Category: Economics

The Minimum Wage, Rent Control, and Vacancies or Who Searches?

In an interesting new paper Federal Reserve economists Marianna Kudlyak, Murat Tasci and Didem Tüzemen look at what happens to job vacancy postings when the minimum wage increases.

The vacancy data in our analysis come from the job openings data from the Conference Board as a part of its Help Wanted OnLine (HWOL) data series. HWOL provides monthly data on vacancies at detailed geographical (state, metropolitan statistical area, and county) and occupational (six-digit SOC and eight-digit O*Net) levels starting from May 2005. HWOL covers around 16,000 online job boards.

…Our identification strategy exploits the idea that different occupations can be differently impacted by minimum wage hikes due to differential mass of occupation-specific wage distributions concentrated around the prevailing minimum wage. We formalize this idea by analyzing wage distributions by occupation at the state level using micro data from the Current Population Survey (CPS). We identify occupations with large shares of employed workers at or near the state-level effective minimum wage and we refer to these occupations as “at-risk occupations.” We then estimate vacancy growth in at-risk occupations relative to vacancy growth in other occupations around the time when minimum wage increase takes place in the state, and relative to growth in vacancies in at-risk occupations at the national level.

…We find a statistically significant and economically sizeable negative effect of the minimum wage increase on vacancies. Specifically, a 10 percent increase in the level of the effective minimum wage reduces the stock of vacancies in at-risk occupations by 2.4 percent and reduces the flow of vacancies in at-risk occupations by about 2.2 percent.

…We find that firms cut vacancies up to three quarters in advance of the actual minimum wage increase. This finding is consistent with the firms’ desire to cut employment and vacancies being a forward-looking tool to achieve it. This finding is also consistent with a typical announcement effect of a policy change. Formally testing for the parallel trends assumption in our triple-difference identification, we find that at-risk and not-at-risk occupations do not have statistically significant differences in their vacancy trends prior to the typical announcement period. But the negative effect persists even four quarters after the minimum wage increase. The cumulative negative effect of a 10 percent increase in the minimum wage on total vacancies is as large as 4.5 percent a year later.

…We find that vacancies in occupations that typically employ workers with lower educational attainment (high school or less) are affected more negatively than vacancies in other occupations. The negative effect on vacancy posting is exacerbated in counties with higher poverty rates, which highlights another trade-off that policymakers might want to take into account.

This reminded me of a similar paper on rent controls (ungated) by Are Oust that Tyler and I mention in the forthcoming edition of Modern Principles of Economics.

Are Oust studied rent controls in Oslo, Norway and found that during the rent control era it was common for landlords to require their tenants to be of a certain gender, age, occupation and even religion (which would be illegal in the United States). Landlords would also find ways to charge extra by asking renters for extra services such as baby-sitting, garden work or snow-clearing. When rent control was eliminated, however, the number of apartments increased and landlords no longer advertised these kinds of requirements. Perhaps most telling, in the rent-control era it was common for renters to advertise “Apartment Wanted” but when rent controls were lifted it became much more common for landlords to advertise “Apartments for Rent!”

In other words, in a free market firms search for employees and landlords search for renters but under the minimum wage and rent control, workers must search for jobs and renters must search for apartments to a much greater extent.

What is your most underappreciated paper?

If you are a scholar working primarily in the social sciences and/or humanities with at least 4000 Google Scholar citations, we hereby invite you to identify one or two publications with publication date 2012 or prior, and for which the count is lower than your present h-index, that you consider underappreciated. It is OK that the publication is coauthored.

…We encourage you to remark briefly on why you select the publication, and to provide a link to it. However, your entire contribution, including the referenced item(s) should be no more than 200 words.

That is from Econ Journal Watch, instructions for participating are at the link.

The macroeconomics of a pandemic

Hence, aggregate demand stimulus is one quarter as effective as in a typical recession where all labor markets are slack.

