Tuesday, October 31, 2017

Parsing Trump's Deregulation Plans

Many people have visceral but opposite reactions to the word "regulation." Some have an immediately positive reaction to almost any mention of regulation, in a belief that it is likely to be necessary corrective. Others have an immediately negative reaction, in the belief that it is likely to be a wasteful and perhaps even harmful overreaction. Me, I'm just a wishy-washy guy who thinks that some regulations can be useful, while others are misguided.  On the off chance that there are a few more like me out there, how should we be reacting to the Trump administration's deregulation agenda?

Ted Gayer, Robert Litan, Philip Wallach provide an overview in "Evaluating the Trump Administration’s Regulatory Reform Program" (published by the Center on Regulation and Markets at Brookings, October 2017). For a discussion of potential benefits from regulatory reform, one of the first reports from the Council of Economic Advisers in the Trump administration is "The Growth Potential of Deregulation" (October 2, 2017). I'll draw on both reports here.

Gayer, Litan, and Wallach start off this way: "In his first week in office, President Trump issued Executive Order 13771, which aims to `manage the costs associated with the governmental imposition of private expenditures required to comply with Federal regulations.' It requires that `for every new regulation issued, at least two prior regulations be identified for elimination, and that the cost of planned regulations be prudently managed and controlled through a budgeting process.'” To be clear, there are two separate ideas here: the two-for-one reform and the "budgeting process" reform. Versions of both of these proposals have been implemented in other countries, so one can look to that experience.

But before digging into those details, it's worth noting that this "regulatory reform" or "deregulation" effort is in some ways quite different from the two main types of policy changes that have previously gone under the name of "regulatory reform." As one example, the "deregulation" that happened in the late 1970s and into the 1980s. The "deregulation" of airlines, banking, trucking, railroads, and some other industries around that time involved removing rules that involved setting prices and limiting competition. Two-for-one and a budgeting process for regulations is not this kind of deregulation.

The other main kind of regulatory reform, which dates back to the 1970s but has been pursued by each president since then, has typically involved requirements that cost-benefit analysis be carried out before certain kinds of rules are implemented. This may seem like an obvious step, but as Gayer, Litan, and Wallach point out, "many regulatory statutes—those that authorize or compel agencies to issue rules in the first place—do not permit agencies to balance benefits against costs, or effectively limit their ability to do so." In contrast, "President Trump’s approach—both the “two-for-one” requirement and the regulatory budget—breaks from the historical emphasis on maximizing net benefits and improving the use of and commitment to benefit-cost analysis, and instead offers a blunt institutional reform to rein in regulatory costs (without attention to benefits). This is presented as necessary to counter the political impulses that may produce excessive or inefficient regulation, or regulation that could be better designed (for example by using market-like incentives rather than commands and controls)."

So what are the potential gains from a regulatory reform agenda? And how have the two-for-one and regulatory budget policies worked in other countries?

The Council of Economic Advisers report on "The Growth Potential of Deregulation" offers an advocate's case, but at least for me, the evidence is a mixed bag. As already noted, I'm certainly someone who is prepared to believe that misguided or overly severe regulation can impose costs in excess of benefits in some cases, and the report mentions a number of examples. Airline deregulation saves US consumers something like $18 billion per year. Finding ways to streamline the way in which the Food and Drug Administration evaluates new drugs can both save money for producers and also save lives of patients. State-level rules for occupational licensing can impose costs on workers and the economy, and local rules that limit housing supply can make housing less affordable and limit geographic mobility into certain urban markets. These kinds of examples are fairly bipartisan: for example, the Council of Economic Advisers under the Obama administration expressed concerns about the extent of occupational licensing and restrictions on housing supply, too. 

The CEA cites evidence from a study by the OECD which ranks countries by the extent of their product market regulations. A few decades ago, the US was usually close to the least-regulated, which is no longer true.

The federal government reports each year the number “economically significant” rules that have an annual effect of $100 million or more. "Under the Obama Administration, the government promulgated 494 new rules deemed `economically significant,' and under the W. Bush Administration, the government issued 358 such rules. Under the Clinton Administration, those agencies issued 361 such rules ..."

A basic eyeball test also suggests that certain kinds of regulation have become quite extensive. I sometimes note that from Pearl Harbor in December 1941 to the surrender of Germany and Japan in mid-1945 was about 3 1/2 years. In any major US city, it can in some cases take longer than that to go through the process of obtaining building permits for a single high-rise.

But while I'm certainly open to the idea that a lot of regulations should be reduced or eliminated, the top-line big-number estimates in the CEA report are on a weak footing. For example, the first line of the "Summary" begins: "Excessive regulation is a tax on the economy, costing the U.S. an
average of 0.8 percent of GDP growth per year since 1980." If true, this would be a truly enormous amount. It implies that the $18 trillion US economy would be about one-third larger this year--call it an extra $6 trillion in output this year and every year moving forward--without the regulatory burden.

But in the report, the evidence for this claim rests entirely on a single unpublished working paper by Bentley Coffey, Patrick A. McLaughlin,and Pietro Peretto called "The Cumulative Cost of Regulations" Mercatus Working Paper, April 2016).  The study measures the extent of US regulation in each  industry by using machine learning algorithms to classify chunks of text in the Code of Federal Regulations. They look at three kinds of investment in 22 different industries (out of the nearly 100 industries in this US government data). They acknowledge that it's hard to figure out cause-and-effect between regulation and investment: for example, some regulations might require new investment (say, in antipollution equipment) while others might reduce investment by making it less profitable. But they do their best to build up a model that relates investment and regulation. They then estimate what would have happened in the US economy if regulation had been frozen in place since 1980. 

This working paper seems to me like a worthy exercise to do as a working paper and a piece of academic research. But there's no way in the world that it should serve as the main justification for a national program of regulatory reform. The results depend heavily on how they measure regulation, on the structure of the model, and on what other potential confounding factors aren't taken into account. As the authors note, the study does not look at potential benefits of such regulation in terms of health or safety. 

Indeed, the CEA report itself mentions a 2004 government study from the Netherlands which suggests that cutting administrative costs of regulation by 25% can increase real GDP by a total of up to 1.7% in the long run. Without endorsing that particular study, I'll note that the claim that lower regulation can lead to a long-run increase that totals 1.7% is a LOT different from the claim that less regulation would have led to an economy that was 0.8% larger every single year for decades.

