Month: October 2019
Declining marriage incentives and male withdrawal from the labor force
Why have so many young men withdrawn from the U.S. labor force since 1965? This paper presents a model in which men invest time in employment to enhance their value as marriage partners. When the marriage market return on this investment declines, young men’s employment declines as well, in preparation for a less favorable marriage market. Taking this prediction to data, I show that fewer young men sought employment after 2 interventions that reduced the value of gender-role-specialization within marriage: i) the adoption of unilateral divorce legislation, and ii) demand-driven improvements in women’s employment opportunities. I then show, using a structural estimation, that half of the employment effect of a labor market shock to men’s wages is determined by endogenous adjustment of the marriage market to the shock. These findings establish the changing marriage market as an important driver of decline in young men’s labor market involvement.
That is from the job market paper of Ariel J. Binder, job market candidate from the University of Michigan.
Thursday assorted links
1. Alice Evans podcast with Daron Acemoglu.
2. The Queen has someone to wear in her shoes.
3. Scott Aaronson explains quantum supremacy to NYT readers.
4. “The other day I was considering the purchase of a double LP when a thought crossed my mind – how many times would I need people to stream my music on Spotify to pay for this double LP?
The estimated answer turned out to be 8,459.” Link here.
You silly, silly people…
Using difference-in-difference and regression discontinuity techniques, we find that US states governed by Democrats and those by Republicans perform equally well on economic, education, crime, family, social, environmental, and health outcomes on the timeline introduced by elections (2-4 years downstream).
That is from a new paper by Adam Dynes and John B. Holbein, forthcoming in APSR.
Tyler Cowen on invisible competition
Here is an old 2007 essay of mine from Wilson Quarterly, one which most of you have not read. The key point is that your most critical competitors are now much more distant and indeed invisible than before, and that this will have social and economic implications. Here is one excerpt:
George Shackle, the neglected Scottish economist, wrote in his 1973 book Epistemics and Economics that the entrepreneur imagines a future no one else sees. For Shackle, the entrepreneur is not just a trader, a manager, or an initiator of enterprise. The fundamental entrepreneurial activity is creative, and it occurs in the mind rather than the physical world. The creators of YouTube and Facebook did not require a new raw material or even a radically new programming technique; most of all they were blessed with the ability to imagine a new way to present material and connect people to one another. Their competitors, if that phrase can even be used, were the young potential entrepreneurs who might have hit upon similar ideas first, but didn’t. These phantom rivals were not out in the public arena, promoting their corporations or thumping their chests and proclaiming grand plans. Rather they were quietly doodling away on their computers in scattered suburbs and cities, perhaps after finishing their homework for the evening.
Invisible competition also gives an edge to people who can manage and interpret their own feedback. In the past, if you lost a job to a person who was smarter than you or had a better line of patter, you could size up the winner and gauge where you fell short. Now you can’t always see who crossed the finish line ahead of you. The future will favor people like Madonna, the pop star and media icon who has successfully reinvented herself so many times because she has an uncanny sense of where popular culture is bound and how to get there first.
And this:
The nations most disadvantaged by invisible competition may be those that exist in proximity to a key rival. They risk focusing too narrowly on one challenge and getting used to the idea that competition takes a highly visible form. Transfixed by its rivalry with India, Pakistan may be oblivious to other concerns. A similar preoccupation makes it harder for many people in the Middle East to take a global perspective.
I still like the piece.
What should I ask Reid Hoffman?
For a CWT. Thank you all for the assistance.
Loren Fryxell of Northwestern is a creative thinker
Here is his home page, here is one abstract:
A Theory of Criminal Justice
Abstract: I propose a general framework with which to analyze the optimal response to crime. Each criminal act, detected with some probability, generates a random piece of evidence and a consequent probability of guilt for each citizen. I consider a utilitarian planner with no artificial moral constraints. In particular, I assume no upper bound on punishment—such a bound can only rise endogenously from the utilitarian objective. I consider three types of “pure” responses—deterrence, rehabilitation, and incapacitation—along with general sentences combining any of the three. If citizens are expected utility maximizers, a repugnant conclusion is reached—it is optimal to punish only with the realization of the most incriminating evidence. Allowing for more general behavior yields a weaker but more satisfactory result—optimal punishment is always decreasing in the quality of evidence. (Rehabilitation, incapacitation, and general sentence results coming soon.)
