Weekend reading: “A jolt in the markets” edition

Posted on by Nick Bunker

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

This week marks the 25th anniversary of President Bill Clinton’s signing the Family and Medical Leave Act into law. As important as it has been, the FMLA alone does not meet the needs of today’s workers or the U.S. economy. Bridget Ansel and Heather Boushey argue that a “well-designed federal paid leave program based on a social insurance model” is the path forward.

The Job Openings and Labor Turnover Survey (JOLTS) released new data for December 2017 on Tuesday. Check out 4 key graphs on the labor market using data from the report.

What would happen to the labor market if the federal government implemented a universal basic income? No one really knows. But new research looks at the labor market effects of an unconditional cash transfer program in Alaska – the Alaska Permanent Fund.

As a part of an essay series on sexual discrimination and harassment in the new issue of The New Republic, Heather Boushey asks, “If men cannot overcome their sexism toward women when discussing the qualifications of female economists, then how can they assume that any job market—or any market—is free of discriminatory bias?”

Links from around the web

Dylan Matthews looks at the state of the Social Security Disability Insurance program, an oft-maligned social insurance program. Recipients are often described as lazy people with minor injuries. Matthews finds, instead, that the program gives needed support to people who would find work very difficult. [vox]

In recent months, the Trump Administration and Congressional Republicans have suggested adding work requirements to social insurance and welfare programs, much as the 1996 “welfare reform” did. Vann R. Newkirk II writes about that change and how it altered cash assistance in the United States. [the atlantic]

The U.S. government may borrow up to $1 trillion this year, according to estimates from Wall Street. Alexandra Scaggs asks readers to consider the impact of declining Federal Reserve purchases when thinking about this number and not to think it’s all because of higher spending or lower taxes. [ft alphaville]

As policymakers consider a budget deal, Neha Dalal and Aaron Sojourner ask policymakers to consider increasing public investments in the U.S. families who often need it most: those with young children. [the hill]

“Well into the information age, in a business ecosystem with low barriers to entry, where venture capital stands ready to throw itself at the next good idea, the economy has somehow forgotten how to create companies,” writes Eduardo Porter on the declining dynamism in the United States economy. [nyt]

Friday figure

Figure from “JOLTS Day Graphs: December 2017 Report Edition” by Nick Bunker

How does unconditional cash affect the labor market?

Posted on by Emilie Openchowski
A new working paper looks at how unconditional cash transfer programs affect the labor market by studying the Alaska Permanent Fund.

If I handed you a check for $2,000 and told you a similar check would come your way every year with no strings attached, how would this change your life? More specifically, would it change your decisions about how much to work? For Alaska residents, this is more than just a fun thought experiment. It’s been a real-life consideration since 1982, when the state created the Alaska Permanent Fund. The response in the Alaskan labor market has important implications for how researchers and policymakers should think about how giving unconditional cash to workers affects employment.

The most common transfer programs in the United States are conditional. For example, the Earned Income Tax Credit is conditional because recipients must have a job. Only unemployed workers who are actively looking for a job qualify for unemployment insurance. But the idea of providing unconditional transfers has gained traction in recent years. The calls by some activists and researchers for a universal basic income are the most prominent example.

How would such a program affect the labor market? Handing people money might make them less likely to work as they don’t need as much labor income as they did before to maintain the same overall income. It’s hard to know because researchers don’t have many full-scale universal basic income programs to evaluate. Researchers have looked at the impact of targeted transfer programs on individuals’ employment decisions, but it’s not clear those results would be relevant for understanding the impact of a fully universal program on the entire labor market.

That’s where a new paper looking at the experience of Alaska and its Permanent Fund, a government-created program funded by taxes on oil wealth, comes in. In a new working paper, economists Damon Jones of the University of Chicago and Ioana Elena Marinescu of the University of Pennsylvania look at how the implementation of the fund and its annual dividend to residents of Alaska affected the labor market. The program is universal (all residents of Alaska who have lived there for at least 12 months are eligible) and unconditional (there are no strings attached to the cash). The value of the dividend varies but has been about $2,000 a year recently.

