Demographics matters more and explains more than you think

The US economy has undergone a number of puzzling changes in recent decades. Large firms now account for a greater share of economic activity, new firms are being created at a slower rate, and workers are getting paid a smaller share of GDP. This paper shows that changes in population growth provide a unified quantitative explanation for these long-term changes. The mechanism goes through firm entry rates. A decrease in population growth lowers firm entry rates, shifting the firm-age distribution towards older firms. Heterogeneity across firm age groups combined with an aging firm distribution replicates the observed trends. Micro data show that an aging firm distribution fully explains i) the concentration of employment in large firms, ii) and trends in average firm size and exit rates, key determinants of the firm entry rate. An aging firm distribution also explains the decline in labor’s share of GDP. In our model, older firms have lower labor shares because of lower overhead labor to employment ratios. Consistent with our mechanism, we find that the ratio of nonproduction workers to total employment has declined in the US.

That is from a new NBER working paper by Hugo Hopenhayn, Julian Neira, and Rish Singhania, via the excellent Kevin Lewis.

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Mark Steyn says hi.

From Eurabia, because if there is one thing Steyn is really good for is laughing at his understanding of demographics.

Yet he's not wrong about Eurabia.

No he's even wrong about that. There's plenty if non-Arab migration to Europe. One might as well talk about Eurafrica, Eurindia, or Euribbea.
Moreover "trees do not grow up to the sky" and long range forecasts involving anything beyond the basic laws of physics are not worth the bits expended on them.

Hi, I am Doctor William Scott from Chattanooga, the fourth-largest city in Tennessee and one of the two principal cities of East Tennessee, along with Knoxville.

I am outraged by how our allies are being treated by the coastal elites. See for instance https://www.currentaffairs.org/2018/11/how-brazils-neo-fascism-threatens-the-amazon-rainforest-and-the-planet

I had supposed that President Trump, in his loudly proclaimed efforts to drain the swamp, would have given some aid and confort to our oldest allies by now. Yet, he is stubbornly attached to the idea of dealing with ungrateful Europeans and totalitarian Asian leaders instead of helping out a loyal democracy such as Brazil. It is annoying and disgusting, I think.

Trump loves the Saudis more than he loves you.

Location location location. It’s not that Trump in particular or American politicians in general love the oleaginous Saudis. It’s that we need allies in that part of the world.

Mercatus Center was founded in large part in opposition to anti-trust enforcement, government regulation generally for sure but anti-trust in particular. Papers like this one search for explanations for the relatively negative economic experiences, while the obvious explanation is hiding in plain sight: concentration, concentration of firms, concentration of industry, concentration of economic power, concentration of wealth, even concentration of economic ideas. Do a google search of Mercatus and anti-trust and see what comes up. Welcome back. It wasn't always thus. Concentration of economic ideas, indeed.

Nah, its based on trying to make economies NOT zero sum.

Cut the costs of paying workers while increasing the benefits of business revenue.

They blame government for requiring businesses to pay to put money in thee pockets of consumers. Thats the point of "get government out of the way".

The WP story on the bankruptcy of Indiana based Marsh food stores is typical. I lived in Indiana and remember shopping at Marsh, as well as others. It was part of the community like the others. It was like Marketbasket in New England, built by DeMoulos father and son. Unlike the latter, the family aged out of the business and sold to coastal elites who saw it as assets and debt, not people and economy.

But I've watched the same be done too iconic businesses i knew from living there the 50s-70s. Corning, where the father of a peer engineered glass. Fisher Body that fueled the growth of the town I graduated High School. The legacy family farms/farmers.

Then the debates focused on cost-benefits. Tax and spend.

But Indiana seemed to tip into free lunch economics, voodoo, quickly.

Cut costs to increase benefits. A free lunch. And a promise made in many cases by coastal elites.

Trump won votes by promising the benefits to Indiana et al that made Indiana a decent place, the benefits, and costs, offered to Indiana and region that Indiana reluctantly embraced.

