Category: Data Source

More evidence on immigration and wages

by  Tyler Cowen in

As of 2004 California employed almost 30% of all foreign born workers
in the U.S. and was the state with the largest percentage of immigrants
in the labor force.  It received a very large number of uneducated
immigrants so that two thirds of workers with no schooling degree in
California were foreign-born in 2004.  If immigration harms the labor
opportunities of natives, especially the least skilled ones, California
was the place where these effects should have been particularly strong.
But is it possible that immigrants raised the demand for California’s
native workers, rather than harming it?  After all immigrants have
different skills and tend to work in different occupations then natives
and hence they may raise productivity and the demand for complementary
production tasks and skills.  We consider workers of different education
and age as imperfectly substitutable in production and we exploit
differences in immigration across these groups to infer their impact on
US natives.  In order to isolate the "supply-driven" variation of
immigrants across skills and to identify the labor market responses of
natives we use a novel instrumental variable strategy.  Our estimates
use migration by skill group to other U.S. states as instrument for
migration to California.  Migratory flows to other states, in fact,
share the same "push" factors as those to California but clearly are
not affected by the California-specific "pull" factors.  We find that
between 1960 and 2004 immigration did not produce a negative migratory
response from natives.  To the contrary, as immigrants were imperfect
substitutes for natives with similar education and age we find that
they stimulated, rather than harmed, the demand and wages of most U.S.
native workers.

In other words, if lots of Mexican carpenters move to California, we don’t see the non-Mexican carpenters leaving in droves, due to lower wages. 

Here is the paper.  Here is a non-gated version.  The article makes the interesting observation that if California were counted as a nation (and the U.S. not), it would receive the second largest number of immigrants per year of any country, with only Russia beating it out.

Department of Uh-oh

by  Tyler Cowen in

Ceteris paribus, well-being reaches a minimum, on both sides of the Atlantic, in people’s mid to late 40s.

Here is the paper.  It’s a good thing I don’t believe in that nasty happiness research…although here is a good defense of it…

Addendum: Speaking of the limits of economics, here is an excellent piece (excerpts only, buy today’s WSJ) on whether economists should study autism.

I would like to see data on this

by  Tyler Cowen in

…a principal reason for greater income volatility is both simple and benign–motherhood.  In the 1970s, a minority of mothers were in the workforce and their pay was relatively low.  By the 1990s, a majority of mothers were in the workforce and their pay was much higher.  Because women today have a much more prominent role in the economy, their movements in and out of the workforce to take care of children are having bigger impacts on income volatility.  When mothers re-enter the workforce, family incomes increase.  This also counts as income volatility.

That is from The New Rules Economy.  Have any of you seen more on the topic?

Do riches give women better sex lives?

by  Tyler Cowen in

A survey released today by Prince & Associates in collaboration with wealth consultant Hannah Grove found that 70% of today’s multimillionaires said being wealthy gave them “better sex.”  (You can request a free copy via email here.)  A majority also said wealth gave them “more adventurous and exotic” sex lives.

The survey polled nearly 600 men and women with net worths of more than $30 million and a mean net worth of $89 million…

The survey’s most-surprising findings relate to the impact that money has on the sex lives of women…Among the respondents, nearly three-quarters of the women surveyed (about 150) said they’d had affairs, compared to about 50% of the men.  While the male numbers are in keeping with findings for the broader American population, the figure for women is almost twice as high as the national average, according to sex researchers.  (More than half of all the men and women surveyed had been divorced at least once.)

Fully 63% of rich men said wealth gave them “better sex,” which they defined as having more-frequent sex with more partners.  That compares to 88% of women who said more money gave them better sex, which they defined as “higher quality” sex.

“This tells us that the women as a whole receive more sexual benefits from wealth than men,” says Ms. Grove.

The article has more, but this is a family blog…

Facts about travel risk

by  Tyler Cowen in

…the risk of death for an 18-year-old male driver is about the same as that for an 80-year-old female driver, but both are safer than the operator of a motorcycle.  And counterintuitively, risk is higher in the mountains in summer than in winter…the risk of death for vehicle occupants who are 16 to 20 years old, on weekdays, is 13.86 per 100 million trips between 8 a.m. and noon.  But between 8 p.m. and midnight it is 30.51 per 100 million trips, more than twice as high.

Here is an article on a new web site for calculating the risks of travel.  Here is the web site.

