Friday, August 21, 2020

Unions and Inequality: Looking at the Obvious

At the same time that a particular labor union (teachers) has successfully pushed to keep school buildings closed, we are reminded that unions are part of the "solution to inequality."  As an update to an old literature on unions and inequality, let's first look at distributional effects of closing school buildings.

The chart shows that closing school buildings reduces learning for all groups, but especially low-income and minority pupils.  So the actions of teacher unions today (they are far more likely to have their schools closed) will add to inequality in the future as the pupils enter the labor market.

Now let's look at today's labor market.  The weekly cash earnings of teachers are 22 percent more than those of nonteachers.  As a result of being offered more and richer fringe benefits (see the table below), their weekly compensation is 39 percent more, which I estimate assuming that retirement benefits involved an average 5 percent employer contribution for nonteachers and value teacher's pensions according to actuarial calculations (17 percent of salary).

It appears that an occupation that is well above average income is closing schooling buildings to the detriment of millions of low-income and minority children.

Thursday, July 16, 2020

Are Regulations "Job Killing"?

The traditional models of regulations and growth treat regulation as an adverse productivity shock (more inputs for the same output) in order to help the environment, fairness, or some other social good.  But a productivity shock has opposing income and substitution effects on labor supply.  Arguably a regulation that works as a productivity shock has no aggregate effect on jobs.

Reminded how Gary Becker many times told me that "somebody benefits," I do not endorse the productivity-shock model of regulation, at least as relates to the Federal regulations added and removed over the past 20 years.  In economics jargon, the "rectangle" created in a market by regulation is not entirely wasted: some of it is a transfer to special interests and therefore not an income effect in the aggregate.  This kind of regulation is more like an excise tax with the revenue paid to special interests.  Excises taxes unambiguously reduce aggregate equilibrium employment.

As the CEA showed in the 2019 and 2020 Economic Reports of the President, many of the regulations removed by the Trump Administration were more like the excise tax than like a productivity shock.  That's why special interests fought back so hard (and a couple of times, they won).  

[Even a productivity shock reduces employment in the short run to the extent that it reduces the productivity of investment.  i.e, that's another way that the "job killing" can occur.  There is another interesting case in which the rectangle from regulation is a transfer from Americans to foreigners in which case the employment reduction is outside the country.]

The sign of the effect on the employment of the regulated industry is also ambiguous.  If the regulation is a transfer from consumers to producers, with no adverse productivity effect, the regulation will reduce industry employment because that transfer is achieved by restraining supply.  But that frees up resources for other industries, which is why the aggregate employment effect can be nil.

To the extent that regulation reduces productivity in the regulated industry, we need Marshall's Laws of Derived Demand to sign the effect on industry employment.

One application provided in Chicago Price Theory is the regulation of illegal drugs.  Their demand is price inelastic in the sense that drug prohibition reduces consumption (although see here for a tragic exception) while it increases what consumers spend on drugs.  The price elasticity of demand is an important part of Marshall's Laws.  For illegal drugs, the result is more people working to (or serving prison time for) grow, manufacture and distribute illegal drugs because law enforcement reduces their "efficiency."  But those people are coming out of other activities, which is why the aggregate employment effect can still be nil. 

Wednesday, June 24, 2020

Shoddy Executive Order Bears Fingerprints of Navarro and Krugman

An immigration Executive Order was issued two days ago.  I read it yesterday and gathered my thoughts and relevant memories over the subsequent 24 hours.

The EO contains immigration regulations and purported economic justifications for the regulations.

The EO’s economic justification is essentially that it is good to suppress labor supply during a recession.  I disagreed with such a conclusion when it was offered years ago by Krugman, Eggertson, and others.  The conclusion is just as wrong when it comes from President Donald Trump.

The empirical fact, which is not a surprise from a theoretical point of view, is that labor supply and demand matter just as much at the margin during a recession as they do during an expansion.  See Chapter 8 “Recession-era Effects of Factor Supply and Demand” of my 2012 book (a more recent JPE paper confirmed these results but I cannot find the link right now).  A recession is not an economic excuse for suppressing labor supply.

The faulty economic analysis I see in the EO sounds to me like Peter Navarro talking.  Hearing his voice now catches me a bit by surprise because, although he is a part of the populist story, his “rudeness, ignorance, and dishonesty” are well known from the President on down.  [I believe that Hassett, Mnuchin, Mulvaney, and Kudlow shot down such Navarro initiatives in the past, although I was not present at those meetings or even much involved with the prep.]

Suppressing labor supply is also poor public relations.  The employment and productivity numbers will come in lower than they would with a more market-oriented recovery.  (Only a couple of the Navarro stories were included in my 2020 book because they were a small fraction of my experience, and the President is a lot more interesting.  But a hilarious one – in the reader-spits-out-coffee category – is about another time that Navarro flunked marketing.)