That is from a new Baqaee and Farhi piece in the May AER, AEA gate.  It is a discouraging sign how little talk was heard of this kind of argument until recently.  The piece is titled “Supply and Demand in Disaggregated Keynesian Economies with an Application to the COVID-19 Crisis.”

Learn to Code!

Gallup did a survey of tech boot camp graduates and the results are quite good.

A new study by Gallup and educational technology company 2U provides insight into these outcomes, based on interviews with 3,824 graduates of 2U-powered university boot camps, and helps shed light on what high-quality programs look like. 2U partners with more than 50 nonprofit universities to power their boot camp programs. Over more than a decade, 48,000 students have graduated from 2U-powered boot camps.

The boot camp graduates surveyed reported earning substantially more money one year after graduation than they were earning while attending the boot camp — regardless of whether they had bachelor’s degrees to begin with.

Now that’s a survey result not a causal estimate but tech boot camp graduates without a bachelor’s degree earn nearly as much as computer science graduates even though the tech boot camp is much cheaper and quicker.

Although graduates of 2U boot camps spent between one-quarter and one-third of what bachelor’s degree-holders typically spend on their programs, boot camp graduates reported earning as much or more money in the year after they graduated.

The median 2018 boot camp graduate without a bachelor’s degree reported earning nearly as much ($55,000) in the year immediately after their boot camp as the median computer science bachelor’s degree graduate ($56,421), and they earned roughly $10,000 more than non-computer science majors ($44,033).3

Boot camp graduates with a bachelor’s degree (which accounts for most of the surveyed graduates) earned even higher salaries — about $5,000 more — than their counterparts with less than a bachelor’s degree. Further, boot camp graduates with bachelor’s degrees are outearning U.S. workers of the same age with a bachelor’s degree.

Education is ripe for transformation.

Energy’s future is both cleaner and dirtier

That is the topic of my latest Bloomberg column, here is one part:

In the short run gas will substitute for the much dirtier coal, but over the longer term fracking is competing with greener forms of energy production.

The bottom line: If you are bullish on green innovation, perhaps you should be bullish on innovation in fossil fuels as well.

One notable feature of energy is that it is easy to use more of it. If energy were truly cheap, people would take more plane trips, build more robots, desalinate more water and terraform more of the earth’s surface. These are wonderful ambitions, but they might lead the world to use both more green energy and more carbon-intensive energy.

And:

…it seems increasingly easy to imagine a world with wonderful green energy innovations and lots of carbon emissions — and people will praise the former to feel less bad about the latter.

Most likely, the world’s countries will develop their energy supplies in a sequential, rolling fashion. Japan developed economically before China, which in turn became industrial before Vietnam, and currently Vietnam is leading most of Africa. It could be that the world always has some growing countries that will want to use lots of fossil fuels, and a universal transition to solar power and good batteries could be distant.

Price pressures along the way could reinforce this basic logic. As green energy becomes more common, batteries may become more expensive, as they are based on a variety of scarce physical inputs. At the same time, the initial slack in demand for oil and gas, during a true green-energy transition, will make those resources very cheap. Is it such a sure bet that an industrializing Uganda will immediately and directly go the green energy route?

To be continued…

David Theroux, RIP

I was saddened to hear of the sudden passing of David Theroux, the President of the Independent Institute. I was a professor of economics at Ball State University in Muncie, Indiana when David approached me to be the research director (later Vice-President) of II. I had great colleagues at Ball State but was never happy about living in Muncie. Nevertheless, leaving academia was a big leap. My career at the time, however, was in the doldrums and when things aren’t happening it’s good to throw some variance into the mix…so I leapt. David and his wife Mary made my wife and I feel very welcome in Oakland. I remember fondly my young children playing in their garden in their beautiful house in the Oakland hills.

David was a great intellectual entrepreneur. He was the founding Vice President for the Cato Institute and the founding President of the Pacific Research Institute for Public Policy. He started the Independent Institute on a shoestring budget in 1986, building it into a major institute that produced many important books and research articles.