Another claim in the CEA report is that federal regulation imposes costs of $2.03 trillion per year. (This is of course quite a bit smaller than the $6 trillion in annual costs implied by the earlier study, but maybe they can be considered roughly the same.) The source for this claim is an appendix in a study by W. Mark and Nicole V. Crain. “The Cost of Federal Regulation to the U.S. Economy,
Manufacturing, and Small Business,” done for the National Association of Manufacturers (2014). The main study reports survey results from manufacturers on how they experience the burden of regulation. But back in Appendix C, there is a description of a calculation which measures the extent of regulation by using three components of the Global Competitiveness Index put together by the World Economic Forum. They then do a regression with per capita income as the dependent variable, and the measure of regulation as an explanatory variable, also including as control variables the trade/GDP, tax revenue/GDP, capital investment/GDP, and the dependency ratio. Some of these are lagged one year; some are in log values. I commented on a study by the same authors using this methodology a few years back in "Does Federal Regulation Impose Costs of $1.75 Trillion Per Year?" (June 6, 2011). My bottom line is that there's certainly nothing wrong with doing it as an illustrative exercise. But there's no reason to trust the results very much, either.

Thus, my overall sense of the CEA report is that it makes a soft case for that regulatory reform is worth considering, and may have real gains. However, when the report tries to make these gains look enormous, it ends up relying on shaky calculations from little-known working papers and reports.

What has been the experience of other countries with the Trump proposals? The Gayer, Litan, and Wallach report notes that both Canada and the UK have adopted versions of two-for-one and a regulatory budget. For example, here's an overview of happened in Canada (citations omitted):

"In 2001, the Canadian province of British Columbia committed to reducing the regulatory burden by one-third in three years. It required that each ministry establish a baseline of its existing inventory of “regulatory requirements,” defined as “an action or step that must be taken, or information that must be provided to access services, carry out business, or meet legal responsibilities under provincial legislation, regulation, policy, or forms”. . The initial count found over 330,000 such regulatory actions. In order to meet the three-year goal, each cabinet minister was required to match any new regulatory requirement with a plan to eliminate at least two offsetting requirements. In 2004, having surpassed the goal and achieving a 40 percent reduction in regulatory requirements, British Columbia imposed a regulatory cap mandating no net increase in regulatory requirements. This requirement has been extended three times, most recently to last until 2019, leading to a total reduction in regulatory requirements of 49 percent since 2001. Motivated by the success in British Columbia, in 2012 the Conservative-led Government of Canada released the Red Tape Reduction Action Plan, which required that for any new or amended regulation, regulators offset “an equal amount of administrative burden cost” from existing regulations. It also required at least one regulation be eliminated for every new one introduced. ...

"In January 2011, the Conservative and Liberal Democrat coalition government of the United Kingdom instituted a regulatory reform plan that included a “one-in, one-out” system in which each department must assess the “net cost to business” of complying with any proposed regulation, ensure that the cost estimate is validated by an independent committee of experts (known as the Regulatory Policy Committee), and find a deregulatory measure that offsets the cost of the new regulation. In January 2013, the requirement was increased to a “one-in, two-out” rule, which requires that the deregulatory measures must offset twice the cost of the new regulation, not merely eliminating two other regulations, as Canada has required and the Trump administration has just adopted. In March 2016, the United Kingdom ramped up its regulatory offset program again, to become “one-in, three-out,” again referring to costs, not the number of regulations. The “net cost to business” under the United Kingdom’s approach is computed as the “annualized direct net cost to business, incorporating direct recurring costs and transition costs, direct recurring benefits, and direct transitional benefits, spread out over the lifetime of the policy”. The “deregulatory” measures pursued as offsets in the U.K. system often do not actually remove any regulatory requirements, but rather make regulatory compliance less costly, for instance by streamlining paperwork processes so that businesses could make some filings without the need of a lawyer ... The United Kingdom’s regulatory initiative, however, does not use a social welfare yardstick, and thus does not seek to maximize the net benefits of its regulations to society as a whole."
In short, these general types of regulatory reforms have worked reasonably well in Canada and the UK. What about the Trump proposals in a US context? Here, Gayer, Litan, and Wallach are more cautious.

In US law, an existing regulation that has been duly created through a legislative and regulatory process cannot just be wiped out by the president. Instead, the two regulations that are supposed to be wiped out for each new regulation are will instead need to go through a process of comment and review. As the authors note: "Since some of the proposals to eliminate rules will undoubtedly invite legal challenges, there will be considerable uncertainty as to whether those rules really will end up being wiped from the Code of Federal Regulations. Any approach that attempted to bypass notice-and-comment procedures would likely run afoul of the APA [Administrative Procedure Act],  leading to defeats in courts and likely political backlash as well. Even when standard procedures are observed, there is no guarantee that attempts to roll back regulatory requirements will pass APA muster." 

The idea of a regulatory budget is that government will first set a certain total amount of regulatory cost that is acceptable. Then it will attempt to allocate those regulatory costs in the way that brings the greatest total benefit. Of course, measuring the total cost and benefit of a regulation is a tricky business. Gayer, Litan, and Wallach write: 
"It is fair to say that the Trump administration has launched the most ambitious regulatory budgeting program in human history—just a tremendous undertaking. Whereas Canada and the United Kingdom have managed to get their programs up and running with some success thanks to relying on relatively simple metrics of cost, in the United States the regulatory budget will attempt to get much closer to real social costs, at the expense of adding considerable complexity. That makes it potentially more meaningful and deep reaching, but also more likely to bog down and create a massive bureaucratic headache to go with those that already exist."
Again, I'm certainly open to the notion that lots of regulations have too little justification, and that regulatory reform can be socially beneficial. But the Trump proposals run a real risk that they will simply freeze all existing regulations in place: it will be too difficulty to remove old rules, and also too difficult to justify implementing new ones. As Gayer, Litan, and Wallach note: 
"But if all that the Trump administration’s regulatory budget turns out to be is an elaborate moratorium on new actions, that would represent a missed opportunity for would-be deregulators. The whole purpose of instituting a forcing mechanism is to confront the problem of accumulated and outdated regulatory requirements that burden U.S. businesses, thereby freeing Americans’ energies for productive purposes and unleashing economic growth. If this administration’s initiative ends up being nothing more than a pause in further accumulation—of both good and bad  prospective regulations—it would stand as a harsh judgment on the likelihood that existing regulation would ever be seriously reformed."