Here is his job market paper:
A Theory of Experienced Utility and Utilitarianism
Abstract: I present a theory of measurement of preference intensity and use this measure as a foundation for utilitarianism. To do this, I suppose each alternative is experienced over time. An individual has preferences over such experiences. I present axioms under which preferences are represented by an experienced utility function equal to the integral of instantaneous preference intensity over time and unique up to a positive scalar. I propose an ethical postulate under which social preferences are utilitarian in experienced utilities.
Job candidates with ideas can be difficult to come by, so I wanted to highlight his work…
Wednesday assorted links
1. Dominant assurance contracts and the blockchain.
2. Financial incentives and social incentives.
3. Should Netflix “speed up” movies?
4. A Duke job market paper taking a sympathetic look at income-sharing agreements. Joshua Jacobs.
5. “I find that lowering the level of [NIMBY] restrictions in California back to its level in 2000 results in a large reallocation of labor. The state’s population rises by 45%, while the income gap and house value gap between California and the rest of the U.S. falls by 3.7% and 2.7%, respectively.” From Don Jayamaha, on the job market from NYU. Updated paper link here.
Who benefits from Uber surge pricing?
In the last decade, new technologies have led to a boom in dynamic pricing. I analyze the most salient example, surge pricing in ride hailing. Using data from Uber in Houston, I build an empirical model of spatial equilibrium to measure the welfare effects of surge pricing. My model is composed of demand, supply, and a matching technology, and it allows for temporal and spatial heterogeneity, as well as randomness in supply and demand. I find that, relative to a counterfactual with uniform pricing, surge pricing increases total welfare by 3.66% of gross revenue. Only riders benefit: rider surplus increases by 6.52% of gross revenue, whereas driver surplus and Uber’s short-run profits decrease by 1.63% and 1.18% of gross revenue, respectively.
That is from a new job market paper by Juan Camilo Castillo of Stanford University. At the link his other papers are interesting too.
How to think about the Chilean (and other) protests
That is the topic of my latest Bloomberg column, here is one excerpt:
Second, a protest against poor conditions is not the same as a protest against inequality. Many Chilean complaints revolve around the pension system, health care, water rights, public transportation, schools and corruption. Are Chileans upset that their transport options aren’t better? That’s a complaint in absolute terms. Or are they upset that they are riding the subway while many of the wealthy have private cars with drivers? That’s a relative complaint.
The answer will depend on the protester, and in virtually all protests around the world there will be those with both motives. But some North American commentators try to equate these two grudges and subsume them all under the heading of inequality. That just won’t wash.
And don’t forget this:
In the case of Chile, it has the highest real wages in Latin America, income inequality has mostly been falling, and life expectancy is above average for the region. By Latin American standards Chile has a low rate of crime and a high degree of public order. Chile has had open and honest elections, and peaceful transfers of power, since 1990.
So high expectations may be more relevant than either “inequality” or “neo-liberalism” per se, at least for many of the protestors. There is much more of interest at the link, including some speculations as to why Chile may be different:
Another observation: Income inequality is often more galling when different economic classes encounter each other on a regular basis. So much Chilean economic and social activity is concentrated in Santiago, just as in South Korea it is in Seoul and in Singapore it is in … Singapore. In all three countries, I believe, feelings of inequality and envy are worse for that reason. By contrast, if you are a lower-middle-class person in, say, Mississippi, you may view the mansion and private plane of Bill Gates as if from a different universe.
I’ve also found Chile to have a relatively tough set of social expectations in terms of class, dress and educational background, and a relatively narrow set of expectations for women. These pressures for conformity may contribute to discontent.
Recommended.
Tuesday assorted links
1. Andrew Roberts on Napoleon.
2. Greg Mankiw quits the Republican Party.
3. Has there been a Trump deregulation?
4. Bryan Caplan on his new graphic novel with Zach Weinersmith, Open Borders.
5. Does wildfire mitigation work?
6. Good Ted Nordhaus thread on the fires.
7. “…paying Medicare rates on behalf of all patients would literally bankrupt the system we have.“
Open Borders: The Graphic Novel
In April, when Open Borders: The Science and Ethics of Immigration was available for pre-order Tyler wrote:
[Open Borders] is a phenomenal achievement. It is a landmark in economic education, how to present economic ideas, and the integration of economic analysis and graphic visuals. I picked it up not knowing what to expect, and was blown away by the execution.