Among the highlights of Independent’s extraordinary publications are Crisis and Leviathan: Critical Episodes in the Growth of American Government by Robert Higgs (1986, with a 25th anniversary edition in 2012); Antitrust and Monopoly, by Dominick Armentano (1990); Beyond Politics: The Roots of Government Failure, by Randy Simmons (updated edition 2011); Out of Work, by Lowell E. Gallaway and Richard Vedder (1997); Entrepreneurial Economics, by Alexander Tabarrok (2002); The Empire Has No Clothes, by Ivan Eland (2004); Making Poor Nations Rich, edited by Benjamin Powell (2007); The Enterprise of Law, by Bruce Benson (2011); Living Economics, by Peter J. Boettke (2012); Liberty in Peril, by Randall Holcombe (2019); and many more.

All told, Independent Institute books produced under David’s direction received more than 50 prestigious book awards, including three Eric Hoffer Book Award Grand Prizes, the Templeton Freedom Award, two Mencken Awards for Best Book, eight Sir Antony Fisher International Memorial Awards for Best Book, three Benjamin Franklin Awards, ten Independent Publisher Book Awards, the Peter Shaw Memorial Award, and three Choice Magazine Awards for Outstanding Book.

David spotted talent in other people, encouraged them, and made things happen. He was a prime mover in launching Bruce Benson’s important work on the law merchant and a big supporter of the great Robert Higgs (who started The Independent Review).

I learned a lot from David, especially about militarism and libertarian foreign policy, the marketing of ideas, and also about what it means to be an entrepreneur. I recall two instances in particular. The first was during the Microsoft trial when we had published the excellent book Winners, Losers & Microsoft: Competition and Antitrust in High Technology by Stan Liebowitz and Stephen Margolis. II opposed the antitrust case against Microsoft, seeing it as waste of resources in a rivalrous industry (in retrospect, yup we got that one right). Larry Ellison at Oracle (a Microsoft competitor) didn’t like our work and hired detectives to buy the Independent Institute’s garbage and sift through it (yes, really!) to try to discredit us. The story become a page one headline in the New York Times (Independent Institute not really Independent!). I was worried about the impact on the Institute but David  always saw the positive even in “bad news.” At the time I found this frustrating as this seemed to me like a failure to see reality but David had the entrepreneur’s faith that vision, a positive attitude, and hard work can make reality. He kept calm and steered us through the difficulties to further strengths. I was wrong. David was right. He made it happen. The second time was when II was launching its scholarships for low-income children to attend private schools in Oakland. I sketched out a careful, well-thought out plan to get us ready to go in a year. David said no, “I want it ready in six weeks!”. I thought this was insane. But we did it! No surprise that David was an entrepreneur and I was an academic. Ultimately, of course, I returned to academia by moving to GMU but not before learning many valuable lessons from David and my years at the Independent Institute.

He will be missed.

The Myth of Primitive Communism

AEON: Today, many writers and academics still treat primitive communism as a historical fact. To take an influential example, the economists Samuel Bowles and Jung-Kyoo Choi have argued for 20 years that property rights coevolved with farming. For them, the question is less whether private property predated farming, but rather why it appeared at that time. In 2017, an article in The Atlantic covering their work asserted plainly: ‘For most of human history, there was no such thing as private property.’ A leading anthropology textbook captures the supposed consensus when it states: ‘The concept of private property is far from universal and tends to occur only in complex societies with social inequality.’