Monday, October 30, 2017

Some Watery Economics

The quantity of fresh water on planet Earth doesn't change much over time, but the demands on that water and how it is distributed can cause considerable stress. A group of World Bank authors--Richard Damania, Sébastien Desbureaux, Marie Hyland, Asif Islam, Scott Moore, Aude-Sophie Rodella, Jason Russ, and Esha Zaveri--provide an overview of the global situation in "Uncharted Waters: The New Economics of Water Scarcity and Variability" (October 2017).  As the report notes:
"The future will be thirsty and uncertain. Already more than 60 percent of humanity live in areas of water stress where available supplies cannot sustainably meet demand. If water is not managed more prudently—from source, to tap, and back to source—the crises observed today will become the catastrophes of tomorrow.
"Projections suggest that by 2050, global demand for water will increase by 30–50 percent, driven by population growth, rising consumption, urbanization, and energy needs. At the same time, water supplies are limited and under stress from negligent management, growing pollution, degraded watersheds, and climate change. As many as 4 billion people already live in regions that experience severe water stress for at least part of the year. With populations rising, these stresses will mount.  ...
Water stress is emerging as a growing and at times underappreciated challenge in many countries of the developed and developing worlds. One in four cities, with a total of US$4.2 trillion in economic activity, is classified as water-stressed. Moreover, 150 million people live in cities with perennial water shortages, defined as having less than 100 liters per person per day of sustainable surface water or groundwater. In coming years, population growth and continuing urbanization will bring a 50–70 percent rise in the demand for water in cities. This will be fueled not only by the growing numbers of urban dwellers but also by lifestyles and consumption patterns that are more water-intensive. By 2050, almost 1 billion urban dwellers will live in water-stressed cities.
Water issues hurt both rural agriculture and urban areas. In rural areas, the losses involve both reduced agricultural production and environmental consequences:
"Throughout much of the world, even moderate deviations from normal rainfall levels can cause large changes in crop yields. ... Such variability is responsible for a considerable net loss of food production every year—enough to feed 81 million people every day, a population the size of Germany’s. ... Rainfall shocks cascade consequences from declining agricultural yields to shrinking forest cover. Faced with declining agricultural productivity due to rainfall shocks, farmers often seek to recoup these losses by expanding cropland, at the expense of natural habitats. Rainfall variability can account for as much as 60 percent of the increase in the average rate of cropland expansion, and, as a result, is responsible for much of the pressure on forested areas."
There's less evidence on water issues and urban economies, but here's a taste:
"While urban infrastructure is generally able to buffer residents against the effects of moderate rainfall shocks, cities are still at the mercy of large rainfall shocks. Further, while the immediate devastation caused by floods attracts much attention, droughts in cities may have the longer-lasting, more severe impact on firms and their employees. In Latin America, losses in income caused by a dry shock are four times greater than that of a wet shock. Droughts have poorly understood consequences within cities, causing higher incidences of diarrheal diseases, health impacts on young children, and an increased frequency of power outages.
"The performance of firms in cities is also affected by the availability of water. While the private sector’s reliance on transport and energy infrastructure is well established, little is known about the significance of water to firms. Findings in this book show that when urban water services are disrupted, whether by climate, inadequate infrastructure, or both, firms suffer significant reductions in their sales and employment. Particularly vulnerable are small and informal firms, a major source of employment in developing countries. The impacts of water supply and sanitation services in cities therefore extend beyond the widely documented effects on human health."
 The report also emphasizes at at number of places that prices need to play a role in addressing water issues, because of what the paper calls "the paradox of supply":  
"IThe availability of irrigation typically provides both a buffer against rainfall variability and a significant boost to crop yields in normal years. However, in many dry regions of the world these systems fail to protect farmers from the impacts of droughts. Free irrigation water creates the illusion of abundance, which buoys the cultivation of water-intensive crops such as rice and sugarcane that are ultimately unsuited to these regions. The ironclad laws of demand and supply then dictate that when water is provided too cheaply, it is also consumed recklessly. As a result, crop productivity suffers disproportionately in times of dry shocks due to extraordinary water needs that cannot be met. This book demonstrates that this paradox of supply is a widespread problem in areas where water is scarce and its demand is uncontrolled."
When water is underpriced, the undesired consequences just keep multiplying. At the most obvious level, pricing water encourages a degree of conservation. Another issue is that water-hungry crops are wrongly encouraged. Moreover, when water isn't priced, then the (public or private) organizations that provide water can't cover their costs. They become unable to attract outside investment capital for additional water storage or delivery systems, because with insufficient revcnues, how can they repay the investment? When water is underpriced, water providers need to focus on  how they will keep getting government subsidies--which are their financial life-blood--instead of how they serve customers. Here's a selection of comments from the report on these themes:  
"The supply of free or underpriced water in arid areas spurs the cultivation of water-intensive crops such as rice, sugarcane, and cotton, which in turn increases vulnerability to drought and magnifies the impacts of dry shocks. One well-known study found that access to the Ogallala aquifer in the United States induced a shift to water-intensive crops that increased drought sensitivity over time. The Aral Sea is a more extreme example of a resource that has gone from abundance to depletion within a generation. To increase cotton production, the then–Soviet government diverted rivers that fed the Aral Sea, and as a result it today holds less than one-tenth of its former volume. This book demonstrates that this paradox of supply is a more widespread phenomenon than was previously known and can be found at a global scale. ...
"In cities, water pricing tends to be the simplest and most effective tool for compensating the service provider. At the same time, high water prices generally work in reducing city demand, and targeted subsidies or bloc tariffs can be strategically employed to ensure that the most vulnerable residents retain access to affordable water. When utilities need to recover costs through pricing, they also have an incentive to prevent wastage and revenue losses by fixing leaks in the system. In fact, a staggering 32 billion cubic meters of treated water is lost from urban systems around the world each year through leaks in the pipes. Half of these losses occur in developing countries, where customers frequently suffer from supply interruptions and poor water quality. Further, when water is priced appropriately, water utilities become beholden to their customers for generating revenue, rather than to political interests for providing subsidies. This increases their incentives to expand service and quality throughout cities, rather than to only politically connected communities.
"Utility cost recovery is also important for ensuring that utilities can secure adequate financing. Private financiers are reluctant to invest in utilities that are not self-standing and rely on government subsidies to stay afloat. As a result, private financing is unavailable to many utilities, or it must be backed by public guarantees, greatly reducing the utilities’ ability to invest in upgrading or expanding their infrastructure. In the developing world, cost recovery rates are abysmally low; in 2004, 89 percent of utilities in low-income countries and 37 percent of utilities in lower-middle-income countries charged tariffs that were too low to cover basic operation and maintenance costs, and little has changed since then. Closing this gap could greatly improve the ability of utilities to make investments that increase access to and the reliability of piped water. ...
"[P]er capita reservoir storage has been declining since about 2000, partly because of poor management and loss of storage capacity to sedimentation. At the same time, the stage is set for a large increase in the world’s number of dams, projected to rise 16 percent by 2030, with storage volume increasing by about 40 percent. Estimates suggest that even an expansion of this scale may not suffice to meet future demand."
Those interested in the economics of water might want to check back on these earlier posts:

Saturday, October 28, 2017

Almost 10 Billion Hours of Government-Imposed Paperwork

"Under the Paperwork Reduction Act of 1995 (PRA), the Office of Management and Budget (OMB) is required to report to Congress on the paperwork burden imposed on the public by the Federal Government and efforts to reduce this burden." The most recent such Information Collection Budget of the United States Government was produced by the Office of Management and Budget of the outgoing Obama administration and published in December 2016

"In FY 2015, the public spent an estimated 9.78 billion hours responding to Federal information collections." When the report breaks down these time costs by the government agency imposing them, by far the biggest contributor are rules from the US Department of the Treasury--which is in large part the hours spent filling out tax forms.

