4.3 billion transistors in the A-11 https://www.apple.com/iphone-8/#a11
  • 2,199,023,255,552 bits in the 256 GB memory—each of which needs a transistor (and a capacitor)
  • Let’s say 2.5 trillion transistors…
  • And you can buy 256 GB of memory for $100—of which, say, 1/4 is the cost of a transistor.
  • So, say, 125 dollars’ worth of transistors in an iPhoneX

How much would it have cost you to buy a vacuum tube sixty years ago, back in 1957?

  • Well, in 1959 you could buy a one-byte—8-bit—Phister 366 for 65 dollars http://jcmit.net/memoryprice.htm
  • So, say, 8 dollars a bit.
    • 8 dollars in 1957 is 60 dollars today via the GDP deflator https://www.measuringworth.com/
    • 8 dollars in 1957 is 160 dollars today as a share of U.S. nominal GDP per capita
    • 8 dollars in 1957 is 320 dollars today as a share of U.S. nominal GDP
Vacuum Tube Assembly

The transistors in an iPhoneX would, back in the late 1950s, implemented in vacuum tubes, have:

  • cost 150 trillion of today’s dollars, which is:
    • one and a half times today’s global annual product,
    • more than seven times today’s U.S. annual national product
    • forty times 1957’s U.S. national product
    • fourteen times 1957’s global annual product
  • taken up 100 billion square meters of floor space
    • that is (with a three-meter ceiling height per floor): a hundred-story square building 300 meters high, and 3 kilometers long and wide
  • drawn 150 terawatts of power—30 times the world’s current generating capacity

Oh. And clock speed. The AN/FSQ-7 operated at 75khz. The A-11 is a 6-core 24 mhz processor:

  • 2000 100 billion square meter buildings, each a hundred-stories—300 meters high—and 3 kilometers long and wide
  • 3000 times today’s global annual product
  • 300 petawatts of power—60,000 time sthe world’s currnet generating capacity

for the late-1950s vacuum tubes to match one iPhoneX…

And we haven’t even gotten started on the hardware architecture, or on the software and maintenance support necessary to emulate an iPhoneX at speed back in the late 1950s…


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Should-Read: David Card and A. Abigail Payne: High School Choices and the Gender Gap in STEM

Should-Read: David Card and A. Abigail Payne: High School Choices and the Gender Gap in STEM: “Women who graduate from university are less likely than men to specialize in science, technology, engineering, or math (STEM)… http://www.nber.org/papers/w23769.pdf

…High school students in Ontario, Canada… the province’s university admission system… the dynamic process leading to this gap…. Most of the gender gap in STEM entry can be traced to differences in the rate of STEM readiness; less than a fifth is due to differences in the choice of major conditional on readiness….

Decompose the gap in STEM readiness… into… the gender gap in the fraction of high school students with the necessary prerequisites… [and] differences in the fractions of females and males who enter university. The gender gap in the fraction of students with STEM prerequisites is small. The main factor is the lower university entry rate by men–a difference that is due to the lower fraction of non-science oriented males who complete enough advanced level courses to qualify for university entry….

Differences in course-taking patterns and preferences for STEM conditional on readiness contribute to male-female differences in the rate of entering STEM, but that the main source of the gap is the lower overall rate of university attendance by men…

Time for Me to Take Another Look at Nancy MacLean’s “Democracy in Chains”!

Suggestions?…

:-)

Should-Read: Nancy MacLean: DEMOCRACY IN CHAINS: THE DEEP HISTORY OF THE RADICAL RIGHT’S STEALTH PLAN FOR AMERICA http://amzn.to/2voi3qD: “As 1956 drew to a close, Colgate Whitehead Darden Jr., the president of the University of Virginia, feared…

…second Brown v. Board of Education ruling, calling for the dismantling of segregation in public schools with “all deliberate speed.” In Virginia, outraged state officials responded with legislation to force the closure of any school that planned to comply…. Darden… could barely stand to contemplate the damage…. Even the name of this plan, “massive resistance,” made his gentlemanly Virginia sound like Mississippi. On his desk was a proposal, written by the… chair of the economics department… James McGill Buchanan [who] liked to call himself a Tennessee country boy. But Darden knew better….