The justification for the EO’s regulations, if there is any, would have to be that it somehow begins a path to fixing the broken status quo system that was in place before Monday.  That system was full of special-interest favors, which the President should be removing as he has removed them in many other regulatory areas.  I am pessimistic (i.e., optimistic for the entrenched special interests) that there is any such path in the immigration area, though.

Gary Becker’s immigration plan should be given serious consideration.  President Trump agrees with that on purely economic grounds (Chapter 6 of my book), although he sees that as a political nonstarter (“radical” as Becker put it).  Perhaps the immigration plan Trump proposed in May 2019 (essentially the Canadian and Australian systems) is a more politically correct approximation to the Becker plan.

Part of this EO pertains to foreign-born scholars working in the U.S., which saddens me personally.  My closest friends are squarely in that category.  The value they add is so great that policy will likely change so that they continue to work in the U.S. 

A little known fact is that President Trump is a very good listener (my book is filled with examples; that’s how he became a populist president).  So speak up!  He may decide in your favor.  After listening, he may articulate your position better you do.  In that case, I’m sorry because that is a strong indication that he is deciding against you (e.g., here) and wants you to at least know that you were heard.

Friday, June 19, 2020

Dueling Memoirs: Mulligan vs. Bolton

What do readers have to say?

A New York Times Review says that Bolton's memoir "has been written with so little discernible attention to style and narrative form...."

One reader (who asked to remain anonymous because he/she fears retribution at work) finds You're Hired! to be an "extremely well-written book." Brian Blase found it to be "enjoyable and easy to read."

Back to the review of Bolton, "Underneath it all courses a festering obsession with his enemies ...the book is bloated with self-importance."

Pages xii and xviii of You're Hired! explain how I was "the Apprentice" and that readers should be "prepared to be as amazed and humbled as I was."

By Joe Grogan's reading, You're Hired! is an "an insightful, honest, book ...  free from score settling and self promotion."

You're Hired! shows that Bolton has distorted the truth, omitted important context, and contradicts critical facts in plain sight.  Excepts related to this matter were published on-line as Bolton is Wrong; I was There.

Sunday, June 7, 2020

Coronavirus and What it is Like to Speak with Trump

One viewer says "You play it very straight which at this point is unheard of in Washington."

Saturday, June 6, 2020

The Higher Ed Market after Floyd

@GlennLoury objects to what university administrators are doing. They are economic actors too, who will not benefit from a repeat of 1968, so it is predictable that their reactions might risk some scholarship, reason, and learning.
But there is also competition in the industry and thereby an opportunity for an (aspiring?) administrator who expresses the interests of the many individuals who have not yet reached the fashionable conclusions. Something like the famous Zimmer letter.
This competition might play out slowly given that (barring regulatory favors) universities will now compete in another important dimension: whether 2020-21 students are allowed to purchase a college education that does more than Zoom (which would have made 1968 impossible).

Moreover the Zimmer letter was not written on a blank tablet. A Uchicago committee led by @stone_geoffrey had already worked on it 2 years before. If this capital does not yet exist for the current situation, it will take time to build it up.

Thursday, June 4, 2020

Labor Market Recovery Begins when States Begin to Open

The first chart below is an estimate of weekly US employment per adult.  It suggests that the bottom was the week ending May 7, and that a recovery may have begun.

The estimated recovery may not look large on the scale of the current depression, but it is about 7.5 million employees above May 7 and 3 million employees above late April.  Note that the entire recovery from the 2008-9 recession was "only" 7 million employees above population growth and took ten years rather than a week or two.

At about the same time, states began ending their stay-at-home orders.  E.g., Texas May 1 and California May 8.  I expect another increase in early June as more reopening occurs.  A big increase will occur when UI bonuses expire, which may be as early as August.

The imputation is based on the scatterplot below.

Monday, April 27, 2020

Measuring Employment between Monthly Surveys

The Employment Situation Report by the Bureau of Labor Statistics comes only monthly.  It measures only the seven-day week (or, with the establishment survey, pay period) including the 12th of the prior month, which means that this month four very interesting weeks will be skipped and that the report on that April week will not be released until May 8.

Three data sources provide employment information on at least one of the missing four weeks, with the results shown in the chart below.  The results suggest that employment has fallen more than 20 million and perhaps as much as 36 million by April 11.  This does not begin to count employees who had their hours reduced.