Here's a figure showing how the time burden has evolved in the last decade or so. The red line is the actual estimate. The green line shows that most of the changes are due to new rules, not to higher time costs for the already-existing earlier rules.

These time are just estimates by the federal agencies themselves, of course, and should be taken with a few tablespoons of salt. For example, if you dig into the details of the report, the drop in paperwork burden in 2010 arises not from changing any actual government paperwork burden, but rather because the US Department of the Treasury decided that its already-existing paperwork burdens took about 1.5 billion hours less than it had estimated the previous year.

But for what it's worth, let's take the estimate of 9.78 billion hours of paperwork burden in 2015 and put it into a little perspective. As a round-number estimate, say that a full-time employee works 2000 hours per year (that is, 40 hours/week and 50 working weeks in a year). If you divide the 9.78 billion hours by 2000 hours/year worked, it's the equivalent of 4,890,000 full-time jobs.

 Of course, in a number of cases no one is getting  paid for the job of filling out federal paperwork requirements; for example, a person who pulls together financial records and fill out their own tax form doesn't get paid for doing so. But a nonmonetary cost is still a cost. The US economy had about 142 million jobs in 2015. So measured in terms of time, federal paperwork costs alone were equal to roughly 1/30 of the entire US workforce.

Friday, October 27, 2017

How to Increase Women's Labor Force Participation

In labor market jargon, "prime age" refers to workers in the 25-54 age bracket. Looking at this group takes the focus off issues like whether more young adults are attending college rather than taking full time jobs, and whether older adults are retiring sooner or later. In the US, labor force participation has been falling for prime-age male workers since the 1960s, and for prime-age female workers since the 1990s. Some of the reasons are similar across gender, like the low prospects, pay, and security of jobs for low-skilled workers. But some of the reasons are related to gender. A new ebook edited by Diane Whitmore Schanzenbach and Ryan Nunn, The 51%: Driving Growth through Women’s Economic Participation, offers a  collection of readable essays with facts and concrete proposals about the labor force participation rate of US women (published by Hamilton Project at the Brookings Institution, October 2017)

Here are a few of the facts that caught my eye in the first essay, "The Recent Decline in Women’s Labor Force Participation," by Sandra E. Black, Diane Whitmore Schanzenbach, and Audrey Breitwieser.

As background, here's a comparison of labor force participation rates for prime-age US men and women.

A half century ago, the labor force participation rate of prime-age women was slightly higher in the US than in other countries with high female labor force participation rates like France, Canada, and the United Kingdom. All of these countries were far above the rate for the OECD (high-income) countries as a group, But while women's labor force participation rates in other countries have been creeping higher or not changing much, the US labor force participation rate for women in this age group has been declining since the 1990s, and is now close to the average for OECD countries.

One intriguing tidbit in the text discussion of this figure is that "a higher share of women’s employment in the United States is full time, compared with other OECD countries. The share of full-time work among women in the United States has trended up somewhat over time, indicating that the relative decline of U.S. women would be less pronounced if one examined hours worked rather than participation."

Yet another tidbit is that the labor force participation of prime-age US women is not dramatically different depending on whether they are married or single, or whether they have children. A half century ago, single women with no children had a labor force participation rate of 80%, roughly double the rate for married women with children. While married women with children still have a noticeably lower labor force participation rate, it has risen dramatically over time and is now fairly close to the other married/not married, children/no children categories.

Papers in the rest of the volume consider a variety of policies that might help to raise the labor force participation of US women.  I'll mention three broad categories of such proposals here: changes in the tax code, paid leave, and support for child care.

In the category of tax code changes, Hilary Hoynes, Jesse Rothstein, and Krista Ruffini suggest "Making Work Pay Better Through an Expanded Earned Income Tax Credit," which would be available to all low-income parents, but because women are more likely to be single-parenting, it would tend to have a bigger effect on women workers. Sara LaLumia discussed "Tax Policies to Encourage Women’s Labor Force Participation." Her specific proposal is "a new second-earner deduction, equal to 15 percent of the earnings of a lower-earning spouse. The proposed deduction would raise the after-tax return to work for many wives, encouraging an increase in married women’s labor supply, and would reduce marriage penalties on average."

Several of the proposals focus on expanded job leave: for example, Nicole Maestas writed about "Expanding Access to Earned Sick Leave to Support Caregiving" and Christopher J. Ruhm considers "A National Paid Parental Leave Policy for the United States." Both policies reflect the social reality that time commitments for children and other caregiving tend to fall more heavily on women.

My own concern is that these proposals tend to mix together two different. goals. One goal is to give households more support when family responsibilities are heightened, like a new child or a sick relative. Expanded job leave can accomplish that goal. The other goal is to increase the labor force participation rate and job prospects for women over time. The effect of expanded job leave on this goal is more ambiguous. In some countries with especially generous parental leave, like Italy, these provisions look more like an off-ramp for women to leave the labor force, rather than a mechanism to help women remain connected. I discussed this evidence in "Some Economics of Parental Leave" (March 3, 2017).

With that concern noted, the US is a considerable outlier among high-income nations in not having any national provisions for paid maternity leave or for paid parental and home care leave, as vividly shown in the table below from the Ruhm paper. Proposals for moderate leave, with moderate pay, are more likely to balance the concerns of supporting families in a time of stress while still keeping women attached to the labor force. A recent bipartisan proposal for a moderate parental leave law, which specifies funding and conditions, is discussed in "Facing the Costs of Paid Parental Leave" (June 12, 2017).

The final set of proposals look at public support of child care: for example, Elizabeth U. Cascio considers "Public Investments in Child Care." while Bridget Terry Long looks at the issue of college students who are also parents in "Helping Women to Succeed in Higher Education: Supporting Student-Parents with Child Care."

The international evidence mentioned above does offer support for the idea that reliable and affordable child care helps women remain attached to the labor market. Here's a figure from Cascio's paper. The left-hand diagram shows that the share of mothers employed in families with income below $25,000 is about 60%, with median child-care costs around $2,000 per year. Only about 20% of these mothers use paid child care for very young children. In contrast, for mothers in families with income of $75,000 or more, about half of the mothers use paid child care for very young children ad a median cost in the range of $7,000-$8,000 per year. The mothers in these higher income families have an employment rate of about 80% when children are very young, which rises as the children reach school-age.

