Month: February 2014

The biggest problem with Swiss immigration restrictions

Switzerland really does produce global tfp, Tim Berners-Lee being the most obvious example, not to mention CERN, particle colliders, and pharmaceuticals:

The outcome of an ill-conceived referendum on 9 February against ‘mass immigration’ threatens to spoil Switzerland’s beautiful science landscape (see page 277).

The full story is here.  For the pointer I thank Michelle Dawson.

Michael Strain’s new jobs agenda and mobility payments

I have been meaning to cover this topic, here is an overview from Reihan.  There is one brief version from Strain here.  He has many valuable ideas, and the one which has caught my attention is this:

Offering relocation vouchers to the long-term unemployed in high-unemployment areas…

There are some pretty good jobs around, including in parts of Texas and North Dakota.  The point is not that these jobs/regions could absorb all of the current unemployed, but rather that we can learn something about the current unemployed (at the margin of course) but noting that these jobs remain unfilled.

First, I would like to know what the unemployment (participation?) rate would be today if American labor had a mobility rate closer to that of the early to mid 1980s.

Second, here is a study (pdf) of a 1976 federal jobs relocation subsidy program.  The conclusion is vaguely positive, but not firm.  Here is a study (pdf) of relocation assistance in Germany, mostly positive.  Here is a good discussion of U.S. trade adjustment relocation assistance with lots of numbers (pdf), it tries to be positive but my reading of the content suggests lukewarm results.  Here is a Brookings proposal (pdf).

Some states offer relocation assistance, for Wisconsin you need to have a job elsewhere already lined up.  Perhaps that restriction should be eased, but in any case I do not hear of massive success stories from current relocation programs, even if they are net positives.  Here is a CRS overview of federal programs for unemployed workers, some of which boost mobility.  Here are some FAQs on trade adjustment relocation assistance.

Third, I wonder if a subsidy is the right response here.  After all, there is already a potential benefit from moving, assuming the subsidy idea makes sense in the first place.  Yet, if we are to accept many of the more pessimistic behavioral accounts of unemployment, a lassitude and feeling of hopelessness sets in.  Positive incentives may not suffice, at least not in the absence of a behavioral spur to change the process of decision-making and induce some more pro-active choices.

By the way, there are some bureaucratic complications — not daunting ones but costs nonetheless — if you switch states while looking for a job and collecting UI.  Perhaps these paperwork requirements could be eased and turned into a simple one-click process.

What if it turned out that a tax or penalty for unemployed non-movers was overall more effective?  Would or should we be willing to support such an idea?  Of course it would inevitably fall on some innocent victims as well, people who should not move or people who cannot move, perhaps for reasons of family ties.  How about a tax for staying combined with a benefit for leaving?

How about if the tax is based on a Big Data model to limit the number of unjust losers?  That would mean more frequent taxes for Appalachian stayers, and less frequent taxes for individuals with elderly dependents on their tax returns.

If the tax were a big net plus for the current unemployed, but hit some innocent losers, and sent the wrong mood affiliation, would we still support it?  Should we still support it?  What if the tax took the form of poor public services?  Does it need to be more aggressive than that?

Should we even be asking these questions?

Will raising the minimum wage boost crime?

There is a recent 2013 paper on this topic by Andrew Beauchamp and Stacey Chan, the abstract is here:

Does crime respond to changes in the minimum wage? A growing body of empirical evidence indicates that increases in the minimum wage have a displacement effect on low-skilled workers. Economic reasoning provides the possibility that disemployment may cause youth to substitute from legal work to crime. However, there is also the countervailing effect of a higher wage raising the opportunity cost of crime for those who remain employed. We use the National Longitudinal Survey of Youth 1997 cohort to measure the effect of increases in the minimum wage on self-reported criminal activity and examine employment–crime substitution. Exploiting changes in state and federal minimum wage laws from 1997 to 2010, we find that workers who are affected by a change in the minimum wage are more likely to commit crime, become idle, and lose employment. Individuals experiencing a binding minimum wage change were more likely to commit crime and work only part time. Analyzing heterogeneity shows those with past criminal connections are especially likely to see decreased employment and increased crime following a policy change, suggesting that reduced employment effects dominate any wage effects. The findings have implications for policy regarding both the low-wage labor market and efforts to deter criminal activity.

For the pointer I thank Kevin Lewis.  And there is an ungated version here (pdf).  And via Gordon, here is a profile behind one of the forces behind the campaign to raise the minimum wage.  Here is a good recent article on minimum wages and cross-state mobility.

The CBO report on the minimum wage

Spin it as you wish, we should not have a major party promoting, as a centerpiece initiative and for perceived electoral gain, a law that might put half a million vulnerable people out of work, and that during a slow labor market.

And the American people will never understand the ins and outs of the monopsony debate and the like.  Overall, what kind of useful lesson is being taught here about the determinants of wages and prosperity?

I’m sorry people, but those are the bottom lines on this one.

Why Argentina failed

Argentina had become rich by making a triple bet on agriculture, open markets and Britain, then the world’s pre-eminent power and its biggest trading partner. If that bet turned sour, it would require a severe adjustment. External shocks duly materialised, which leads to the second theory for Argentine decline: trade policy.