Without mentioning the crisis at hand, Buchanan’s proposal put in writing what Darden was thinking: Virginia needed to find a better way to deal with the incursion on states’ rights represented by Brown. To most Americans living in the North, Brown was a ruling to end segregated schools—nothing more, nothing less. And Virginia’s response was about race. But to men like Darden and Buchanan, two well-educated sons of the South who were deeply committed to its model of political economy, Brown boded a sea change on much more…. Federal courts could no longer be counted on to defer reflexively to states’ rights…. The high court would be more willing to intervene when presented with compelling evidence that a state action was in violation of the Fourteenth Amendment’s guarantee of “equal protection”…. States’ rights… were yielding in preeminence to individual rights. It was not difficult for either Darden or Buchanan to imagine how [the Warren] court might now rule if presented with evidence of the state of Virginia’s archaic labor relations, its measures to suppress voting, or its efforts to buttress the power of reactionary rural whites by underrepresenting the moderate voters of the cities and suburbs of Northern Virginia. Federal meddling could rise to levels once unimaginable.

James McGill Buchanan was not a member of the Virginia elite. Nor is there any explicit evidence to suggest that for a white southerner of his day, he was uniquely racist or insensitive to the concept of equal treatment. And yet, somehow, all he saw in the Brown decision was coercion. And not just in the abstract. What the court ruling represented to him was personal. Northern liberals… who looked down upon southern whites like him,… were now going to tell his people how to run their society. And… he and people like him with property were no doubt going to be taxed more…. What about his rights? Where did the federal government get the authority to engineer society to its liking and then send him and those like him the bill? Who represented their interests in all of this?

I can fight this, he concluded. I want to fight this. Find the resources, he proposed to Darden, for me to create a new center on the campus of the University of Virginia, and I will use this center to create a new school of political economy and social philosophy… an academic center… with a… political agenda: to defeat the “perverted form” of liberalism that sought to destroy their way of life, “a social order,” as he described it, “built on individual liberty,” a term with its own coded meaning but one that Darden surely understood. The center, Buchanan promised, would train “a line of new thinkers” in how to argue against those seeking to impose an “increasing role of government in economic and social life.” He could win this war, and he would do it with ideas.

While it is hard for most of us today to imagine how Buchanan or Darden or any other reasonable, rational human being saw the racially segregated Virginia of the 1950s as a society built on “the rights of the individual,” no matter how that term was defined, it is not hard to see why the Brown decision created a sense of grave risk among those who did. Buchanan fully understood the scale of the challenge he was undertaking and promised no immediate results. But he made clear that he would devote himself passionately to this cause.

Some may argue that while Darden fulfilled his part—he found the money to establish this center—he never got much in return. Buchanan’s team had no discernible success in decreasing the federal government’s pressure on the South all the way through the 1960s and ’70s. But take a longer view… a different picture… a testament to Buchanan’s intellectual powers and… the ideological origins of the single most powerful and least understood threat to democracy today: the attempt by the billionaire-backed radical right to undo democratic governance…. A quest that began as a quiet attempt to prevent the state of Virginia from having to meet national democratic standards of fair treatment and equal protection… would, some sixty years later, become… a stealth bid to reverse-engineer all of America, at both the state and the national levels, back to the political economy and oligarchic governance of midcentury Virginia, minus the segregation…


Must-Read http://www.bradford-delong.com/2017/08/must-read-thats-it-im-calling-this-one-for-nancy-maclean-in-nancy-maclean-versus-the-critics-of-her-book-_democracy-i.html: That’s it. I’m calling this one for Nancy MacLean in Nancy MacLean versus the critics of her book Democracy in Chains on the rise of right-wing Public Choice.

I think she gets a number of things wrong, but she gets the big thing about it right:

Steve Horwitz: MACLEAN ON NUTTER AND BUCHANAN ON UNIVERSAL EDUCATION: “Finding examples of misleading, incorrect, and outright butchered quotes and citations in Nancy MacLean’s new book… http://bleedingheartlibertarians.com/2017/06/maclean-nutter-buchanan-universal-education/

…has become the academic version of Pokemon Go this week. I now offer one small contribution of my own…. Hardly enemies of democracy in the paper, Nutter and Buchanan see their task (as Buchanan did for his whole career) as offering analyses that could inform the deliberations of the democratic process…. MacLean sees this paper as an attempt by the two scholars to undermine public education in Virginia in order to keep the effects of pre-Brown segregation while still complying with the law….

They also never mention race in the paper, as she acknowledges, but their use of the technical language of economics and their race-neutrality is seen by her as evidence of their attempt to generate racist outcomes by stealth…. One might also note that supporting Brown also means that one is thwarting the desires of democratic majorities…. It’s fascinating that she sees the foundation of the arguments of democracy’s supposed opponents as a rejection of a Supreme Court decision that told local and state majorities that they couldn’t have the segregated schools they wanted…

Yep. That’s an extraordinary own goal by Horwitz: The true democracy is the Herrenvolk democracy…


Must-Read http://www.bradford-delong.com/2017/07/must-read-noah-smith-noahpinion-the-liberty-of-local-bullies-the-liberty-of-local-bullies-i-have-not-been-surprise.html: A propos of Nancy MacLean’s Democracy in Chains http://amzn.to/2tGUUeN: My view is that Brown v. Board of Education was not the major cause of James Buchanan’s decision to try to build and U VA President Colgate Darden’s decision to fund the “Virginia School of Political Economy”—Public Choice as a discipline that had only one wing, a right one, and that would, as the late Mancur Olson liked to say, “never be healthy until [or because?] its left wing was as strong as its right, and it was no longer an ideological movement masquerading as an academic sub discipline”.

