Do higher minimum wages induce more search?

Monopsony models generally imply they should, and that is part of the argument why minimum wage hikes might be good for workers, wages, and yes even employment.  But the data don’t seem to support the claim of more search behavior:

Labor market search-and-matching models posit supply-side responses to minimum wage increases that may lead to improved matches and lessen or even reverse negative employment effects. Yet there is no empirical evidence on this crucial assumption. Using event study analysis of recent minimum wage increases, we find that increases to minimum wage do not increase the likelihood of searching, but do lead to large yet very transitory spikes in search effort by individuals already looking for work. The results are not driven by changes in the composition of searchers.

That is from a new NBER Working Paper by Camilla Adams, Jonathan Meer, and Carly Will Sloan.

Nigeria fact of the day

Rising crude oil prices are set to send Nigeria’s bill for fuel subsidies rocketing, threatening to exacerbate the already precarious economic situation of Africa’s largest oil producer as it heads into election season.

Although Nigeria produces 1.7m barrels of crude per day, it has very little refining capacity and imports roughly 90 per cent of its fuel, negating much of the benefits oil-producing nations accrue from high crude prices.

When crude prices plunged to about $30 a barrel in 2016, it sent Nigeria’s oil-dependent economy reeling into a recession from which it has barely recovered. While a rally has since pushed the oil price past $85, Africa’s most populous country is not set to reap the benefits. This is because its subsidy bill is likely to surge beyond the $3.85bn annual tally the oil minister estimated earlier this year when prices were 20 per cent lower, said Tunde Ajileye, a partner at SBM Intel, a political and economic risk consultancy.

That is from Neil Munshi at the FT.

Assorted Tuesday links

Preference for realistic art predicts support for Brexit

Here is part of the abstract from Noah Carl, Lindsay Richards, and Anthony Heath:

Controlling for a range of personal characteristics, we found that respondents who preferred all four realistic paintings were 15–20 percentage points more likely to support Leave than those who preferred zero or one realistic paintings. This effect was comparable to the difference in support between those with a degree and those with no education, and was robust to controlling for the respondent’s party identity.

Via the excellent Kevin Lewis.

On first world problems, from the comments

Airspace homogenuity is a 1st World gripe. Here’s some of my 3rd World concerns: do we have any more Philippine spitting cobras in our backyard? (We’ve killed two in the last year, one of them at 10:00 am in the outdoor kitchen, slithering up to somebody; it can shoot their venom up to 10 feet, kills many within 30 minutes, too short to make it to the hospital); are we going to run out of water in this rain forest climate that has no dams, though we just dug a second pressurized well?; does burning plastic (there’s no trash pickup here) cause cancer though we’ve taken precautions to build a big pit and stay upwind? (diesel fuel helps but it’s so rainy here it’s hard to burn anything); did the diseased bat that almost landed on my head carry Ebola or rabies (I have anti-rabies shots, but not Ebola)?; will the volcano erupt again and bury us with pyroclastic flow, like it almost did earlier this year (the magma the size of a football stadium that rolled down the mountainside was spectacular, I saw it when it happened); will our new concrete house get damaged by an earthquake (I think not, we used good concrete not the crumbly stuff they use here to save money), or a typhoon (we have a steel roof; the Philippines gets something like a dozen typhoons a year, and we’re in ‘typhoon alley’); will we have another power cut just when I’m typing this? (the PH regional power plant is geothermal, which sounds good but in fact is prone to breakdowns, a brownout for a few hours every week is common, and more common during rain, a coal-fired plant is actually more reliable and btw electricity costs are about 2-3x more than in the USA, and people here are poor). Why are fruits and vegetables so expensive here ($1 for an ordinary apple; 80 cents for a small fist sized greenish tomato or huge, dirt filled–it’s comical–carrot) and why won’t my next-of-kin eat them? (sad people here eat nothing but sugar, white rice, pork, chicken, and the bony talapia fish, all fried of course since nobody even sells ovens and the one oven I bought, imported, had a gas leak and is inoperative, serves me right for trying to buck custom and buying things knowing everything here is sold from First World county rejected equipment, I kid you not).

Those are Third World concerns, and it’s even worse in Africa. And this guy is complaining about what again? When people wish ill on the USA, it’s because of stuff like what this guy is concerned over.

That is from Ray Lopez, the first link being added by me.