The first world war delivered the initial blow to trade. It also put a lasting dent in levels of investment. In a foreshadowing of the 2007-08 global financial crisis, foreign capital headed for home and local banks struggled to fill the gap. Next came the Depression, which crushed the open trading system on which Argentina depended; Argentina raised import tariffs from an average of 16.7% in 1930 to 28.7% in 1933. Reliance on Britain, another country in decline, backfired as Argentina’s favoured export market signed preferential deals with Commonwealth countries.

Indeed, one way to think about Argentina in the 20th century is as being out of sync with the rest of the world. It was the model for export-led growth when the open trading system collapsed. After the second world war, when the rich world began its slow return to free trade with the negotiation of the General Agreement on Tariffs and Trade in 1947, Argentina had become a more closed economy—and it kept moving in that direction under Perón. An institution to control foreign trade was created in 1946; an existing policy of import substitution deepened; the share of trade as a percentage of GDP continued to fall.

Yes of course there was bad policy, but how did the country get into such a bad idea trap to begin with?  The entire piece, from The Economist, is of interest.

Should you scorn seafood in the American Midwest?

Bruce Arthur, a loyal MR reader, writes to me:

I grew up in a Polish immigrant neighborhood in Chicago, where I was raised on a diet high in seafood. My mother was raised close to the Baltic Sea and we weekly went to the local grocery store and bought a lot of salmon, halibut, sea bass, and scallops. I thought it was absolutely delicious. Sometimes we went to local ethnic grocery stores (generally Italian, the Italians had lived in the neighborhood before the Poles came and still ran a lot of businesses) and bought fish that was whole rather than filleted.

When I went off to college, I encountered people from the East Coast for the first time in my life, and I was shocked to learn that they did not believe that good seafood could possibly exist far away from an ocean coast. They would say things like “I would never eat fish in the Midwest, I wouldn’t trust it!’, which, as an 18 year old who was very much alive after eating a lot of fish in the Midwest, I found absurd.

After all, I thought, isn’t most seafood globally sourced these days? Few of our common food fishes are actually native to the Atlantic Coast, and if you’re flying fish in from the Pacific Northwest, South America, or Oceania, it seems to me that it should be least fresh on the East Coast, which is the part of America furthest away from where these fish are actually caught.

Of course, there could be other factors. Perhaps fish is freshest not closest to the ocean, but in denser areas – if everything is closer together, the places where fish is bought and eaten are presumably closer to the site of its first arrival in the area. Perhaps there’s a cultural factor: fish wasn’t always globally sourced, so perhaps coastal areas have more fish tradition that results in a higher quality of food. But surely the historic high rate of movement within (and into) America weakens that effect.

Anyway, I’m wondering if you have any insight into this. Am I right to scoff at regional seafood snobs, or do they have a point?

The more important reality is that hardly any regions in the United States have good indigenous seafood these days and thus no relative snobbery is justified.  Maine lobster or catfish in parts of the south might be exceptions, and in neither case does the Alchian and Allen theorem hold (i.e., the highest quality goods remain those closest to the source).

In general regional demand effects are strong, as I argue in An Economist Gets Lunch.  People outside of southern Ohio don’t understand good Cincinnati chili and so they don’t get it.  The ingredients can in fact be transferred to North Carolina but they aren’t, least of all with the proper applications.  A lot of good Sichuan dishes can be reproduced reasonably well in the United States, but you don’t get them until the properly demanding clientele is in place (by the way Gourmet Kingdom in Carrboro, NC is excellent).  Who amongst us is a properly demanding judge of asam laksa?  And so on.  One interesting feature of these equilibria is that regional mobility does not seem to undo them.  If you move to southern Ohio, you can rather rapidly become a standard bearer of good taste in chili, but you slack off once you are back in northern Virginia.

Collaborating With People Like Me: Ethnic co-authorship within the US

That is the new NBER paper by Richard B. Freeman and Wei Huang and it is an object lesson in the benefits of cross-cultural collaboration:

This study examines the ethnic identify of the authors of over 1.5 million scientific papers written solely in the US from 1985 to 2008. In this period the proportion of US-based authors with English and European names fell while the proportion of US-based authors with names from China and other developing countries increased. The evidence shows that persons of similar ethnicity co- author together more frequently than can be explained by chance given their proportions in the population of authors. This homophily in research collaborations is associated with weaker scientific contributions. Researchers with weaker past publication records are more likely to write with members of ethnicity than other researchers. Papers with greater homophily tend to be published in lower impact journals and to receive fewer citations than others, even holding fixed the previous publishing performance of the authors. Going beyond ethnic homophily, we find that papers with more authors in more locations and with longer lists of references tend to be published in relatively high impact journals and to receive more citations than other papers. These findings and those on homophily suggest that diversity in inputs into papers leads to greater contributions to science, as measured by impact factors and citations.

I can think of at least two ways of interpreting these results.  First, there are research profit opportunities from finding talented foreign collaborators, who perhaps are still undervalued in their home environments, relative to their total potential global productivity.  Second, the globalization of your connections proxies for how elite you are, even after adjusting for other measures of researcher quality.