The IPod purchasing power parity index

by  Tyler Cowen in

1. Brazil $327.71

2. India $222.27

3. Sweden $213.03

4. Denmark $208.25

5. Belgium $205.81

6. France $205.80

7. Finland $205.80

8. Ireland $205.79

9. UK $195.04

10. Austria $192.86

11. Netherlands $192.86

12. Spain $192.86

13. Italy $192.86

14. Germany $192.46

15. China $179.84

16. South Korea $176.17

17. Switzerland $175.59

18. New Zealand $172.53

19. Australia $172.36

20. Taiwan $164.88

21. Singapore $161.25

22. Mexico $154.46

23. U.S. $149.00

24. Japan $147.63

25. Hong Kong $147.35

26. Canada $144.20

China fact of the day

by  Tyler Cowen in

Casual conversation and commentary lead most Americans to think that this accumulation of reserves corresponds to a large trade surplus in China, achieved by holding the value of their currency down.  In fact, the Chinese trade surplus is not that large.  It is well under 5% of GDP, smaller in percentage terms than the U.S. trade deficit.

That is from A. Michael Spence, in today’s Wall Street Journal; here is more.

New Jersey fact of the day

by  Tyler Cowen in

Paramus is one of the nation’s strongest shopping magnets, generating roughly $5 billion a year in retail sales, an amount about equal to the gross domestic product of Cambodia, Nicaragua or the sultanate of Brunei.

…In an already densely populated state, Paramus has more parking spots than people…It is a Faustian bargain that brings 200,000 cars a day into town during December, turning the roads into virtual parking lots, but also keeps property tax rates in Paramus relatively low – $1.55 per $100 of assessed value, compared with $3.88 in Maywood, the next town over.

…Already, Paramus has 320 stores with more than $1 million in annual sales each, second in the country only to the 10021 ZIP code on the East Side of Manhattan.  The vacancy rate for stores is 3 percent, several percentage points below the rate for similar real estate elsewhere.  Some properties are filled even before the previous tenants move out.

Here is the full story.  I liked this bit:

Irma Weishaupt and her husband, Lou, who have lived in Paramus for 45 years, say they stick to side streets and sometimes leave town to shop.

Alan Reynolds on *Income and Wealth*

by  Tyler Cowen in

…The
architects of these estimates, Thomas Piketty of École Normale
Supérieure in Paris and Emmanuel Saez of the University of California
at Berkeley, did not refer to shares of total income but to shares of
income reported on individual income tax returns-a very different
thing. They estimate that the top 1% (1.3 million) of taxpayers
accounted for 16.1% of reported income in 2004. But they explicitly
exclude Social Security and other transfer payments, which make up a
large and growing share of total income: 14.7% of personal income in
2004, up from 9.3% in 1980. Besides, not everyone files a tax return,
not all income is taxable (e.g., municipal bonds), and not every
taxpayer tells the complete truth about his or her income.

For
such reasons, personal income in 2004 was $3.3 trillion, or 34.4%,
larger than the amount included in the denominator of the Piketty-Saez
ratio of top incomes to total incomes. Because that gap has widened
from 30.5% in 1988, the increasingly gigantic understatement of total
income contributes to an illusory increase in the top 1%’s exaggerated
share.

The same problems affect Piketty-Saez estimates of share of
the top 5%, which contradict those from the Census Bureau (which also
exclude transfer payments). Piketty and Saez figure the top 5%’s share
rose to 31% in 2004 from 27% in 1993. Census Bureau estimates, by
contrast, show the top 5%’s share of family income fluctuating
insignificantly from 20% to 21% since 1993. The top 5%’s share has been
virtually flat since 1988…

Unlike
the Census Bureau, Messrs. Piketty and Saez measure income per tax unit
rather than per family or household. They maintain that income per tax
unit is 28% smaller than income per household, on average. But because
there are many more two-earner couples sharing a joint tax return among
high-income households, estimating income per tax return exaggerates
inequality per worker.

…the
amount of income Messrs. Piketty and Saez attribute to the top 1%
accounted for 10.6% of personal income in 2004. That 10.6% figure looks
much higher than it was in 1980. Yet most of that increase was, as they
explained, "concentrated in two years, 1987 and 1988, just after the
Tax Reform Act of 1986." As Mr. Saez added, "It seems clear that the
sharp, and unprecedented, increase in incomes from 1986 to 1988 is
related to the large decrease in marginal tax rates that happened
exactly during those years."

That 1986-88 surge of reported high
income was no surprise to economists who study taxes. All leading
studies of "taxable income elasticity," including two by Mr. Saez,
agree that the amount of income reported by high-income taxpayers is
extremely sensitive to the marginal tax rate. When the top tax rate
goes way down, the amount reported on tax returns goes way up. Those
capable of earning high incomes had more incentive to do so when the
top U.S. tax rate dropped to 28% in 1988 from 50% in 1986. They also
had less incentive to maximize tax deductions and perks, and more
incentive to arrange to be paid in forms taxed as salary rather than as
capital gains or corporate profits.

