The Dual U.S. Labor Market Uncovered

by  Tyler Cowen

Maybe it is wrong to so frequently speak of “the labor market”?:

Aggregate U.S. labor market dynamics are well approximated by a dual labor market supplemented with a third, predominantly, home-production segment. We uncover this structure by estimating a Hidden Markov Model, a machine-learning method. The different market segments are identified through (in-)equality constraints on labor market transition probabilities. This method yields time series of stocks and flows for the three segments for 1980-2021. Workers in the primary sector, who make up around 55 percent of the population, are almost always employed and rarely experience unemployment. The secondary sector, which constitutes 14 percent of the population, absorbs most of the short-run fluctuations, both at seasonal and business cycle frequencies. Workers in this segment experience six times higher turnover rates than those in the primary tier and are ten times more likely to be unemployed than their primary counterparts. The tertiary segment consists of workers who infrequently participate in the labor market but nevertheless experience unemployment when they try to enter the labor force. Our individual-level analysis shows that observable demographic characteristics only explain a small part of the cross-individual variation in segment membership. The combination of the aggregate and individual-level evidence we provide points to dualism in the U.S. labor market being an equilibrium division of labor, under labor market imperfections, that minimizes adjustment costs in response to predictable seasonal as well as unpredictable business cycle fluctuations.

That is a new Federal Reserve Board paper by Hie Joo Ahn, Bart Hobijn, and Ayşegül Şahin.  The next question, I suppose, is whether markets allocate too much or too little labor to the primary sector?

Monday assorted links

by  Tyler Cowen

1. What Midjourney thinks professors look like, depending on department.  Will convince any AI doubter!

2. EU craziness on AI regulation, including extraterritoriality.

3. Podcast on alignment: Leopold Aschenbrenner and Richard Hanania.

4. Is our universe inside a black hole? (speculative)

5. Good CEOs moving from the UK to the U.S., in part for higher pay (FT).

6. New hypotheses on why mark-ups have been increasing.

My Russ Roberts podcast on AI risk

by  Tyler Cowen

This was on Russ’s show, here is their episode description:

Economist Tyler Cowen of George Mason University talks with EconTalk’s Russ Roberts about the benefits and dangers of artificial intelligence. Cowen argues that the worriers–those who think that artificial intelligence will destroy mankind–need to make a more convincing case for their concerns. He also believes that the worriers are too willing to reduce freedom and empower the state in the name of reducing a risk that is far from certain. Along the way, Cowen and Roberts discuss how AI might change various parts of the economy and the job market.

Listen here, I do not know if a full transcript is coming.  Russ as always is an excellent host.

Sentences of the Day

by  Alex Tabarrok in

The Washington Post on the plan to refurbish Union Station in DC:

The federal environmental review of the project, which began in 2015, is at least three years behind schedule. Once the federal approval process is complete, a design phase is likely to take several years, project officials said, possibly followed by 13 years of construction.

A good example of the Ezra Klein point about the costs of everything bagel liberalism. By the way, the push to eliminate more than a thousand parking spots at the station seems counter-productive. I’m not a fan of parking minimums but in typical liberal fashion that has been turned into an anti-parking, anti-car crusade regardless of context. In fact, a railroad station is precisely where you do want parking to avoid the last mile(s) problem and encourage rail use.

U.S.A. fact of the day

by  Tyler Cowen in

The US federal budget is haemorrhaging money. The non-partisan Congressional Budget Office calculates that in the first seven months of the 2023 fiscal year, underlying government revenues are down 10 per cent with spending up 12 per cent. This leaves the federal budget deficit more than three times larger than in the same months of the 2022 fiscal year.

Weak receipts reflected lower realised capital gains than the CBO expected in late 2022, the transformation of the Federal Reserve’s quantitative easing programme from a cash cow to a significant burden and the possibility that the underlying recovery was not quite as healthy as initial statistics showed. Expenditure has risen sharply in almost all large federal budget areas.

Here is more from Chris Giles at the FT.

*Transformer: The Deep Chemistry of Life and Death*

by  Tyler Cowen in

By Nick Lane, here is one excerpt:

Should NASA and other space agencies back missions to Mars, or to the icy moons of Saturn and Jupiter, Enceladus and Europa?  If light is essential for the origin of life, then Enceladus is the last place to look, as those who favour warm ponds are quick to assert.  But if life emerges from deep-sea hydrothermal vents, then Enceladus is an ideal place to look, as beneath its icy crust is a liquid ocean bubbling with hydrogen gas and small organic molecules, to judge from the plumes that jet hundreds of miles into space through cracks in the ice.  It’s the first place I’d look.