Do any of you find ungated versions?

Assorted links

1. FantasySCOTUS.

2. “I don’t know how many levels there are after that.”  Recommended.

3. South Korean control of the internet.

4. Do four goats have a Nash equilibrium? (video)  And long video interview with Thomas Schelling, oral history of Harvard’s Kennedy School.

5. A kosher version of the barber paradox.

6. “You have a budget, and you have to prioritize.” (the culture that is Swiss)

Robert Gordon’s sequel paper on the great stagnation

You will find his NBER paper here, in which he responds to critics and outlines his core argument that U.S. growth is doomed to be slow and subpar for a long time to come.  There is no point in summarizing this already-familiar debate, so let’s cut straight to the chase:

1. I agree with a great deal of this paper, to say the least, especially when it is compared to previous mainstream opinion on these topics.  My favorite parts are his discussions of how multi-faceted were the waves of earlier progress starting in the 19th century, compared to some of the more recent and weaker tech revolutions.  That said, in some key ways this piece falls short of meeting the standards of reasoned argumentation.

2. The single biggest question is how much the United States will be able to draw upon innovation from other countries, over the next say 40 years.  Gordon doesn’t discuss this in a serious way.  The rest of his paper simply lists a bunch of pessimistic factors (valid worries, I might add) and then declares he can’t think of anything else that might turn them around.  Maybe that should shift your “p,” but one’s own failure to imagine shouldn’t imply a very firm conclusion about impossibilities.

3. There is a key passage on p.26: “My forecast of 1.3 percent annual total-economy productivity growth in the future does not require any foresight beyond suggesting that the past 40 years are a more relevant benchmark of feasible productivity growth than the 80 years of before 1972.”  Fair enough, but how about looking at the last 120 years or last 120,000 years for that matter?  The overall pattern is lots of pauses, followed by eventual new bursts of progress.  That’s no proof of a future subsequent burst of progress, but so far history is not on the side of the long-term tech pessimists.  It may be on the side of the short-term tech pessimists, at least for a while.  Gordon, in 2003, wrote rather wisely: “But is it possible to be so sure which decades into the past are relevant for predictions…”

4. Gordon doesn’t know much about the literature on driverless vehicles and their potential, and yet he escalates his rhetoric to the point of giving the reader the impression that he approaches the entire question of tech progress with simple irritation: “This category of future progress is demoted to last place because it offers benefits that are so minor [compared to cars]…”

5. Advances in the biosciences are dismissed in two short paragraphs.  For sure, I am myself somewhat in tune with the pessimistic perspective here.  I think these advances were way over-promised and still may take longer than people think.  Still, Gordon doesn’t offer any argument.  His first sentence of that brief section says it all: “Future advances in medicine related to the genome have already proved to be disappointing.”  This is a simple confusion of past and future tense.

6. Gordon significantly underestimates already existing advances in software, automation, robotics and related technologies.

7. Gordon still fails to credit the originators of the growth slowdown idea, as applied to contemporary times, namely Michael Mandel and Peter Thiel.  The first sentence of his paper reads: “A controversy about the future of U.S. economic growth was ignited by my paper released in late summer 2012.”  I would add, perhaps with a bit of peevishness, that a lot of the actual debate was kicked off by my own The Great Stagnation, published in January of 2011 and which was covered and commented on extensively.  (And which by the way was dedicated to Mandel and Thiel, as well as citing them.)  And if I did not credit Gordon more aggressively at that time, it is because I was all too well aware of his 2003 essay, “Exploding Productivity Growth,” the contents of which I do not need to relate any further but if you wish read at the link.

Gordon would do well to reflect a little more deeply on how and why he has changed his mind over the last ten years and what this implies for when a bit more agnosticism would be appropriate.

Addendum: I agree with Kevin Drum.  Matt Yglesias comments too.

Is Robert Gordon underestimating the progress of automation?

In his recent NBER working paper, Robert Gordon wrote:

This lack of multitasking ability is dismissed by the robot enthusiasts – just wait, it is coming. Soon our robots will not only be able to win at Jeopardy but also will be able to check in your bags at the sky cap station at the airport, thus displacing the skycaps. But the physical tasks that humans can do are unlikely to be replaced in the next several decades by robots. Surely multiple-function robots will be developed, but it will be a long and gradual process before robots outside of the manufacturing and wholesaling sectors become a significant factor in replacing human jobs in the service or construction sectors.

So how is it with those skycaps?  I queried Air Genius Gary Leff and he wrote this back to me:

There are still people picking up/loading bags onto the planes, but —

American Airlines has tested self-tagging of bags in Boston, Austin, and Orlando

Qantas has permanent bag tags that work with RFID readers at the airport, you check in online and drop your bag at the bag drop and leave.  This works for their Australian domestic flights.  (I do have a “Q Bag Tag”)

British Airways is trialing an end to paper tags, they began with Microsoft employees in Seattle this past fall

Brussels Airlines on intra-European flights departing Brussels

BWI is working on their baggage systems to accommodate self-checking of bags

And that required no more than a few minutes thought from Gary.