The top line in the graph shows
how much of the top 1%’s income came from business profits. In 1981,
only 7.8% of the income attributed to the top 1% came from business,
because, as Mr. Saez explained, "the standard C-corporation form was
more advantageous for high-income individual owners because the top
individual tax rate was much higher than the corporate tax rate and
taxes on capital gains were relatively low." More businesses began to
file under the individual tax when individual tax rates came down in
1983. This trend became a stampede in 1987-1988 when the business share
of top percentile income suddenly increased by 10 percentage points.
The business share increased again in recent years, accounting for
28.4% of the top 1%’s income in 2004.

As was well-documented years
ago by economists Roger Gordon and Joel Slemrod, a great deal of the
apparent increase in reported high incomes has been due to "tax
shifting." That is, lower individual tax rates induced thousands of
businesses to shift from filing under the corporate tax system to
filing under the individual tax system, often as limited liability
companies or Subchapter S corporations.

IRS economist Kelly
Luttrell explained that, "The long-term growth of S-corporation returns
was encouraged by four legislative acts: the Tax Reform Act of 1986,
the Revenue Reconciliation Act of 1990, the Revenue Reconciliation Act
of 1993, and the Small Business Protection Act of 1996. Filings of
S-corporation returns have increased at an annual rate of nearly 9.0%
since the enactment of the Tax Reform Act of 1986."

Switching income
from corporate tax returns to individual returns did not make the rich
any richer. Yet it caused a growing share of business owners’ income to
be newly recorded as "individual income" in the Piketty-Saez and
Congressional Budget Office studies that rely on a sample individual
income tax returns. Aside from business income, the top 1%’s share of
personal income from 2002 to 2004 was just 7.2%-the same as it was in
1988.

In short, income shifting has exaggerated the growth of top
incomes, while excluding a third of personal income (including transfer
payments) has exaggerated the top groups’ income share. [emphasis added]

There are
other serious problems with comparing income reported on tax returns
before and after the 1986 Tax Reform. When the tax rate on top salaries
came down after 1988, for example, corporate executives switched from
accepting stock or incentive stock options taxed as capital gains
(which are excluded from the basic Piketty-Saez estimates) to
nonqualified stock options reported as W-2 salary income (which are
included in the Piketty-Saez estimates). This largely explains why the
top 1%’s share rises with the stock boom of 1997-2000 then falls with
the stock market in 2001-2003.

In recent years, an increasingly
huge share of the investment income of middle-income savers is accruing
inside 401(k), IRA and 529 college-savings plans and is therefore
invisible in tax return data. In the 1970s, by contrast, such
investment income was usually taxable, so it appears in the
Piketty-Saez estimates for those years. Comparing tax returns between
the 1970s and recent years greatly understates the actual gain in
middle incomes, and thereby contributes to the exaggeration of top
income shares.

In a forthcoming Cato Institute paper I survey
a wide range of official and academic statistics, finding no clear
trend toward increased inequality after 1988 in the distribution of
disposable income, consumption, wages or wealth. The incessantly
repeated claim that income inequality has widened dramatically over the
past 20 years is founded entirely on these seriously flawed and greatly
misunderstood estimates of the top 1%’s alleged share of
something-or-other.

Opinions?  I am embarrassed to admit I have yet to read Pikaetty and Saez.  If you would like an alternative perspective from that offered by Reynolds, here is Paul Krugman.

Addendum: Here is Greg Mankiw on same, with related links.

Legistorm Storm

by  Alex Tabarrok in

LegiStorm is a web-database with information on the salaries of all Congressional staff.  (It was started by a friend, Jock Friedly.)  You can find data, for example, on which representatives spend the most say on press secretaries.  The salary data has always been "public" on paper, but now that it’s available on the web staff are comparing salaries and wondering why it is that that cute intern is paid so much more than the rest.  Of course, the politicians are not happy and are trying to shut Legistorm down.

Are we approaching labor market equilibrium?

by  Tyler Cowen in

After four years in which pay failed to keep pace with price
increases, wages for most American workers have begun rising
significantly faster than inflation.

With energy prices
now sharply lower than a few months ago and the improving job market
forcing employers to offer higher raises, the buying power of American
workers is now rising at the fastest rate since the economic boom of
the late 1990s.

The average hourly wage for workers below
management level – everyone from school bus drivers to stockbrokers –
rose 2.8 percent from October 2005 to October of this year, after being
adjusted for inflation, according to the Bureau of Labor Statistics. Only a year ago, it was falling by 1.5 percent.

Productivity has been rising for years, so it is comforting to see wages follow suit.  Every now and then the predictions of economic theory are correct.

Here is the full story.  The timing of this news could not be better, if you get my drift…