Why Paul Romer won the Nobel Prize in economics

It is hard to do better than Alex’s video on Romer, pretty much definitive and Romer liked it too.  Most importantly, Romer won the Prize for seeing how the non-rival nature of ideas can boost ongoing and indeed “endogenous” economic growth.  Romer also showed mathematically that this process of growth is bounded, namely that it does not explode without limit, and that the associated mathematical models were tractable.  Previously, economists had feared that increasing returns to scale models might be impossible to work with.  See the top two links here, for the 1989 and 1990 pieces, with the third piece listed, from 1994, being Romer’s easier to read summary of the work.

David Warsh’s Knowledge and the Wealth of Nations: A Story of Economic Discovery, is the book on Romer for the ages, a truly splendid creation on both the science and the person.  Romer, by the way, is the son of Roy Romer, former Colorado governor and famous builder of airports.  I believe this later influenced Paul’s interest in the importance of economic growth.

Over time, increasing returns models are seen as less descriptive of growth than perhaps they were in the 1990s.  The growth rates of many countries have been stagnant or even falling, rather than rising.  Nonetheless, for understanding how ideas boost growth, and in cumulative fashion, Romer’s work is essential.  If you are wondering “which economist has done the most to help us explain Silicon Valley,” you would turn first to Romer.

This Prize is not a surprise at all, and it has been expected, sooner or later, for many years.  (Though I did not think it would come this year. Trump talks so much about his role in boosting economic growth, I feared the Nobel Committee would not at this point in time wish to feed into that rhetoric.  I am glad to see they did not hesitate!)

Here is Romer on Twitter.  Here is Romer on Wikipedia.  Here is Paul’s blog.  He is now at NYU, but spent much of his career at Stanford.  Previous MR coverage of Romer is quite extensive.  Here is the Prize Committee citation, excellent as always.  Here are his three podcasts with Russ Roberts.  Here is Joshua Gans on Paul.  Here is a Sebastian Mallaby profile of Romer.

Romer also in 2000 started and ran a successful business, Aplia, which revolutionized on-line education.  In the context of economics, Aplia is most notable for enabling curve-shifting exercises and the like to be done through an electronic portal.  It was later purchased by Cengage.  So like Nordhaus, Romer also has been a doer, including in the private sector.  Yet Paul once tweeted to Ben Bernanke that “Rich is over-rated.”  It is too hard to convert money into satisfaction.

Romer recently served as Chief Economist at the World Bank, with a somewhat complicated tenure.  You can find numerous articles about this in the media.

Romer has been a central figure behind the notion of “charter cities,” namely an economic region but with external or possibly foreign governance, so as to enforce the rule of law and spur economic growth.  The charter cities idea comes rather naturally out of Romer’s work on the economics of growth.  Think of Romer as asking “which is the non-rival public good which can be extended at very low cost?”, and wondering if that might be law.  Here is his famous TED talk on charter cities.  Here is an interview with Romer on charter cities.  He was originally slated to work with the Honduran government on charter cities, though he dropped out of the project in 2012.  Here is Paul’s account of what happened.

Amihai Glazer and I once wrote a comment on Romer, on his article with Barro on ski-lift pricing, which Glazer and I saw as closely connected to Buchanan’s theory of clubs.  Romer later credited this comment with inducing him to rethink what the notion of rivalry really means in economics, and leading to his two best-known pieces on economic growth; see the David Warsh book for more detail.

Like myself, Romer is an avid fan of the guitarist Clarence White, and several times we have traded favorite Clarence White videos by email.  Romer believes (correctly) that the role of Clarence White in the success of the Byrds is very much underrated, and furthermore he is a big fan of White’s early work with the Kentucky Colonels.  Here is more on Romer’s excellent taste in music, recommended.

Romer also has a well-known survey piece on the importance of human capital for economic growth; human capital of course is where new ideas come from.

Here is a short Romer piece from 2016, suggesting his own work on growth implies “conditional optimism” on climate change, but not “complacent optimism.”  This ties together his work with that of Nordhaus.

Romer is also an advocate of regularizing the spelling of the English language, so as to make it more phonetic.  He believes this would boost the rate of economic growth, and it ties in with some of his work on economic integration and growth.  If English is an easier language to learn, the global economy as a whole in effect becomes larger, and we might expect the rate of ideas generation to rise.

Here is Romer on Jupyter vs. Mathematica.  Here is Romer on corruption in Greece, he has very broad interests.  Here is Romer on TARP and banking reform.  Here is Romer’s recent critique of macroeconomics.

Romer believes (and I concur) that the word “and” is used too much in writing, and in particular scholarly writing.  From the FT:

Circulating a draft of the upcoming World Development Report, Mr Romer warned against bank staff trying to pile their own pet projects and messages into the report. The tendency, he argued, had diluted the impact of past reports and led to a proliferation of “ands”.