Arguably even more important are the practical connotations for metabolism and our own health today.  Is the Krebs cycle at the heart of metabolism because life was forced into existence that way, by thermodynamics — fate! — or was this chemistry invented later by genes, just a trivial outcome of information systems that could be rewired, if we are smart enough?  Is the difference between ageing and disease an tractable outcome of metabolism, written into cells from the very origin of life, or a question for gene editing and synthetic biology to come?  That in turn boils down to genes first or metabolism first?  The thrust of this book is that energy is primal — energy flow shapes genetic information.  I will argue that the structure of metabolism was set in stone (perhaps literally in deep-sea rocky vents) from the beginning.

Among the other things I learned from this book are the importance of Otto Warburg, why men get mitochondrial diseases more than women do (there is some speculative component here), why respiration is suppressed with age, why the brain prefers to burn glucose, what it might mean to think of cancer as “growth-based” rather than genes-based, and most of all the importance of the Krebs cycle and reverse Krebs cycle for a broader array of biological questions.  The final section considers why chloroform seems to rob fruit flies of their “consciousness.”

I can’t pretend to evaluate the more controversial claims of the author, but at the very least I learned a great deal reading this book and it has stimulated my interest in the topic areas more generally.  You can buy it here.

Model this upper atmospheric infrasound

by  Tyler Cowen in

A solar-powered balloon mission launched by researchers from Sandia National Laboratories carried a microphone to a region of Earth’s atmosphere found around 31 miles (50 km) above the planet called the stratosphere. This region is relatively calm and free of storms, turbulence and commercial air traffic, meaning microphones in this layer of the atmosphere can eavesdrop on the sounds of our planet, both natural and human-made.

However, the microphone in this particular study also heard strange sounds that repeat a few times per hour. Their source has yet to be identified. The sounds were recorded in the infrasound range, meaning they were at frequencies of 20 hertz (Hz) and lower, well below the range of the human ear. “There are mysterious infrasound signals that occur a few times per hour on some flights, but the source of these is completely unknown,” Daniel Bowman of Sandia National Laboratories said in a statement.(opens in new tab)

No, I don’t think it is “UFOs,” but perhaps by now it should be clear we really don’t know what is going on up there?  And it really would e good if we did.  Here is the full story.

The importance of cognitive endurance

by  Tyler Cowen in

Schooling may build human capital not only by teaching academic skills, but by expanding the capacity for cognition itself. We focus specifically on cognitive endurance: the ability to sustain effortful mental activity over a continuous stretch of time. As motivation, we document that globally and in the US, the poor exhibit cognitive fatigue more quickly than the rich across field settings; they also attend schools that offer fewer opportunities to practice thinking for continuous stretches. Using a field experiment with 1,600 Indian primary school students, we randomly increase the amount of time students spend in sustained cognitive activity during the school day—using either math problems (mimicking good schooling) or non-academic games (providing a pure test of our mechanism). Each approach markedly improves cognitive endurance: students show 22% less decline in performance over time when engaged in intellectual activities—listening comprehension, academic problems, or IQ tests. They also exhibit increased attentiveness in the classroom and score higher on psychological measures of sustained attention. Moreover, each treatment improves students’ school performance by 0.09 standard deviations. This indicates that the experience of effortful thinking itself—even when devoid of any subject content—increases the ability to accumulate traditional human capital. Finally, we complement these results with quasi-experimental variation indicating that an additional year of schooling improves cognitive endurance, but only in higher-quality schools. Our findings suggest that schooling disparities may further disadvantage poor children by hampering the development of a core mental capacity.

Here is the full paper by Christina Brown, Supreet Kaur, Geeta Kingdon, and Heather Schofield, via the excellent Kevin Lewis.

I should note that I view this as one of the areas where I feel I have trained myself best.  I recall last year having serious airport travel problems, and a trip that should have taken two hours ended up being almost twelve hours, with uncertainty along the way and two different last-minute improvised airport stops and no lounges.  But I still was able to read, concentrate, and work for the entire period without feeling any major drain.  As for this paper, it is yet another way that schooling teaches the median student something, even though he/she cannot regurgitate any particular lesson on demand.