For example, Indiana was reluctant on railroads compared to Illinois and Ohio. Government promoting railroad business provided benefits at a cost, and without government railroads could never get the land. Railroads subjected farmers to remote elites extracting rents, but without railroads, there could be no industry. But industry created competition to farming, both for the local population, and in global terms.

Indiana State civics education in the 60s spent more time teaching farming economics than industrial economics. In a city debating tax hikes to fund school bonds driven by expanding industry. The high school was tied into all the unions and had a solid votech, "dummy track" program. On the college track, i envied peers straddling both because they had cars and money.

But this was in the shadow of Ike's legacy, the Interstate highway at the cost of doing the taking of land and paying 10% for construction and then 50% of maintaining them, with the benefit of supporting greater business growth, and larger farm markets.

In the 60s, Indiana paid for higher costs to gain the benefits of more businesses, more job opportunities, but by the 70s, the costs of change were deemed too high.

While many wanted the jobs building and maintaining infrastructure, the same people did not want the costs that came with the infrastructure.

But by being unwillling to pay the costs, the opportunity benefits faded.

Which means old family businesses like Marsh struggled with stagnant or declining local economies because each store depends in the local economy, and the family on the Indiana, Ohio, etc economy.

When a global economy driven Wal-Mart comes in, it can force the local economies to chose lower costs, and lower benefits, and as Keynes emphasized, individuals chose lower benefits by chosing lower costs.

Free lunch Trump came in and promised free lunches. Infrastructure benefits with no costs. First, no taxes to pay the workers, plus memories of the disruption to the status quo have faded.

How many people in Indiana remember the bond issues requiring voting for higher taxes for schools, water and sewer, the utility rate hikes to expand service, the taking of private property, and who gets to pick the winners and losers: land seized, land now more valuable for development? I'm 70 remembering half a century ago.

Low living costs mean even lower incomes because a local economy can not keep out high cost production from high living cost economies. But high living cost economies can benefits from paying costs to low cost economies, and PROFIT from going in and becoming rent seekers plundering those low cost economies of any assets they accrued from being high living cost economies.

Indiana, et al, were not much lower living cost economies in the 60s than where the coastal elites lived inn the 60s. But since, living costs have been diverging.

But consumption is driven by global production, vehicles, infrastructure, health care, education. Building and maintaining highways in Indiana is a bigger share of the economy than it is in coastal elite economies. The cost of capital, the equipment made by Cat, Kubuto workers costs the same everywhere, and the skilled workers are highly mobile so cost differences small.

I remember the complaints in the 60s that the taxes for school bonds went to Indianapolis construction companies, not those in the city of Marion or Grant county. The economy was growing faster so the Grant county economy between Indianapolis and Fort Wayne could grow enough to serve both, cost and benefit. Those for cost cutting won, so the benefits like economic opportunity declined.

The GOP from Lincoln to Teddy (TR) promoted rural development by increasing costs to increase benefits and opportunity in rural areas. The railroads were not free market, but driven by local politics. Towns fought to get rail service for the local economy. Later, towns fought to get the Better Roads, the Post Offices. Note, the free market had failed to provide RFD Parcell Post after more that a century of government not competing. By 1924, the Post Office, which required subsidies from Congress for its entire history, was now making a hugh profit without trying. And driviing big investments in paved roads in rural areas. Rural families spent a lot more on postal service after 1920, but got very large benefits, like access to global markets. Jeff Bezos has merely replicated the mail order boom of the 20s. Then, as now, costs and benefits.

Mercatus Center tries to deliver free lunches, more benefits at lower costs. The result in the discontent that elected Free Lunch Trump.

Tanstaafl

I guess the Republicans could introduce a immigration bill with a points-based system welcoming college graduates from all over the world .. but no, they believe we have too many Asians in silicon valley already.

Oh gawd, meanwhile ..

'I am in the White House waiting for the Democrats to come on over and make a deal on Border Security. From what I hear, they are spending so much time on Presidential Harassment that they have little time left for things like stopping crime and our military!'