One final issue, involving flexibility of hours both in the shorter and the longer term, is mentioned in several of the papers, but is not the subject of a direct proposal. Claudia Goldin's Presidential Address at the 2014 meetings of the American Economic Association focused on "A Grand Gender Convergence: Its Last Chapter." Part of her thesis was to focus on the relationship between hours worked and total pay. For example, does someone who works half as many hours get half the pay--or less for being a part-time worker? Does a high-powered lawyer or executive who work 50% more hours get 50% more pay--or considerably more as an important superstar employee? Goldin argued that workers who need more flexibility of hours (often women) are penalized in the labor market, while those who make outsized commitments of time (often men) receive outsized rewards. She offers the intriguing example of pharmacists, who are essentially paid by the hour even if they choose to work part-time for a few years. Perhaps not surprisingly, women were less than 10% of all pharmacists back in the 1960s, and are now more than half. Pharmacists are a very specific job where highly-skilled people can readily substitute for each other and shift hours. I do not have useful advice for how to make that model operate in other contexts. But I suspect that organizations which structure themselves to offer high-powered, career-path jobs to workers who may go through several extended periods of part-time work might be rewarded with an influx of highly motivated women workers.

For other previous discussions of women in the labor market, see:

Thursday, October 26, 2017

Mysteries of Modern Inflation

The theory of inflation that I learned long ago suggested that inflation should creep up when an economy is running near full employment, but will come back down during a recession. However, for almost two decades now, the rate of core inflation (that is, inflation not counting the volatile movements in oil and food prices) has stayed low and hasn't budged by very much. At one level, low and stable is clearly good news. But at another level, it raises a question of whether we really understand the causes of inflation. And if we don't understand it, how much confidence can we have that it will remain low and stable.

This mysterious behavior of inflation has been widely recognized, including by Fed chair Janet Yellen.  David Miles, Ugo Panizza, Ricardo Reis and Ángel Ubide have now tackled the question in "
And Yet It Moves: Inflation and the Great Recession," published as Geneva Reports on the World Economy 19  by the International Center for Monetary and Banking Studies  (associated with Geneva's Graduate Institute of International and Development Studies) and the Centre for Economic Policy Research.  (October 2017). It's available through  the VOX website (with free registration).

Near the start of the report, the authors offer a hypothetical question. If you were thinking about the path of inflation back in 2007 or so, and someone accurately described to you what was about to happen in the economy, what inflation rate would you have predicted? They write:
"[G]iven how volatile and often high inflation has been in the past, given that there was a deep recession and brief deflation episode in 2008-10, given that nominal interest rates were virtually constant (and the real interest rate was not), given that the monetary base increased five-fold, and given that central banks undertook unprecedented policies in a context of fiscal volatility, what would have been your guess about the stability and volatility of inflation from 2010 onwards?
"Simple versions of dominant economic theories, or superficial readings of economic history, would have all pointed to the conclusion that inflation should have at least been volatile, and possibly drifted up or down. Yet inflation was low and relatively stable. We did not observe deflation even in the presence of massive macroeconomic shocks and a sudden rise in unemployment, nor the much-feared inflation spiral that many expected after unprecedented easing in monetary policy. It is remarkable that the volatility of inflation remained so low, in spite of new policies and many shocks. ...
"Overall, inflation has not diverged much from its 2% target and, if anything, has been below and struggled to return to 2%. One reaction to these facts is complacency: inflation is a solved problem that we do not need to worry about. This report rejects this view. We will suggest that the stability of inflation poses puzzles for our existing theories, suggesting that inflation control is far from a solved problem. Complacency, in our view, can quickly lead to inflation getting out of hand, in any direction, in the coming years. ...
"The young, or those with short memories, could be forgiven for looking condescendingly at their older friends who speak of inflation as a major economic problem. But, like Galileo Galilei told his contemporaries who thought the Earth was immovable, “Eppur si muove” (“and yet it moves”). Since most societies regard stable inflation as a goal, it is tempting to describe this solid anchoring of inflation as a great achievement of monetary policy. But what if it was just luck? Will the great anchoring soon be followed by a great bout of inflation, or by a descent into deflation, just as the Great Moderation was followed by the Great Recession?"
Notice that little phrase "in any direction" near the end oft the quotation, which emphasizes that the problem with inflation can either been that it jumps too high, or that it falls too low. The authors argue in some detail that basic views about causes of inflation--for example, a sharp economic slowdown should lead to a substantial fall in inflation, or a large rise in the money supply should lead to a substantial rise in inflation--haven't held up well in recent years. Instead, they suggest that understanding inflation in recent years requires looking at "the role of commodity prices, the anchoring of inflation expectations, shifts in the Phillips curve, changes in mark-ups of prices over costs, the change in central bank liabilities from currency to reserves, and the impact of policy announcements ..."

What are some of the issues and insights that arise from this alternative view?  Here are some of the questions they raise and a sense of the answers they offer (citations omitted throughout):

"Would a higher inflation target be warranted?"
"In the end, whether a higher inflation target will be needed or not will depend, to some extent, on luck. Will productivity growth rebound, and will neutral interest rates increase, creating more room to ease policy? Will future shocks resemble those of the Great Moderation, or will they be Lehman sized? Because of these uncertainties, one strategy would be to establish a process of periodic revisions, say every five or ten years, to the inflation target (as it is done in Canada, for example). This would force a regular evaluation of the cost and benefits of existing inflation targets, in light of the accumulated new evidence.  ... Even in the last decade, there is growing academic work showing that even from a cost of living perspective, biases associated with new goods and substitution may have got worse, so associating an unchanged numerical target with price stability at all times is not right. There is no reason why 2% is the right answer – for all periods and for all economies – to the question: “What should the target rate of inflation be?”"
"Should central banks have large balance sheets?"
"Central bank balance sheets look very different now from what they were in 2007. They have grown enormously – a fivefold increase relative to GDP for the Fed and the Bank of England, and not much less for the ECB. The Japanese central bank balance sheet has been on an upwards trajectory for much longer. Moreover, central bank balance sheets are likely to remain very large for a long period. With the system of payment of interest on excess reserves, central banks can operate monetary policy with any balance sheet size. (Indeed, the concept of ‘excess’ reserves becomes redundant). The scary crisis episode of the failure of the interbank market has led central bankers to conclude that, for financial stability reasons, a world with far higher reserves than used to be thought adequate may be optimal. To the extent that the current high levels reflect a desire by commercial banks to hold more reserves (and rely less on the interbank market), it looks like something that central banks should allow as part of their role in creating the infrastructure for efficient financial intermediation. A large balance sheet gives the central bank the tools to target financial stability with close to zero effect on inflation."