“Because of this type of pressure to say that our message is ‘this, and this, and this too, and that …’ the word ‘and’ has become the most frequently used word in Bank prose,” he complained in an email.

“A WDR, like a knife, has to be narrow to penetrate deeply,” he added. “To drive home the importance of focus, I’ve told the authors that I will not clear the final report if the frequency of ‘and’ exceeds 2.6%.”

I have always found Romer to be extremely pleasant and open in my interactions with him, and I am very pleased to have interviewed him (no transcript or audio available) at a summer ideas festival (Kent Presents) the year before this one.  The crowd found him very open and engaging.

William Nordhaus and why he won the Nobel Prize in economics

These are excellent Nobel Prize selections, Romer for economic growth and Nordhaus for environmental economics.  The two picks are brought together by the emphasis on wealth, the true nature of wealth, and how nations and societies fare at the macro level.  These are two highly relevant picks.  Think of Romer as having outlined the logic behind how ideas leverage productivity into ongoing spurts of growth, as for instance we have seen in Silicon Valley.  Think of Nordhaus as explaining how economic growth interacts with the value of the environment.  Here is their language:

  • 2018 Sveriges Riksbank Prize in Economic Sciences is awarded jointly to William D Nordhaus “for integrating climate change into long-run macroeconomic analysis” and Paul M Romer “for integrating technological innovations into long-run macroeconomic analysis”.

Both are Americans, and both have highly innovative but also “within the mainstream” approaches.  So this is a macro prize, but not for cycles, rather for growth and long-term economic prospects.  Here is the Prize committee citation, always well done.

Both candidates were considered heavy favorites to win the Prize, sooner or later, and these selections cannot come as a surprise.  Perhaps it is slightly surprising that they won the Prize together, though the basic logic of such a combination makes good sense.  Here are previous MR mentions of Nordhaus, you can see we have been mentioning him for years in connection with the Prize.

Here is the home page of Nordhaus.  Here is Wikipedia.  Here is  Here is Joshua Gans on Nordhaus.

Nordhaus is professor at Yale, and most of all he is known for his work on climate change models, and his connection to various concepts of “green accounting.”  To the best of my knowledge, Nordhaus started working on green accounting in 1972, when he published with James Tobin (also a Laureate) “Is Growth Obsolete?“, which raised the key question of sustainability.  Green accounting attempts to outline how environmental degradation can be measured against economic growth.  This endeavor is not so easy, however, as environmental damage can be hard to measure and furthermore gdp is a “flow” and the environment is (often, not always) best thought of as a “stock.”

Nordhaus developed (with co-authors) the Dynamic Integrated Climate-Economy Model, a pioneering effort to develop a general approach to estimating the costs of climate change.  Subsequent efforts, such as the London IPCC group, have built directly on Nordhaus’s work in this area.  The EPA still uses a variant of this model.  The model was based on earlier work by Nordhaus himself in the 1970s, and he refined it over time in a series of books and articles, culminating in several books in the 1990s.  Here is his well-cited piece, with Mendelsohn and Shaw, on how climate change will affect global agriculture.

Nordhaus also was an early advocate of a carbon tax and furthermore note that his brother Bob wrote part of the Clean Air Act, the part that gave the government the right to regulate hitherto-unmentioned pollutants in the future.  The Obama administration, in its later attempts to regulate climate, cited this provision.

I would say that much of Nordhaus’s work has its impact through being “done,” rather than through being “read.”  Few economists have read through this model, which has computer programs and spreadsheets at its core.  But virtually all economists read about the results of such models and have a general sense of how they work.  The most common criticism of such models, by the way, is simply that their results are highly sensitive to the choice of discount rate.

In recent years, Nordhaus has shifted his emphasis to the risks from climate change, for instance in his book The Climate Casino: Risk, Uncertainty, and Economics for a Growing World.  Marty Weitzman offers a good review, as does Krugman.

Assorted pieces of information on Nordhaus:

Nordhaus was briefly Provost at Yale.  He also ended up being co-author on Paul Samuelson’s famous textbook in economics.

He co-authored a recent paper arguing we are not near the economic singularity; in this area his work intersects with Romer’s quite closely.

Here is a good NYT profile of Bill Nordhaus and his brother Bob, an environmental lawyer:

Bill Nordhaus, 72, a Yale economist who is seen as a leading contender for a Nobel Prize, came up with the idea of a carbon tax and effectively invented the economics of climate change. Bob, 77, a prominent Washington energy lawyer, wrote an obscure provision in the Clean Air Act of 1970 that is now the legal basis for a landmark climate change regulation, to be unveiled by the White House next month, that could close hundreds of coal-fired power plants and define President Obama’s environmental legacy.