Why do the Democrats have to come over? Isnt it still the 115th congress?

They need 60 votes in the senate

That was part of the Deal for DACA. As I recall, Democrats refused to even consider points based immigration and were willing to deport 700,000 dreamers over it. Also see: Dara Lind Et al hyperventilating over reinvigorating “public charge” exceptions. Nice try though.

Do you have a link to what I actually proposed? A points-based system for expanding skills-based immigration?

Because some big build the wall, reduced immigration, but with points, is not it.

You recall incorrectly.

It wasn't the points-based immigration that sank the "Deal for DACA" on the Democratic side; it was the poison pill policies aimed at reducing overall immigration. Democrats were never going to go for that. It's like saying that Trump killed the "Deal for DACA" because he didn't want 30 billion bucks for border security. The first half of the sentence is true, but the explanatory half is an obvious mischaracterization.

To put it differently, if you offered a bill tomorrow that legalized the Dreamers and added a new points-based immigration system with, say, 50,000 new green cards attached, the Dems would immediately vote for it (and the GOP would vote against). It's not the points; it's the raw numbers of immigrants that are the core sticking point. Dems have adopted a position of favoring "more," the GOP favors "less," and the mechanics of the system matter a lot less to both sides than the core orientation.

So, the GOP plan is cut costs of educating US citizens, import workers who have been educated at costs to other economies to provide the skilled workers, build a wall to keep out workers who will work to better their family even if the wages are low and the living costs higher than they expected, thus forcing US born kids to take the low wage jobs that require they slash their living standards to even have a prayer of having a family in poverty?

Economies are zero sum. Cut the costs of labor, you must cut the cost of living, ie, lower GDP and lower aggregate consumptjion. Made acceptable by borrowing from future taxpayers who will never be able to servvice the debt.

Fiscal conservatives purposely increased the deficit to $1.4B.

But now they propose to slash consumer spending by a billion per year, and have GDP increase as lots more retaiilers go bankrupt and Wal-Mart share prices crater on falling revenues annd profits.

Who in the GOP is explaining the benefits to Millenials of taking in their grandparents and feeding them so they aren't homeless and hungry? Free child care, maid service, plus using fewer resources, land and energy, is "green".

With millions of old people evicted, housing prices will fall in urban areas like they have in rural areas and the rust belt cities and towns as labor costs in those economies have been slashed.

Economies are zero sum. Cut costs, you cut benefits.

Also:

"They aren’t. In 2013, Democrats fully supported the Border Security, Economic Opportunity, and Immigration Modernization Act of 2013. It passed the senate with the support of all democratic senators and a small minority of Republican ones. It would have increased border security by adding up to 40,000 border patrol agents. It also would have advanced talent-based immigration through a points-based immigration system. That sounds pretty reasonable to me and hardly a bleeding heart liberal bill. The bill failed because the Republican led congress never scheduled it."

https://www.quora.com/Why-are-Democrats-against-a-merit-based-immigration

You're not going to significantly shift the US population growth rate by bringing in a small percentage of Asian tech graduates ffs.

Mass Latin American migration barely changed the growth rate!

I mean, maybe you could shift it a little if you were open to inviting every Pakistani bricklayer, every Han concrete mixer, every Javan factory worker... But this policy would be laughable to call high skills based migration, and probably entail the complete cultural transformation of the United States.

The bigger the population becomes, the harder it is to move by migration, and the US's demographic advantages in large families and early births have been converging on Western Europe since the 1950s.

I understand that the badness of Asian immigration restriction is one of your hobby horses, but come on, have some realism, some statistical literacy and some relevance to the topic.

Young college grads are going to have more kids just by virtue of being young.

You seem to say "sure that's good, but I'm bad because it doesn't wholly change the US," which you say you'd hate anyway?

Brilliant.

Yeah, it's not going to structurally change the US economy, that's the point, if we're talking about the overall structural.

What kind of conversations do you have where you are discussing a phenomenon and someone can leap into the conversation with a suggestion that is their pet fetish, will change it probably less than a percent, with overtones that this a huge change, and then expect applause? Rather than someone to point out the obvious?