A Yagua (Yahua) tribeman demonstrating the use of blowgun (blow dart), at one of the Amazonian islands near Iquitos, Peru. JialiangGao www.peace-on-earth.org

In fact, although some tribes had communal sharing of (some) food, most did not. Private property, far from being unknown, was normal among all hunter-gatherers that have been studied. Manvir Singh writing in Aeon continues:

Agta hunters in the Philippines set aside meat to trade with farmers. Meat brought in by a solitary Efe hunter in Central Africa was ‘entirely his to allocate’. And among the Sirionó, an Amazonian people who speak a language closely related to the Aché, people could do little about food-hoarding ‘except to go out and look for their own’. Aché sharing might embody primitive communism. Yet, Hill admits, ‘the Aché are probably the extreme case.’

More damning, however, is a starker, simpler fact. All hunter-gatherers had private property, even the Aché….Individual Aché owned bows, arrows, axes and cooking implements. Women owned the fruit they collected. Even meat became private property as it was handed out. Hill explained: ‘If I set my armadillo leg on [a fern leaf] and went out for a minute to take a pee in the forest and came back and somebody took it? Yeah, that was stealing.’

Some proponents of primitive communism concede that foragers owned small trinkets but insist they didn’t own wild resources. But this too is mistaken. Shoshone families owned eagle nests. Bearlake Athabaskans owned beaver dens and fishing sites. Especially common is the ownership of trees. When an Andaman Islander man stumbled upon a tree suitable for making canoes, he told his group mates about it. From then, it was his and his alone. Similar rules existed among the Deg Hit’an of Alaska, the Northern Paiute of the Great Basin, and the Enlhet of the arid Paraguayan plains. In fact, by one economist ’s estimate, more than 70 per cent of hunter-gatherer societies recognised private ownership over land or trees.

Moreover, the sharing that some hunter-gatherers practiced was functional rather than ethical.

Whatever we call it, the sharing economy that Hill observed with the Aché does not reflect some lost Edenic goodness. Rather, it sprang from a simpler source: interdependence. Aché families relied on each other for survival. We share with you today so that you can share with us next week, or when we get sick, or when we are pregnant.

take away the function and the sharing disappeared, often brutally:

In their book Aché Life History (1996), Hill and the anthropologist Ana Magdalena Hurtado listed many Aché people who were killed, abandoned or buried alive: widows, sick people, a blind woman, an infant born too soon, a boy with a paralysed hand, a child who was ‘funny looking’, a girl with bad haemorrhoids. Such opportunism suffuses all social interactions. But it is acute for foragers living at the edge of subsistence, for whom cooperation is essential and wasted efforts can be fatal.

None of this should be surprising to anyone familiar with the property-rights tradition of Demsetz and Barzel. The primitive communism of hunter-gatherers is no different in principle from the primitive communism of the wifi service at Starbucks, the modern day police and fire departments, or the use of Shakespeare’s works. As Barzel put it, “New rights are created in response to new economic forces that increase the value of the rights.” Thus, in this respect, there are no major differences among peoples, only differences in transaction costs, externalities, and technologies of inclusion and exclusion.

France analysis of the day

Macron had promised to reduce state spending — then a record at more than 56 per cent of gross domestic product — by about 5 percentage points. Instead, under pressure from protests and the pandemic, state spending rose to a staggering 60 per cent of GDP. France’s government spending is 15 points above the average for developed economies.

Moreover, that gap is explained less by heavy spending on education, health or housing than on welfare programmes, which at 18 per cent of GDP is nearly double the average for developed economies. France is stuck in a welfare trap, spending generously on income transfers but pushed by voters to spend even more, given discontent with the rising cost of living and with inequality.

Here is more from Ruchir Sharma at the FT.  And this:

Total billionaire wealth doubled under Macron to 17 per cent of GDP, and nearly 80 per cent of French billionaires’ wealth is inherited — among the highest in the world.

Why are skyscrapers so short?