But BvBoA was certainly a trigger, and support was always very welcome from those whose concerns about appropriate governmental decentralization, limited powers, and checks and balances started and ended with preserving white supremacy.

Noah Smith was on the case back in 2011:

Noah Smith (2011): NOAHPINION: THE LIBERTY OF LOCAL BULLIES: “I have not been surprised by any of the quotes that have recently come to light from Ron Paul’s racist newsletters. I grew up in Texas, remember… http://noahpinionblog.blogspot.jp/2011/12/liberty-of-local-bullies.html


Must- and Should-Reads: September 14, 2017


Interesting Reads:

Markups, macroeconomics, and the changing U.S. economy

A shopper walks past a store on Fifth Avenue in New York.

Over the past several decades, the U.S. economy experienced changes in key economic metrics that don’t bode well for the welfare of most people. The labor share of income is down. So, too, is the capital share of income. Wages for less-educated workers also fell, as did the movement of workers between jobs. Could there be one key factor behind all of these trends—one aspect of the economy that policymakers could address to reverse these declines? That’s what a recent working paper argues, singling out the rise of companies’ market power as the root cause of so many economic woes.

But before Jan De Loecker of Princeton University and Jan Eeckhout of University College London can get to that argument, the authors have to document the increase in markups in the U.S. economy. A firm’s markup is simply the amount they can charge over the cost of providing the good or service they sell. A permanent increase in markups leading to a higher level of profits for companies operating in the economy is a good sign of increased market power. Most other studies that focus on calculating markups have focused on specific industries via case studies, but the two authors of this new working paper use a different process to calculate for the entire economy. Their data source is Compustat, a dataset from the financial services company, which covers all publicly traded firms from 1950 to 2014.

The two authors find a large increase in the average markup from 1980 to 2014—specifically an increase by a factor of 3.65. In 1980, the average markup was 18 percent and by 2014, the average was 67 percent. But interestingly, the increase is concentrated at the top of the markup distribution: The firm at the 90th percentile in 2014 had a markup of about 160 percent, compared to a markup of 40 percent for the 90th percentile firm in 1980. The markup at the median didn’t change much at all. In order to tie these increased markups with rising market power, the economists show how increases in markups are associated with higher profit levels, higher dividend payments, and a higher average market value—all of which would correspond to more market power in the economy.

The rest of the paper focuses on how models of the macroeconomy with increasing markups could explain declining inflation-adjusted wages for low-wage workers, declining labor market flows, and several other trends in the U.S. economy. When it comes to the labor market, their model results in higher markups and more market power, resulting in less overall demand for workers. In other words, the increased power that firms have in products and services markets would result in increased power for them in the labor market. And while De Loecker and Eeckhout don’t formally model the implications of market power for trends such as increased income inequality and lower interest rates, the links there are very possible as well.

One caveat with this paper is that the data they use only includes publicly traded firms, so it’s not clear if the rise in markups is also happening for privately held companies. Another is that while the working paper argues for the importance of documenting the rise of market power in the economy, it doesn’t try to explain why market power has increased. Better understanding why this is happening and its seemingly harmful consequences is more important than ever.

JOLTS Day Graphs: July 2017 Report Edition

Every month the U.S. Bureau of Labor Statistics releases data on hiring, firing, and other labor market flows from the Job Openings and Labor Turnover Survey, better known as JOLTS. Today, the BLS released the latest data for July 2017. This report doesn’t get as much attention as the monthly Employment Situation Report, but it contains useful information about the state of the U.S. labor market. Below are a few key graphs using data from the report.

The quits rate moved up slightly to 2.2 percent in July. But it remains locked in the same range it’s been in since the beginning of the year.

The ratio of unemployed workers to job openings declined in July and is now at its second-lowest recorded level: 1.13 workers per vacancy.

The number of hires per job opening—known as the vacancy yield—has settled at around 0.9 after falling throughout this recovery.

The Beveridge Curve in July looks to be very close to its pre-recession trend.

Must-See: Bin Yu: Three principles for data science: predictability, stability, and computability

Must-See: Why “three principles”? Why not “five principles”?