"What is the role of forward guidance?"
"Guidance on how [monetary] policy will be set, what it is trying to achieve, how trade-offs between risks and trade-offs between objectives are balanced, and on the outlook for the drivers of inflation are all valuable. They become particularly useful when inflation is away from its target, and when current policy may be a long way from what has been normal and may also be constrained. That is the world we have been in since the financial crisis
"The case for forward guidance which constrains future discretion (Odyssean guidance) is less powerful. One such form of limited discretion is to commit to a particular policy rule. But no policy rule could be comprehensive enough to reflect the appropriate response to news (on data and on the changing structure of the economy) and also be useful and understandable to outsiders. ...
"All in all, central banks are right to maintain some discretion and not to make commitments to follow rules that are too specific. The world is too complex and unexpected events happen too often to make that desirable. But the more discretion central banks have, the more guidance they need to give on their strategy, not less."
"Has monetary policy been too focused on inflation?"
"Looking at the period since the financial crisis, it seems that inflation targeting has been sufficiently flexibly applied by most central banks that it has not in fact been a straitjacket. Furthermore, while inflation has been persistently under the 2% target in most advanced economies, it is not at all clear that it has been in a danger zone where deflation and debt spirals are just around the corner. ...
"Clearly in very many economies, aggregate performance since the 2007-2008 financial crisis has been poor (in the UK, for example, GDP is now around 15% below a continuation of the trend the UK seemed to be on before 2008). Would that have been much better had inflation been close to 2% rather than averaging closer to 1%? And would the problem have been much reduced had central banks not pursued (flexible) inflation targeting pre-crisis? One (perhaps simplistic) view is that the huge policy error pre-crisis was that regulators didn't seem to worry about banks with a leverage of 50 times, and that when you have banks with 98% debt and 2% equity, you are sitting on a mountain of dynamite smoking a cigar. In 2007, the dynamite exploded in the US. In 2008, it exploded in the UK and a bit later it exploded across the rest of Europe. The explosions might have everything to do with too high leverage – a view forcefully put by Admati and Hellwig (2013) and many others – and little to do with inflation or inflation targeting. ...
"Our conclusion is that flexible inflation targeting remains a sensible strategy. It clearly should not preclude expansionary (contractionary) policy when inflation is temporarily above (below) target."
"What is the role of fiscal policy in managing inflation?
"At a minimum level, if central banks are to be held responsible for inflation outcomes, fiscal policy must be chosen so that plans for fiscal surpluses are consistent with paying down the existing debt. This prevents agents from expecting inflation to be necessary in order to pay for the debt. Moreover, for the central bank to remain independent and use its tools , the fiscal authorities must back the central bank in the sense of not demanding an exogenous stream of positive dividends from it, which would force it to use inflation to generate seignorage revenues. Third, even if this stops well short of the full extent of policy cooperation, fiscal deficits that stimulate real activity can help to push up inflation in situations where monetary policy faces limits to its tools."

Wednesday, October 25, 2017

The Immediate Global Costs of Pollution

It often feels to me that a disproportionate share of the discussion talk about environmental issues involves arguments over the risks of climate change, which in turn are built on models of how climate, economic, and political forces will evolve over the next century. But the environmental movement has had its biggest effect when the harms were immediate.

An example I have quoted to students involves the air pollution in the city of Chattanooga in the late 1960s--at a time when it was neck-and-neck with Los Angeles for worst air pollution of any US city--before the passage of the Clean Air Act in 1970. Twenty years later, in 1990, William Oscar Johnson described what air pollution had been like in Chattanooga in an article in Sports Illustrated ("BACK ON TRACK," subtitled "Earth Day success story: The Chattanooga choo-choo no longer spews foul air," April 30, 1990):
"So Earth Day 1970 was just one of many dark and dirty days in Chattanooga, a city in which the mid-'60s death rate from tuberculosis was double that of the rest of Tennessee and triple that of the rest of the U.S., a city in which the filth in the air was so bad it melted nylon stockings off women's legs, in which executives kept supplies of clean white shirts in their offices so they could change when a shirt became too gray to be presentable, in which headlights were turned on at high noon because the sun was eclipsed by the gunk in the sky. Some citizens could actually identify different sections of town by nose alone—a stink of rotten eggs in one place, acrid metal in another, coal smoke in another, the pungent smell (and orangish haze) of nitrogen dioxide near the VAAP [Volunteer Army Ammunition Plant]. One part of town, site of a city dump, was known simply as Onion Bottom.

People joked, "We like to look at what we're breathing before we inhale it." A billboard appeared bearing this alarming question: DEEP DOWN INSIDE...WOULDN'T YOU RATHER BREATHE CLEAN AIR? Anyone who has lived in Chattanooga for a while has memories of what the old air did. Linda Harris, local chairman of Earth Day 1990 and acting director of the Chattanooga Nature Center, recalls her childhood: "Our eyes stung, and our noses itched. The milkman left milk in bottles at dawn, and when we brought them in a couple of hours later, we could write our names in the dirt that had collected in the moisture on the bottles." Wayne Cropp, director of the Chattanooga-Hamilton County Air Pollution Control Bureau, says, "You could always tell which way the ammo plant was by looking at the bushes in that part of town: The side away from the plant grew green, and the side toward it was brown." Fry recalls, "As a boy, I had a morning paper route. I delivered before daybreak. If I had a cold, my nose would be running black by the time I got home."
Remember, this isn't a description of coal smoke back in Victorian England in the mid-1800s. It's a US city less than a half-century ago.

But around the world, pollution continues to be a severe problem. The British medical journal The Lancet put together a Commission on Pollution and Health with about four dozen members. Its report, published October 19, 2017, reports near the beginning:
"Diseases caused by pollution were responsible for an estimated 9 million premature deaths in 2015—16% of all deaths worldwide—three times more deaths than from AIDS, tuberculosis, and malaria combined and 15 times more than from all wars and other forms of violence. In the most severely affected countries, pollution-related disease is responsible for more than one death in four. Pollution disproportionately kills the poor and the vulnerable. Nearly 92% of pollution-related deaths occur in low-income and middle-income countries and, in countries at every income level, disease caused by pollution is most prevalent among minorities and the marginalised."
Here's some additional detail. This table presents results of two earlier studies of the mortality effects of pollution, the Global Burden of Disease study and a study from the World Health Organization. The studies suggest that roughly 8.4-9.0 million people die each year from pollution, and air pollution in particular  is the major culprit.

The report offers considerable detail about each type of pollution. Putting a monetary on these damages is difficult, and there are a number of approaches. For example, some focus on health care costs and lost productivity. Separating out costs from pollution from other causes of health problems is tricky. Others try to take into account what people might be willing to pay to reduce their risk of early death by a certain percentage amount. Costs like the actual pain and suffering experienced by those who are ill, or by their relatives and friends,  are often left out of the picture. But with concerns duly noted, one set of estimates suggests that the costs of pollution might be about $4.6 trillion, or equal to about 6.2% of global national income.