Brian Potter has a delightful primer on the physical, economic and regulatory barriers to building height beginning with the Great Pyramid of Giza and running to today. He concludes that the limit today isn’t technological–we could build much higher–but regulatory:

…we can estimate the magnitude of building height restrictions by comparing the cost of rent to the marginal cost of adding an additional floor. When Glaeser et al. 2005 did this for Manhattan, they found that the cost of rent was approximately twice the marginal cost of an additional floor, concluding, “the best explanation for why [developers] do not take advantage of this opportunity is the reason they tell us themselves: New York’s maze of building regulations effectively cap their building heights.” Cheshire et al. 2007 found similar magnitudes of rent-to-cost ratios in a variety of major European cities. When Glaeser et al. tried to estimate the size of building height externalities in New York, they concluded it was nowhere near the magnitude of the rent/construction cost difference, suggesting current height limits are far stricter than necessary.

These building height restrictions make us all poorer – not only do they cause a deadweight loss by artificially restricting the supply of available building space where it’s needed the most, but they also screen off the potential agglomeration benefits that accrue from increased density. This makes workers and businesses less productive and innovative than they could be, which not only hurts them, but everyone else who would benefit from cheaper and better goods and services.

The upshot is that there’s a lot of low-hanging fruit in building taller buildings. We don’t need to invent any new technology for pushing the boundaries of what’s possible to build, we just need to stop getting in our own way.

I concluded the same thing when I looked at building height in Mumbai, India. This video also contains a very nice explanation of the Floor Space Index also known as the Floor Area Ratio.

Local changes in intergenerational mobility

We study changes in intergenerational income mobility over time at the local level in the U.S., using data on individuals born in the 1980s. Previous research has found no change in mobility at the national level during this time period, but we show that this hides substantial increases and decreases in mobility at the local level. For children from low-income families, there is convergence in mobility over time, and average differences by region become much smaller. For children from high-income families, the geographic variation in mobility becomes much larger. Our results suggest caution in treating mobility as a fixed characteristic of a place.

Here is the published piece by Christopher Hnady and Katharine L. Shester.  As for a few concrete results:

1. Mobility in the southeast has been rising.

2. Mobility in the northeast has been declining.

3. There is more mobility from rural than urban areas, and this gap has been rising.

4. For wealthier families, mobility depends more on where you live.

For most of these claims, the data are from cohorts born in the 1980s.

Via the excellent Kevin Lewis.

New developments in the economics of fertility

The economics of fertility has entered a new era because these stylized facts no longer universally hold. In high-income countries, the income-fertility relationship has flattened and in some cases reversed, and the cross-country relationship between women’s labor force participation and fertility is now positive. We summarize these new facts and describe new models that are designed to address them.

That is from a new NBER paper by Matthias Doepke, Anne Hannusch, Fabian Kindermann, and Michèle Tertilt . Another result is that quality vs. quantity tradeoff models for children no longer perform very well.  And fertility-education relationships are greatly weakened, just as the income-fertility relationships are.  The marketization of childcare is likely an important cause of this shift.

Italy and Spain are two countries where the income-fertility relationship is not being reversed.

Father contribution rates to child-raising are growing in importance for fertility.  Fathers seem most interested in their children in Norway, and least interested in Russia, of the countries sampled.

If a couple disagrees on having another kid, the chance they do is relatively small.

In Denmark in 2015, six percent of all births occurred with some kind of medical help related to conception.

There are now positive correlations between public childcare provision, though I do not in this paper see any reliable causal estimate.

The paper has a section on social norms, but it oddly fails to consider religion.

There is some evidence for peer effects mattering for fertility, for instance in a workplace.

98 pp. of text, perhaps no huge revelations, but interesting throughout.

There is No Pink Tax

The so-called pink tax is an alleged tendency for products consumed by women to be more expensive than similar products consumed by men. In 2015 NYC put out a study under mayor Bill DeBlasio alleging a 7% pink tax across a range of goods. The pink tax is implausible. Products produced in competitive markets will be close to marginal cost. Even if firms have monopoly power it’s not obvious that women have systematically more inelastic demand curves–indeed, the stereotype tends to be that women are the more careful shoppers. Preferences differ systematically across genders leading to subtly different products even in categories which appear similar on the surface. To give just one example, the NYC study compared the price of a single 2-in-1 men’s shampoo+conditioner product to the combined price of a women’ shampoo plus a women’s conditioner (oz per oz). Give me a break. There are reasons why a one-and-done hair product appeals to men more than to women and why this will also be correlated with other characteristics which make the all in one product different and likely of lower quality.