One is an attempt by Bick and Blandin (2020) to imitate the BLS household survey for the week of Sunday March 29 to Saturday April 4.  They sampled 1,118 respondents, finding that employment per adult aged 18-64 was 17.8 percent below what it was in February and 17.4 percent below what it was in January.  They find that hours worked per person (including zeros for those not employed) were 27.7 percent below what they were in January and February.

Coibion, Gorodnichenko, and Weber (2020) surveyed 18,344 members of the Nielsen HomeScan panel during the days Thursday April 2 through Monday April 6.  The respondents were asked “Do you have a paid job?” which is different from the BLS questions but the same as January surveys of the Nielsen panel.  Their sample shows a 12.5 percent decline from January to April.

As a third source, I use the excess of continued UI claims for the week ending April 4 rescaled by 0.4, which is the typical ratio of continued claims to persons unemployed during the 2008-9 recession.[1]  The rescaled amount is 16.1 percent of February employment as measured by the February household survey.  This approach also offers employment estimates for the weeks before and after the week ending April 4.

Especially during the pandemic, “employment” and “unemployment” can vary significantly merely due to definitions.  Is a person on the payroll but told not to work considered employed?  The BLS knows from its experience with Federal shutdowns that surveyors and respondents frequently misclassify relative to the technical definition in the survey.  The practical classification grey areas are also presumably sensitive to question wording.  UI claims also have a grey area that presumably changes as new Federal policies increase the financial reward to unemployed rather than out of the labor force.

These measurement challenges suggest using hours worked rather than employment and using multiple data sources, which are not entirely congruent approaches because only one of the three sources measures hours worked.[2]  I therefore measure the decline in hours worked by averaging the three employment estimates and then applying the Bick-Blandin estimate of the decline in hours per employee.

Regarding initial claims versus continued claims, initial claims may not be granted due to ineligibility and do not show a stable ratio to employment changes during the 2008-9 recession.  Initial claims are reported a week ahead of continued claims.[3]

[1] The average continued claims was 1.7 million in both January and February, which is the baseline from which I calculate the “excess.”
[2] Hours worked are also of interest because many people were under employed in April (Bick and Blandin 2020).
[3] In March and April 2020, continued claims may include an abnormal share of ineligible claims due to abnormal delays in state processing, although this effect should disappear over a horizon long enough for states to process the claims.  On the other hand, the CARES Act passed March 27 will begin distorting the relationship between employment and continued claims because the Act included a large UI bonus that will encourage an abnormally large fraction of the eligible unemployed to apply.

Monday, April 20, 2020

Show us the fevers

By all accounts, hundreds of millions of us are confined to home despite being perfectly healthy.  The purpose of all of this, we're told, is to make sure that we do not bump into people infected with the coronavirus.

The wise people forcing us to do so owe us some evidence that in fact the virus is out there in sufficient quantities to merit draconian measures.  They point us to deaths in New York hospitals, and growing numbers of positive test results.  But those presumably were infections that occurred weeks ago (perhaps also some false positives).

Smart thermometers suggest that hardly anyone has had a fever for a couple of weeks now.  Perhaps this data is faulty or easily misinterpreted, but the wise people owe at least an explanation to the hundreds of millions of people paying the costs of their policies.

The time to be at home is when there is lots of virus outside.  That does not appear to be now.

30+ million out of a job

A one-size-fits-all policy, even at the state level, has been a mistake from the beginning.  Instead policy should be favoring decentralized mechanisms over direct control and ensuring that the chosen regulations deliver more net benefits than less stringent alternatives.  It is too bad that governments are causing so much harm at this critical moment by ignoring these longstanding principles of government regulation.

Expressed at an annual rate, the shutdown is already costing $7 trillion, or about $15,000 per household per quarter.  Employment had already fallen 28 million by April 1 and continues to fall as the shutdown continues.  Not only is the shutdown costly, but it is a cost-ineffective way of reducing the health harms from the virus.  My recommendation is to achieve close to, but somewhat less, of the mortality reduction at dramatically less cost to hundreds of millions of workers, consumers, and business owners.

Here's why I think at least 30 million are out of work as of today.  First, that's where I expected we would be headed based on the fact that workdays as we know them have been eliminated.  Second, as of the week of March 29-April 4 (hereafter "April 1"), the employment rate of persons aged 18-64 fell from 0.738 to 0.607.  Assuming conservatively that the same percentage decline (17.8%) also applied to persons 16, 17, or 65+ years old, the decline is 28 million people as of April 1.

There is no reason to believe that the decline (an average of 1.3 percent per day for two weeks) was finished by April 1.  The stay at home order for Texas and Maine was not until April 2.  FL, GA, MS: April 3.  AL: April 4.  MO: April 6.  SC: April 7.  Even if the decline were only 0.2 percent per day over the two weeks beginning April 5, that would put the cumulative employment decline past 30 million.