Jones and Marinescu look at the impact of the dividend on labor market outcomes using a technique called synthetic controls. The authors need to find a labor market similar to Alaska’s, but without the annual payment, to evaluate the impact of the program. But to whom can they compare Alaska? The answer in this case is to build a “synthetic” Alaska. The two economists find a weighed combination of other state labor markets that, taken together, look like Alaska did before it started the dividends in 1982, by matching up specific characteristics of Alaska to other states. For example, the employment rate for Alaska before the program was roughly equivalent to a combination of Utah (which comprises about 42 percent of synthetic Alaska), Wyoming (about 34 percent), Washington state (about 9 percent), and others. Jones and Marinescu can then compare what happened in Alaska after the dividends to what happened in synthetic Alaska, where the dividends weren’t implemented.

In short, the results show that the dividend had no significant impact on the labor market. The employment rate in Alaska is not significantly different from the rate in synthetic Alaska, so the employment rate likely wouldn’t have been higher without the dividends. The dividends do appear to have an effect on part-time work, as Jones and Marinescu found that the share of workers in part-time work increased by 1.8 percentage points in Alaska, a 17 percent increase, compared to synthetic Alaska. Interestingly, the effect on part-time work is driven almost entirely by women increasing part-time work; men are relatively unaffected. Overall, the results seem to show a change in work on the “intensive” margin (how many hours worked) but no change on the “extensive” margin (whether to work or not).

Jones and Marinescu note that most microeconomic studies of cash transfer programs find a negative impact on employment. What could explain the lack of an impact on aggregate employment for this unconditional transfer? They suggest that the increased consumption from the dividends could have counteracted the negative employment effect for individual workers. In other words, the additional consumption fueled by the dividend increased demand for workers, counteracting the negative employment effect.

Alaska is an outlier among the states and not just because of the Permanent Fund, so the applicability of this study to the broader United States is up for debate. But the Alaskan experience is what we have for now until other policy experiments move forward. The information gleaned by this new paper is an important step in the process of evaluating how we think about cash transfers.

JOLTS Day Graphs: December 2017 Report Edition

Posted on by Nick Bunker

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 December 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 ends 2017 where it started the year: at 2.2 percent.

The ratio of unemployed workers to job vacancies rose slightly in December, but still remains near historic lows.

After trending downward during the recovery from the Great Recession, the vacancy yield has risen to a slightly higher level over the past three months.

The Beveridge Curve continues its move back to its pre-recession relationship, a signal that unemployed workers can readily be hired into open jobs.

Should-Read: Kenneth Rogoff: When Will Tech Disrupt Higher Education?

Posted on by Brad DeLong

Should-Read: We more-or-less understand how to teach people to perform a single analytical task just beyond their current competence, or demonstrate basic background familiarity with a situation—hence the disruptive success of Kahn Academy in the tutoring disruption business. But otherwise? How should we “disrupt” higher education as a whole? We need to understand why what we do here works, to the extent that it does. And we really do not: Kenneth Rogoff: When Will Tech Disrupt Higher Education?: “Universities and colleges are pivotal to the future of our societies…

…But, given impressive and ongoing advances in technology and artificial intelligence, it is hard to see how they can continue playing this role without reinventing themselves over the next two decades. Education innovation will disrupt academic employment, but the benefits to jobs everywhere else could be enormous. If there were more disruption within the ivory tower, economies just might become more resilient to disruption outside it…

Should-Read: Stan Collender: This Is The Real Reason The GOP Doesn’t Want To Do A Budget This Year

Posted on by Brad DeLong

Should-Read: Stan Collender: This Is The Real Reason The GOP Doesn’t Want To Do A Budget This Year: “Senate Majority Leader Mitch McConnell (R-KY) was the first high-level Republican to say Congress might not even consider let alone adopt a budget resolution this year…

…Then, at the GOP retreat last week, in what was close to his first official act as the new chairman of the House Budget Committee, Rep. Steve Womack (R-AR), let it be known that he and his committee had much better things to do than a 2019 budget resolution.