In anycase, economists Sarah Moshary, Anna Tuchman and Natasha Bhatia have done a much more complete and careful study and they find that once you control for ingredients and compare like-to-like there is no pink tax. Indeed, sometimes men pay a bit more. Overall, there are no big savings from cross-buying. Women and men could save money by buying products primarily marketed to the opposite gender–like 2-in-1 shampoo+conditioner–but only by buying products that they prefer less than the products they choose to buy.

We find that the pink gap is often negative; men’s products command higher per-product prices in six of nine categories that we study and higher unit prices in three of nine categories. We then estimate the pink tax via a comparison of products manufactured by the same firm and comprising the same leading ingredients. Men’s products are more expensive in three of five categories when we control for ingredients. These findings do not support the existence of a systematic price premium for women’s products, but our results do reveal that gender segmentation in personal care is pervasive and operates through product differentiation. A back-of-the-envelope calculation implies that the average household would save 1% by switching to substantially similar products targeted to a different gender.

My excellent Conversation with Thomas Piketty

Lots of disagreement in this episode, though always polite.  Here is the transcript, video, and audio.  Here is part of the summary:

He joined Tyler to discuss just how egalitarian France actually is, the beginning of the end of aristocratic society, where he places himself within French intellectual history, why he’s skeptical of data from before the late 18th century, how public education drives economic development, why Georgism isn’t sufficient to address wealth inequality, the relationship between wealth and cultural capital, his proposal for a minimum inheritance, why he turned down the Legion of Honor, why France should give reparations to Haiti despite the logistical difficulties of doing so, his vision for European federalism, why more immigration won’t be a panacea for inequality, his thoughts on Michel Houellebecq’s Submission, and more.

Here is one excerpt:

COWEN: If I visit every major country in Europe, what I observe is the highest living standard is arguably in Switzerland — Norway and Luxembourg aside. Switzerland has one of the smallest governments, and they attempt relatively little redistribution. What is your understanding of Switzerland? What if someone said, “Well, Europe should try to be more like Switzerland. They’re doing great.” Why is that wrong?

PIKETTY: Oh, Switzerland. It’s a very small country, so it’s about the size. . . . Actually, it’s smaller than Île-de-France, which is a Paris region. Now, if you were to make a separate country out of Île-de-France, GDP per capita, I think, would actually be higher than Switzerland. Of course, you can take a wealthy region in your country and say, “Okay, I don’t want to share anything with the rest of the country. I’m going to keep my tax revenue for me. I’m going to be a tax haven based on bank secrecy.” That’s going to make you 10 percent or 20 percent richer. I’m not saying —

COWEN: It’s been a long time since Switzerland relied on bank secrecy, right? Following 9/11, that Swiss advantage largely went away.

PIKETTY: Oh, that’s wrong. Oh, you’re wrong on this.

We talk about Matt Rognlie and Greg Clark as well.  Recommended, this was fun for me to reread.

More Guns, Less Burglaries

In December 2008, a Memphis, TN newspaper published a searchable online database of names, zip codes, and ages of Tennessee handgun carry permit holders. We use detailed crime and handgun carry permit data for the city of Memphis to estimate the impact of publicity about the database on burglaries. We find that burglaries increased in zip codes with fewer gun permits, and decreased in those with more gun permits, after the database was publicized.

From a new NBER working paper by Alessandro Acquisti & Catherine Tucker. I’ve also been struck by the fact that compared to other industrialized countries the US has low robbery rates and especially so relative to burglaries.