For someone with an academic mindset, like me, it always seems like tables showing millions of deaths and trillions of dollars in costs should be an electrifying call to citizens and policy-makers. But of course, most normal human beings don't quite think that way. Most people react more strongly  true anecdotes, like the nylon stockings melting on women's legs or noses running black. A report like the Lancet Commission can publish estimates, but the task remains for others to translate tables of numbers into momentum for action.

And for those who want to make sure that climate change remains in the conversation, it's worth remembering that reducing many of the policies to reduce emissions of carbon and other greenhouse gases would also have near-term benefits in terms of improved public health. This is sometimes called the "co-benefits" approach   The Lancet report is focused on current costs of pollution, but it does note in passing: "The annual marginal benefits of avoided mortality from reductions in air pollution that will result from greenhouse gas mitigation strategies are estimated to range from US$50–380 per ton of CO2 abated, and are projected to exceed marginal abatement costs in both 2030 and 2050."

I would re-order the thoughts in that sentence. The Lancet Commission is saying that steps to reduce climate change would pay for themselves in terms of avoided mortality in air pollution. Thus, how about focusing on steps to reduce air pollution can save lives in a cost-effective manner--and let the additional benefits of reducing carbon emissions just be icing on the cake?

Monday, October 23, 2017

After Incarceration: How Many and Male Labor Force Participation

Getting data on the number of people in prison or more broadly under the supervision of the criminal justice system at a point in time is easy. But estimating how many people have at some previous time been in prison or under probation for a felony (not all felonies result in prison terms) is harder.
Sarah Shannon, Christopher Uggen, Jason Schnittker, Michael Massoglia, Melissa Thompson, and Sara Wakefield take on this question in “The Growth, Scope, and Spatial Distribution of People with Felony Records in the United States, 1948-2010,” which was published in the October 2017 issue of Demography (54: 5, pp. 1795-1818). The journal version is not freely available online, although often accessible through a library subscription, but a pre-press version of the paper is available here.

Their approach requires doing some extrapolating: for example, one needs to take into account recidivism rates and death rates, and for state-level estimates, one needs to take cross-state migration into account. Taken together they estimate that there are more than 20 million people in the US population who were either previously in prison or who have a felony conviction that led to probation rather than imprisonment.

It was highly popular in most states to increase incarceration rates, and there is some evidence that doing so helped to reduce crime rates up through the 1990s--although the trend toward greater incarceration seems to have had diminishing marginal returns on reducing crime after that point (for discussion, see here and here). However, getting the 20 million ex-prisoners and ex-felons integrated back into the US labor market is a less popular task. Nicholas Eberstadt put the effects of the Shannon et al. study in context of the broader US labor market in his article, "Where Did All the Men Go?" whjich appeared in the Spring 2017 issue of the Milken Institute Review (19:2, pp. 18-33).  Eberstadt wrote:
"Start with the fact that the past half century has seen an explosive rise in criminal sentencing and incarceration in America on a scale unlike anything witnessed in other Western societies in modern times. Today, the United States is home to a vast and largely invisible army of felons and ex-prisoners, overwhelmingly men of prime working age. These men are disproportionately high school dropouts, disproportionately native born, and disproportionately black. These ex-convicts fare very poorly in the labor market — and their diminished prospects constitute the key missing piece to the puzzle of understanding the collapse of work for men in modern America.
"Few of us today are aware of the staggering size of this group. In a forthcoming study, Sarah Shannon, a sociologist at the University of Georgia, and five colleagues estimate that America’s criminal class (people with a felony conviction or prison time in their background) roughly quadrupled between 1980 and 2010 — from 5 million to nearly 20 million. Given the flow of sentencing since then, we might expect that population to have topped 23 million by now. And since roughly two and a half million people are behind bars today, this means that 20 million released felons and ex-prisoners are living outside institutions. This implies that at least one in eight adult men in the at-large population has been sentenced for a felony. And the ratio for prime-age men could be even higher, given the upsurge of sentencing in recent decades.
"In light of these ghastly numbers, the obvious question concerns the employment profiles for men who have served prison time or have been convicted of felonies but not incarcerated. Try as one might, however, it is impossible today to glean such information from official statistics. The federal government simply does not collect data on their social or economic condition. This scandalous oversight helps explain why policymakers and researchers have paid so little attention to institutional barriers in America’s problem of men without work.
"For my own research I reconstructed employment profiles for sentenced men using nongovernment data. The National Longitudinal Survey of Youth, for example, asks respondents about delinquency, arrest and prison time in its considerable battery of interview questions. And since the survey began in 1977, some of the youths it has tracked are now well into their 50s. Given the arcane particularities of the survey, its employment figures are difficult to harmonize with official Bureau of Labor Statistics data. But the findings from NLS are stark, and absolutely unambiguous, nonetheless.

"Regardless of a man’s age, ethnicity or educational attainment, he is much more likely to be out of the workforce if he has served time in prison than if he only has an arrest record — and also much more likely to be out of the labor force if he has an arrest record than if he has never been in trouble with the law.
"These relationships do not tell us why men who have been through the criminal justice system fare so much more poorly in the job market. There are multiple possible explanations — discrimination and loss of skills lead the list. But the numbers leave no doubt that America’s unique trends in criminality and criminalization are a critical part of America’s unique contemporary men-without-work problem."
This is not a problem with an easy solution. For example, a number of studies have now shown the "ban-the-box" which prevent employers from asking about previous criminal status have the undesired effect of reducing job offers to African-Americans as a group. The cost-benefit analysis of retraining people in middle age is often not encouraging. A rising number of jobs in the US, now at about 25 percent of the entire workforce, requires some kind of occupational license, which can make those jobs hard or impossible for those with a prison record or a felony conviction to obtain. The hard reality is that many of those convicted of a felony or sentenced to prison end up serving an ongoing sentence after their explicit legal punishment is over: that is, they are implicitly sentenced to the risk of never holding a well-paid job with decent career prospects for the rest of their life. That additional implicit punishment isn't good for them, or for the US economy, or for society as a whole.

Friday, October 20, 2017

Cicero: On Grazing, Money-Lending, and Murder

Here's a slightly obscure passage that made me cackle. Among the ancient Greek philosophers, the virtues were considered to be philosophy and involvement in public life. Making money was not a virtue in itself, but rather a duty to be carried out so as to allow a life that could focus on the virtues, Moreover, make money was only to be done by honorable means--which in the view of the time emphatically did not include money-lending.