Not doing a budget resolution means there can’t be reconciliation, and without reconciliation the biggest parts of the GOP’s legislative agenda will be virtually impossible to enact…. The GOP can’t be making the decision not to do a budget—basically the equivalent of admitting that Congress and the White House aren’t going to accomplish much of anything significant this year—without a great deal of thought. So why isn’t the GOP going to do a budget? Because the vote on the 2019 budget — the last one Congress will consider before the 2018 midterm elections — will reveal that all the Republican promises on the deficit and debt, including its blind belief on dynamic scoring, were completely bogus…. no budget resolution will mean no hearings in the budget committees, no floor debate, much less media attention and, most importantly, no votes. That makes it a great..and maybe the best…way for congressional Republicans to avoid talking about or taking responsibility for the spiking deficit and debt they said wouldn’t occur.

After 25 years, it’s time for paid leave

Posted on by Emilie Openchowski
It has been 25 years since the Family and Medical Leave Act was signed into law by President Bill Clinton, providing unpaid leave for qualified workers. Now it’s time for federal paid family and medical leave legislation.

Twenty-five years ago, barely two weeks after Bill Clinton was sworn in as president, he signed his first piece of legislation: The Family and Medical Leave Act. The law provides most workers with the job-protected right to take unpaid time off from work to care for a new child, a sick family member, or one’s own health. Now, it’s time to update the law to include paid leave.

Since its passage, the Family and Medical Leave Act of 1993 has served as a lifeline for workers, having been used more than 200 million times. But the law alone is not enough to address the needs of families in today’s economy: It only covers 60 percent of workers. Those who are excluded are disproportionately low-income and less educated. And even those who are eligible for unpaid time off do not take it, primarily because of financial reasons. Lack of access to paid leave has long-term economic effects as well, such as lower labor-force participation and reduced lifetime earnings.

That is why Congress needs to pass a comprehensive federal paid family and medical leave policy and the president needs to sign it. Federal policymakers can learn from the experience of the states such as California, New Jersey, and Rhode Island, all of which boast successful state paid leave laws, to craft a policy that is based on evidence garnered in our own backyard.

Last fall, we wrote a paper for The Hamilton Project at The Brookings Institution on the updates to U.S. labor policies that are necessary to address the concerns of 21st century families. In our report, we dug into the research to outline what must be included in a federal paid leave policy that benefits workers and their families while improving broad-based economic growth. Based on the evidence, we proposed that a successful paid leave policy must include the following:

  1. Cover the range of family and medical needs that require time away from work. Much of the discussion today around paid leave centers on parental leave to care for newborn children, but an effective paid leave program must include leave for workers to address their own illness or that of a family member. As the population ages, an increasing number of workers need time off to care for an aging parent or relative. And over half of those who used unpaid leave last year did so to address a personal medical concern.
  2. Be available to all workers, men and women, equally. An effective paid leave program should cover all workers regardless of employer identity or size, or the worker’s full-time or part-time status. It should also use an inclusive definition of family. Furthermore, paid leave should be gender neutral, following the example of the Family Medical Leave Act in providing eligible men and women with the same amount of leave.
  3. Provide adequate length of leave to address care needs. Paid leave should entail at least 12 weeks of leave, allowing families enough time to deal with a serious illness or to care for a new child.
  4. Have a sufficiently high replacement rate to make a difference in people’s lives. Wages should be replaced at a level sufficient to protect families at a time when household expenses rise. We suggest that, at the minimum, a national policy mimics New Jersey’s 66 percent wage replacement with a cap that prevents benefits from being overly generous to high-income families.

Each of these principles is based on evidence from the states, as we detail in our paper. In order to avoid burdening employers, all of the state programs are based on a social insurance system. That means the state governments collect a small payroll tax from employees (and in certain states, employers as well) and then pays out benefits directly to workers. A version of these models could be easily replicated at the federal level.

These policies have been overwhelmingly successful, with these states seeing, for example, increased labor-force participation, hours worked after the birth of a child, and a decline in the use of public assistance to cope with family medical emergencies. To date, there is no evidence that firms experience higher employee turnover or rising wage costs. In fact, a study done by Pew Research Center found that paid leave makes it more likely that workers return to their original employer compared to unpaid leave.