Bob, Bill’s brother, once said: ““Growing up in New Mexico,” he said, “you’re aware of the very fragile ecosystem.””

Perhaps my personal favorite Nordhaus paper is on the returns to innovation.  Don Boudreaux summarized it well:

In a recent NBER working paper – “Schumpeterian Profits in the American Economy: Theory and Measurement” – Yale economist William Nordhaus estimates that innovators capture a mere 2.2% of the total “surplus” from innovation. (The total surplus of innovation is, roughly speaking, the total value to society of innovation above the cost of producing innovations.) Nordhaus’s data are from the post-WWII period.

The smallness of this figure is astounding. If it is anywhere close to being an accurate estimate, the implication is that “society” pays a paltry $2.20 for every $100 worth of welfare it enjoys from innovating activities.

There again you will see a complete intersection with the ideas of Romer.  Another splendid and still-underrated paper by Nordhaus is on the economics of light.  Nordhaus argues that gdp figures understate the true extent of growth, and shows that the relative price of bringing light to humans has fallen more rapidly than gdp growth figures alone might indicate.  Check out this diagram.  Here is a BBC summary of what Nordhaus did, in other words rates of price inflation have been lower than we thought and thus rates of real gdp growth higher.

Again, you will see Nordhaus and Romer intersecting on this key idea of economic growth.

Last but not least, Nordhaus was a pioneer on the theory of the political business cycle, namely the idea that politicians deliberately manipulate the economy, using monetary and fiscal policy, so as to boost their chances of reelection.  Dare I suggest that this idea might be making a comeback?

Addendum: From Margaret Collins by email: “I’d like to call your attention to Professor Nordhaus’ longstanding association with the International Institute for Applied Systems Analysis (IIASA), the international science and policy research institution located just outside Vienna.  He worked at IIASA shortly after the institute’s creation in 1972, and his work there is closely bound to the issues the Nobel Committee cites in the award  — he was employed for a year in 1974-75, doing pioneering work on climate as part of IIASA’s Energy Program, and producing a working paper entitled “Can We Control Carbon Dioxide?”.  That was perhaps the first economics treatment of of climate change — and Nordhaus dates his work on climate as having begun there.  He has visited IIASA numerous times in the intervening years, and remains a close collaborator, particularly with Nebojsa Nakicenovic, the Institute’s Deputy Director.”

And, from the comments: “Nordhaus also helped pioneer the use of satellite imagery of night time lights as a tool for measuring economic growth, where we’ve played around with some of the publicly available tools to support various analysis.”

The Nobel Prize in Economics Goes to William Nordhaus and Paul Romer!

Two excellent choices. Nordhaus for environmental economics and Paul Romer for economic growth. I did a video for MRUniversity that goes over Paul Romer’s contributions including not only economic growth and charter cities but also his entrepreneurship in developing tools to teach economics! The video was done when MRUniversity was in the early years so it doesn’t have a lot of bells and whistles. On the other hand, Romer told me he really liked this video so this year I don’t think I need to write more!

See Tyler’s posts for more on Nordhaus and also on Romer.

Is the speed of skyscraper construction declining?

Artir writes:

…taking not averages but just the fastest building built every year (again taking out Pyongyang and Broad Group), regardless of country. This seems to indicate that with the exception of The Belcher’s tower(s) in HK and 60 Wall St, in general construction speed has remained stagnant for almost a century, and has actually declined since its peak in the Great Depression.

The early 1930s look pretty amazing.  The data on meters built per year, and the fastest built buildings by that standard are interesting too:

There is much, much more in this post, which I consider to be one of the best things written this year.  Here is Artir’s conclusion:

…the Empire State Building was an impressive achievement compared to the present, but it’s not true that the past has been better than the present; rather, the skyscrapers built during the Great Depression were.

Highly recommended, via Patrick Collison.  And here is Artir on Twitter.

Sunday assorted links

The Child Care tax credit may have unfavorable incidence

Child care tax credits are intended to relieve the financial burden of child care for working families, yet the benefit incidence may fall on child care providers if they increase prices in response to credit generosity. Using policy-induced variation in the Child and Dependent Care Credit, this paper presents evidence of substantial pass-through: over half of every dollar is passed through to providers in the form of higher prices and wages. Increased non-refundable credit generosity may have the unintended effect of making child care less affordable for low-income families, a result with distributional and spatial implications due to income sorting of families within an urban area.

That is from a new paper by Luke P. Rogers, via the excellent Kevin Lewis.