I’ve just gotten my copy hot off the press and Tyler is correct. I too was blown away. I expected the ideas to be good. What I didn’t expect was how well the graphic-novel format works to convey those ideas. It’s a joy to read. Bryan’s personality–friendly, welcoming, honest but also analytic, numerate and morally and factually serious–comes through on every page. Every page also contains something interesting. The interplay of graphics and words shows two craftsmen at the top of their game–the pictures offer wry commentary, cameos, and emphases and bear careful viewing. What’s phenomenal is that in addition to being fun to read this is also the most serious book on freedom of movement that has ever been written. Caplan and Weindersmith do not shy away from discussing all the major critiques–crime, politics, culture, IQ, deep roots and more. Anyone interested in freedom of movement, pro and con, should read this book.
Open Borders: The Science and Ethics of Immigration is a leading contender for an Eisner award.
How can California be left in the dark?
That is the title of my latest Bloomberg column, the inspiration for which came from an Alex T. tweet. Here is one passage:
Economists themselves have been of no great help. My Twitter feed includes plenty of the world’s greatest (or at least best-known) economists. They love to debate Elizabeth Warren’s plan for a wealth tax, an idea that probably isn’t going to happen (just ask Mitch McConnell or, for that matter, any moderate Democratic senator). When it comes to designing a better incentive model for California power utilities — a concrete problem for which economics is remarkably well-suited — there has been close to complete silence.
Economists are just reflecting a more general failing in American political debate. The old saying that all politics is local has been turned on its head: All issues are now national in scope and partisan in nature. People are less interested in the day-to-day mechanics of actual governance, including at the state and local level. The comeuppance for those ideological obsessions is now upon us.
I wonder how much worse things will have to get before they become better.
My favorite job market paper so far this year
It is from MIT, by Jonathon Hazell and Bledi Taska of Burning Glass, here is the paper, here is Hazell’s home page, here is the abstract:
If wages are more rigid downward than upward, then unemployment is volatile during recessions. In benchmark models, the wage for new hires is particularly important for unemployment fluctuations, but there is limited evidence of downward rigidity on this margin. We introduce a dataset that tracks the wage for new hires at the job level—that is, across successive vacancies posted by the same job title and establishment. We show that the wage for new hires is more rigid downward than upward, in two steps. First, the nominal wage rarely changes at the job level. When wages do change, they fall infrequently, suggesting a constraint from beneath. Second, when unemployment rises, wages do not fall for new hires—though wages rise strongly as unemployment falls. We show that prior work, which studies the average wage for new hires, cannot detect downward rigidity due to changing job composition. Finally, we match a standard labor search model to our estimates, and uncover state dependent asymmetry in unemployment dynamics. After contractions, unemployment responds symmetrically to labor demand shocks; after persistent expansions, unemployment is as much as twice as sensitive to negative than positive shocks.
It is a true puzzle why the wage should be sticky for employment relations which do not yet exist! (It is easier to see you might not cut wages for workers who had prior expectations and who will stick around and might wreck things due to being disgruntled.)
Do note this:
However the average wage for new hires, the object of previous studies, is not more rigid downward than upward—in contrast to our job- and establishment-level results on downward rigidity…
But note that in section 6.2 the paper shows that firms do not lower the average quality of job during a recession so as to lower the average wage offer — yet a further puzzle. Section 6.3 considers whether quality of job reallocation across establishments might offset wage rigidity.
This paper raises many important questions, and it is the most significant progress on understanding wage rigidity I have seen since the questionnaire work of Alan Blinder and also Truman Bewley.
Recommended, both the paper and the job candidate!
Addendum: Note this earlier post of Alex’s, on workers moving to new jobs since the end of the recession.
My NBA bet with Kevin (Angus) Grier
If the Denver Nuggets win the NBA title, I send Kevin $75. If the Los Angeles Clippers win, he sends me $25.
I say this year there is no parity, and the Clippers (barring injury) are clearly better than any other team.
Time will tell!
Monday assorted links
1. Local concentration and monopsony.
2. Better-looking children achieve more schooling.
3. Noah on the Chilean miracle.
4. Fukushima: “We estimate that the increase in mortality from higher electricity prices outnumbers the mortality from the accident itself, suggesting the decision to cease nuclear production has contributed to more deaths than the accident itself.”