The 25-year-old Family and Medical Leave Act is not enough for workers or the U.S. economy today. A well-designed federal paid leave program based on a social insurance model would benefit U.S. workers and the U.S. economy alike.

Should-Read: Paul Krugman: “I am surely not the only person experiencing a fair bit of cryptofreude

Posted on by Brad DeLong

Should-Read: A nice observation by Paul Krugman on Twitter this morning about the two Silicon Valley bubbles—NASDAQ and BitCoin. NASDAQ at least had some fundamentals underlying it. BitCoin not so much: the ability to create for free a commodity with identical qualities to BitCoin and then peg it for a while before tiptoeing away renders it unstable, in the absence of a hegemon, in a way that gold is not: Paul Krugman: “I am surely not the only person experiencing a fair bit of cryptofreude—pleasure in watching the Bitcoin etc bubble deflate…

…Bitcoin cultists tend, after all, to be nasty as well as crazy; not all of them, but surely above the average. But one thing people may wonder is, why aren’t we having a simple Wile E. Coyote moment (Wile E. Cryptocoyote?)? As we know from the laws of cartoon physics, someone who runs off a cliff is supposed to plunge as soon as he notices there’s nothing under his feet. What we see instead is a series of plunges followed by partial recoveries:

BitCoin Price

It’s worth noting, then, that you saw the same thing (in much slower motion) as the dotcom bubble burst way back when:

NASDAQ

Back then there was a reserve of true believers who kept buying the dips, sure that the market would eventually regain its faith in techno-magic. Some of the same thing presumably happening now. Plus there are probably market manipulators now, trying to support things.

The point is that even though bubbles are, in effect, natural Ponzi phenomena, they don’t end as cleanly and suddenly as deliberate Ponzi schemes. To realize the full joy of cryptofreude, you need to be a bit patient…

Should-Read: John Stuart Mill (1848, 1871): Principles of Political Economy

Posted on by Brad DeLong

Should-Read: The dominance of Malthusian factors and pressures in economists’ minds up until the late nineteenth century: John Stuart Mill (1848, 1871): Principles of Political Economy: “Hitherto it is questionable if all the mechanical inventions yet made have lightened the day’s toil of any human being…

…They have enabled a greater population to live the same life of drudgery and imprisonment, and an increased number of manufacturers and others to make fortunes. They have increased the comforts of the middle classes. But they have not yet begun to effect those great changes in human destiny, which it is in their nature and in their futurity to accomplish. Only when, in addition to just institutions, the increase of mankind shall be under the deliberate guidance of judicious foresight, can the conquests made from the powers of nature by the intellect and energy of scientific discoverers become the common property of the species, and the means of improving and elevating the universal lot…

Should-Read: Susan Houseman: Understanding the [Post-2000] Decline in Manufacturing Employment

Posted on by Brad DeLong

Should-Read: A very good point from Susan Houseman—and really important: “manufacturing” in America is very different from “computer manufacturing”. The second is doing very well, in spite of offshoring of all kinds and in spite of our “Dutch Disease” produced by capital inflows and service exports. The first, not so much: Susan Houseman: Understanding the [Post-2000] Decline in Manufacturing Employment: “How did so many people erroneously point to automation as the culprit? It was, Houseman said…

…”a widespread misinterpretation of basic manufacturing data.” True, manufacturing real (inflation-adjusted) output and productivity seemed to be growing strongly. However, a closer look revealed that the apparent strong growth was driven by a single industry within manufacturing: computer and electronics products. Despite making up less than 15 percent of manufacturing, the computer industry’s incredible growth pulled up the entire sector’s productivity numbers, papering over widespread weaknesses. “This one industry ends up dominating the manufacturing statistics and gives a misleading impression about what’s going on in the sector,” Houseman said….

Take out computers and the trends become clearer: real gross domestic product growth in manufacturing has been only 12 percent of the private sector average since 2000…. Trade issues, in fact, have left a big dent in manufacturing employment, Houseman said, citing recent research. Exchange rates, tariffs and other trade issues have made domestic manufacturing less competitive, while policy changes have made it easier and cheaper to import products, especially from China. People have been buying more manufactured products, Houseman said, but these products are increasingly made overseas…