Bin Yu: Three principles for data science: predictability, stability, and computability: “September 12, 2017 :: 4:10pm to 5:00pm :: 190 Doe Library” https://bids.berkeley.edu/events/three-principles-data-science-predictability-stability-and-computability

Bin Yu: Three principles for data science: predictability, stability, and computability: “Prediction is a useful way to check with reality… http://delivery.acm.org/10.1145/3110000/3105808/p5-yu.pdf?

…Good prediction implicitly assumes stability between past and future. Stability (relative to data and model perturbations) is also a minimum requirement for interpretability and reproducibility of data driven results (cf. Yu, 2013). It is closely related to uncertainty assessment. Obviously, both prediction and stability principles cannot be employed without feasible computational algorithms, hence the importance of computability

https://www.youtube.com/watch?v=xqBW8QKs9q4

Should-Read: Michael Boskin (March 6, 2009): Obama’s Radicalism Is Killing the Dow

Should-Read: This was remarkably off-base at the time. It reads even worse now. I don’t know which is worse: the endorsement of do-nothing climate policies, the refusal to face the fact that high-income tax cuts have not generated faster growth, or the “nation of takers” bs with respect to “paying no taxes”…

Why do Republican economists burn their reputations this way?

Michael Boskin (March 6, 2009): Obama’s Radicalism Is Killing the Dow: “our new president’s policies are designed to radically re-engineer the market-based U.S. economy… https://www.wsj.com/articles/SB123629969453946717

…Instead of combining the best policies of past Democratic presidents—John Kennedy on taxes, Bill Clinton on welfare reform and a balanced budget, for instance—President Obama is returning to Jimmy Carter’s higher taxes and Mr. Clinton’s draconian defense drawdown. Mr. Obama’s $3.6 trillion budget blueprint… more than doubles the national debt… reduces defense spending to a level not sustained since the dangerous days before World War II… and it would raise taxes to historically high levels….

Increasing the top tax rates on earnings to 39.6% and on capital gains and dividends to 20% will reduce incentives for our most productive citizens and small businesses to work, save and invest—with effective rates higher still because of restrictions on itemized deductions and raising the Social Security cap…. The president claims he is only hitting 2% of the population, but many more will at some point be in these brackets. As for energy policy, the president’s cap-and-trade plan for CO2 would ensnare a vast network of covered sources, opening up countless opportunities for political manipulation, bureaucracy, or worse….

The president’s proposed limitations on the value of itemized deductions for those in the top tax brackets would clobber itemized charitable contributions… exacerbate tax flight from states like California and New York…. New and expanded refundable tax credits would raise the fraction of taxpayers paying no income taxes to almost 50% from 38%. This is potentially the most pernicious feature of the president’s budget, because it would cement a permanent voting majority with no stake in controlling the cost of general government….

The European social welfare states present a window on our potential future: standards of living permanently 30% lower than ours. Rounding off perceived rough edges of our economic system may well be called for, but a major, perhaps irreversible, step toward a European-style social welfare state with its concomitant long-run economic stagnation is not.

Should-Read: Diane Coyle: Inequality, revisited

Should-Read: Piketty’s elasticity of substitution between capital and labor is, in his model, produced by the constancy of the rate of profit near 5%/year in spite of wide swings in the capital-output ratio. You can’t say that substitution parameter is wrong without providing an alternative explanation for the constancy of the rate of profit. Yet very few of Piketty’s critics even attempt that:

Diane Coyle: Inequality, revisited: “Recently I’ve been dipping into The Contradictions of Capital in the 21st Century: The Piketty Opportunity, edited by Pat Hudson and Keith Tribe… http://www.enlightenmenteconomics.com/blog/index.php/2017/09/inequality-revisited/

…There is a reasonable consensus among the contributors to these various collections that Piketty’s theorising is flawed (in particular depending on an empirically invalid assumption about the substitution between capital and labour), that his application of a theory about productive capital to the data including housing wealth and financial capital is troubling, and that his call for a global wealth tax is (as Avner Offer puts it in his essay in this book) ‘utopian’. Equally, pretty much all would agree that Piketty, with co-authors, has done a terrific service in putting together the database, and in getting inequality on the agenda of both economists and policymakers.

Pat Hudson[‘s]… challenge to Capital in the 21st Century is its omission of globalisation and technology as drivers of inequality–if one is thinking about policies to mitigate inequality, r>g isn’t much help. She pinpoints financial markets, and regulatory and political beliefs, as key points of intervention–in other words, the specifics Piketty ignores in his generalisations. Avner Offer focuses on housing, and limiting its tendency to make wealth more unequal through credit controls. The main sections of the book aim to particularise the analysis of inequality by looking at the trends, institutions and politics of different countries – one section on western economies, one on major economies elsewhere. As Luis Bértola points out here, Piketty is very Eurocentric. Having these different national perspectives is a useful contribution…