Might AI possibly boost social trust?

by  Tyler Cowen in

That is the theme of my latest Bloomberg column, here is one bit:

The point is not that LLMs won’t be used to create propaganda — they will — but that they offer users another option to filter it out. With LLMs, users can get the degree of objectivity that they desire, at least after they learn how they work.

Still, this is a safe prediction: Within a year or two, there will be a variety of LLMs, some of them open source, and people will be able to use them to generate the kinds of answers they want. You might wonder how this is an improvement on the status quo, which now affords viewers a choice of polarized media sources such as Fox News or MSNBC, not to mention voices of all sorts on Twitter.

I hold out some hope for improvement in part because LLMs operate on a “pull” basis — that is, you ask them for what you want. Even if you are working with a “right-wing” LLM, you can always ask it for a left-wing or centrist perspective, and vice versa. It would be like watching Fox and having a button on your remote that you can click to get an opposing or contrasting view — within seconds. This is a vast improvement over cable TV, in terms of immediacy if nothing else. LLMs also make it very easy to generate a debate or a “compare and contrast” answer on just about any issue.

Again, there is no knowing how much balance people will want. But at least AI will make it easier to get balance if they so choose. That seems better than having a particular cable TV channel or a pre-established Twitter feed as the baseline default.

The impersonal nature of many LLMs may also be a force for ideological balance. Currently, many left-wingers don’t want to switch to Fox (or visit their neighbor) to hear a different perspective because they find the personalities offensive or obnoxious. LLMs offer the potential to sample points of view in their driest, least provocative and most analytically argued forms.

We’ll see how this goes, and any analysis or prediction here should be quite hedged, but I am more optimistic than many people on this front.

The price of leisure and the demand to work

by  Tyler Cowen in

Fun is cheaper and that matters!:

Recreation prices and hours worked have both fallen over the last century. We construct a macroeconomic model with general preferences that allows for trending recreation prices, wages, and work hours along a balanced-growth path. Estimating the model using aggregate data from OECD countries, we find that the fall in recreation prices can explain a large fraction of the decline in hours. We also use our model to show that the diverging prices of the recreation bundles consumed by different demographic groups can account for much of the increase in leisure inequality observed in the United States over the last decades.

That is from a newly published paper by Alexandr Kopytov, Nikolai Roussanov, and Mathieu Taschereau-Dumouchel.  It is in the premiere issue of a new journal Journal of Political Economy Macroeconomics.

More persistence and propagation than you might think?

by  Tyler Cowen in

Macroeconomic cycles are much more self-reinforcing and correspondingly resistant to shocks and hence longer-lasting than what is commonly thought…

The key idea is that economic developments feature strong endogenous propagation mechanisms which yield endogenous cyclical behavior ala limit cycles.

And:

What is at heart of this behavior? There are three factors that the authors point towards. First is strategic complementarity between economic agents’ behavior, such as the fact that firms want to invest when other firms are investing. Second, you need inertia in individual behavior, so that rapid changes in behavior are costly. And finally, you need dependence on some stock variable such as aggregate amount of capital or durable goods. All of these requirements seem very realistic assumption about the real world.

What are the implications of such model? Among other things this means that in certain periods of time the economy is very robust to negative shocks, because these shocks do not have the power to overturn the forces (resulting from the strategic complementarity between agents) that are pushing economic activity higher. They might push us slightly lower for some period of time, but they don’t turn things completely around. And once their effect fades the economy continues in its previous trajectory. In a sense, this view suggests that economic cycles are more like a titanic.

It also means that there is certain dichotomy in terms of shocks. Shocks ranging in size from “small” to “large-but-not-gigantic” proportions do not change the underlying trajectory of the economy, unless we are already close to turning point in the limit cycle. Meanwhile, truly gigantic shocks, like the global financial crisis, are not just deviation from the medium-term trend defined by the limit cycle, but a change in the medium-term trend.

And in conclusion:

To summarize, the limit cycle view suggests that a powerful enough shock, such as the rebound when economies re-opened after the pandemic recession, can put us on a upward spiral, and that such spiral features such a strong self-reinforcing mechanisms that even large negative shocks cannot derail us. This in contrast to standard DSGE models that feature only relatively weak propagation of shocks, and, crucially, do not feature any medium-term cyclical behavior.

Here is much more from Kamil Kovar, a good and important post.