I think you've put yourself in a funny position where you are arguing against a positive direction of change.

You aren't even making the perfect the enemy of the good, because you were just opposing the good with nothing better on offer.

As previously discussed I think that more high skilled Asian migration is not a pure good to developed Western economies for reasons of cultural cohesion, cultural class division, etc, and its not clear to me that any substantive new tech or growth happens rather than primarily benefitting the Asians. But this is for Americans to decide their preferred level, and I'm not one.

I'm just noting here that your proposal has almost nothing to do with changing the population growth rate substantively in a positive direction, and thus the topic at hand. If you want a suggestion for how to actually improve population growth, its policies encouraging young Americans to have more children, probably by putting the brakes on education inflation, and making early marriage and children more affordable and more than a little propaganda. Natalism.

What if instead of the bricklayers, we let a TON of women into the country?

Women seem to get along better in society. They commit fewer violent crimes, if I'm not mistaken. US needs a lot of "pink collar" workers in elder care, among other things.

Asian smartypantses would make a good start. By the same process by which we enriched ourselves, we may also weaken rivals by accepting many Chinese and Russian women as immigrants. We also have buying opportunities in Italy and Spain

"The US economy has undergone a number of puzzling changes in recent decades."

- Are these 'puzzling changes' real and significant ... or just a random noise pattern in data mining? Where is the causation link evident?

- Why would learned economists be puzzled by ordinary economic events in a large, complex national economy long term?

- Are there no other significant variables affecting the researchers small model here?

Wasn't the real problem regulation, not demographics? Or was it taxes? Occupational licensing? Minimum wage laws? A potpourri of all of the above?

Admittedly, fashions are always hard to keep track of.

The actual paper
https://www.dropbox.com/s/dl/63v3a6vn863xf2p/Hopenhayn_Neira_Singhania.pdf

Thanks!

we find that the ratio of nonproduction workers to total employment has declined in the US.

Isn't that the point of technological improvements?

Thank you for providing access to the actual paper!

File under "immigration is better than most people understand."

Exactly!, as I patiently explain to the Tibetans, Israelis, and Greek Cypriots.

Thinks the US is a place just like Israel, Cyprus, or Tibet. Might as well annex those three.

What about stagnant wages and demographics? If poor people have more children and well-off stop reproducing, it's possible for everyone to do better than their parents and yet for wages to stagnate.

Immigration can similarly skew stats.

Has any work been done on this?

I wonder because it seems like most people around me are doing better and better which I can't reconcile with the data. Of course it's possible I'm just lucky.

The big aggregate data like median household income and per capita GDP clearly show improvements. People do a lot of thin-slicing to make the data fit the American decline narrative.

"puzzling changes" I'm not puzzled, I'm outraged. "Consistent with our mechanism" Nice, nice, very nice Nice, nice, very nice
So many people in the same device

File under 'Anti Trust, Lack Thereof'

Odd that you haven't given any shelf space to Tim Wu's new book:

https://www.amazon.com.au/Curse-Bigness-Antitrust-New-Gilded/dp/0999745468

There you go.

...in the footsteps of Julian Simon..

The Notebook.

Why is the number of new firms demographics? What if older firms are getting better at managing economies of scale and able to grow by decreasing average cost. Wal-Mart grew because they were very productive running stores and complete hard asses at sourcing their products for the shelves. They benefit from being able to buy a box of cookies for $.05 less than competitors and pass 80% to the consumer.

Also tech companies have bizarrely decreasing marginal cost and spend extra at hiring the best talent. (Tech is bit like Professional sport leagues economics.)

So what that have to do with Demographics outside the fact that slowing demographics does decrease the supply of cheap labor in economy.

Next up, men compensate for rising risk in home life and relationships (stronger divorce institutions, rising sex inequality) by reducing risk outside the home in work and starting businesses etc.

You have a very good papers on the research base talk about. Keep up the good work. Thanks for sharing the information.
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