With that brief background, here's a story related by Cicero ( that is, Marcus Tullius Cicero), in his book De Officiis, which is commonly translated as "On Duties" or "On Obligations." I quote here from the classic translation by Walter Miller, first printed in 1913. Cicero is writing in  44 BC, the fall of the year when Julius Caesar had been stabbed to death on the ides of March. He is discussing how to behave, and the story comes at the end of Book 2 on "Expediency" and just before Book 3 on "The Conflict Between the Right and the Expedient." Cicero writes:
"As for property, it is a duty to make money, but only by honourable means; it is a duty also to save it and increase it by care and thrift. These principles Xenophon, a pupil of Socrates, has set forth most happily in his book entitled “Oeconomicus.” When I was about your present age, I translated it from the Greek into Latin.
"But this whole subject of acquiring money, investing money (I wish I could include also spending money),is more profitably discussed by certain worthy gentlemen on “Change” than could be done by any philosophers of any school. For all that, we must take cognizance of them; for they come fitly under the head of expediency, and that is the subject of the present book.
"But it is often necessary to weigh one expediency against another ...  Physical advantages are compared with outward advantages in some such way as this: one may ask whether it is more desirable to have health than wealth; [external advantages with physical, thus: whether it is better to have wealth than extraordinary bodily strength;] while the physical advantages may be weighed against one another, so that good health is preferred to sensual pleasure, strength to agility. Outward advantages also may be weighed against one another: glory, for example, may be preferred to riches, an income derived from city property to one derived from the farm. 
"To this class of comparisons belongs that famous saying of old Cato's: when he was asked what was the most profitable feature of an estate, he replied: “Raising cattle successfully.” What next to that? “Raising cattle with fair success.” And next? “Raising cattle with but slight success.” And fourth? “Raising crops.” And when his questioner said, “How about money-lending?” Cato replied: “How about murder?”
From this as well as from many other incidents we ought to realize that expediencies have often to be weighed against one another ... 
For more on what Xenophon wrote in “Oeconomicus,” as well as how the ancient Greeks thought about economic activity and human virtue, a useful starting point is the article by Dodan Leshem in the Winter 2016 issue of the Journal of Economic Perspectives, "Retrospectives: What Did the Ancient Greeks Mean by Oikonomia?" From the abstract: "[B]oth Ancient Greek oikonomia and contemporary economics study human behavior as a relationship between ends and means which have alternative uses. However, while both approaches hold that the rationality of any economic action is dependent on the frugal use of means, contemporary economics is largely neutral between ends, while in ancient economic theory, an action is considered economically rational only when taken towards a praiseworthy end. Moreover, the ancient philosophers had a distinct view of what constituted such an end—specifically, acting as a philosopher or as an active participant in the life of the city-state." For an earlier discussion of Leshem's previous work on this blog, see "Oikonomia, Revisited" (October 30, 2014).

Thursday, October 19, 2017

Teacher Absenteeism in the U.S.

It is of course arbitrary to draw a line about what level of absence of a K-12 teacher should be considered "chronic," but a common line seems to be more than 10 absences per year. The data on teacher absence is collected nationally by the federal Office of Civil Rights. The most recent data is for the 2013-14 school year, and it's now being used by various researchers. Here's one bottom line from David Griffith in "Teacher Absenteeism in Charter and Traditional Public Schools (Thomas B. Fordham Institute, September 2017).
"In June 2016, OCR [the Office of Civil Rights] released teacher absenteeism data for 2013–14, showing that 27 percent of US teachers were chronically absent in that year. ... [I]t noted that fifty-eight school districts with more than one thousand teachers had reported chronic absenteeism rates above 50 percent." 
For clarity, here's the definition of teacher absenteeism used by the OCR:
"A teacher is absent if he or she is not in attendance on a day in the regular school year when the teacher would otherwise be expected to be teaching students in an assigned class. This includes both days taken for sick leave and days taken for personal leave. Personal leave includes voluntary absences for reasons other than sick leave. Teacher absenteeism does not include administratively approved leave for professional development, field trips, or other off-campus activities."
When I end up (for my sins) discussing this data with K-12 teachers, a common response is to point out that sometimes teachers have legitimate reasons for a large number of absences: maybe a personal health condition, maybe a family crisis. And this is of course true. But one would tend to believe that these kinds of situations would arise at about the same rate across different states and different kinds of schools. That is not in fact true.

As noted above, a number of large districts have teacher absenteeism rates above 50%. To the best of my knowledge, there is no evidence showing that teachers in these districts are especially susceptible to debilitating illnesses or family emergencies.

Or here's an analysis of the same teacher data on a state-by-state basis. Nevada had 49% teacher absenteeism on a statewide basis; Hawaii had 75% teacher absenteeism on a statewide basis. Meanwhile, Idaho, South Dakota, and Utah had teacher absenteeism rates under 20%. Again, I am unaware of evidence showing that teachers in high-absentee states are systematically more prone to illness and emergency than teachers in other states.

Another difference, pointed out by the Griffith report mentioned earlier, is: "Nationally, 28.3 percent of teachers in traditional public schools are “chronically absent,” meaning they miss more than ten school days a year for sick and personal leave. In contrast, only 10.3 percent of teachers in charter schools are chronically absent."

How does use of sick leave and personal days by teachers compare with non-teachers?  Griffith writes:
"Because of the lack of similarly comprehensive absenteeism data for other industries, putting these numbers in context is challenging. However, according to one study that used data from the National Health Interview Survey (NHIS), only 7.7 percent of US workers with access to paid sick leave take ten or more sick days per year, and just 17.6 percent take five or more sick days. In other words, the percentage of teachers in traditional public schools who take more than ten sick and personal days is almost four times higher than the percentage of employees in other industries who take at least ten sick days ..."
International comparisons can be tricky as well. But for what it's worth, here is Griffith's take:
"Clearly, some absence is unavoidable—teachers are only human. Yet US teachers seem to have poor attendance compared to their counterparts in other industries and other countries. Early studies estimated that 5.2 percent of American teachers are absent on a typical school day, compared to just 3.2 percent of British teachers and 3.1 percent of Australian teachers. However, a more recent analysis pegged the teacher absenteeism rate in the United States at 4.4 percent."
What policies might be useful in reducing teacher absence? A 2014 report looked at data across 40 large school districts, and found that most policies to encourage attendance had only a small effect. Some of the policies considered included: payment for unused sick leave, either at the end of each year or at retirement; rewarding excellent attendance with money or additional leave; restricting dates when personal leave can be used (like not right before or right after scheduled school vacations); requiring a medical certificate for sick leave; and others. But this evidence is hard to interpret; for example, it might be that districts with a bigger teacher absence problem are more likely to adopt these kinds of policies, making it hard to interpret the effects of such policies.

The 2014 report also notes that the institutional culture involving teacher absence may matter more than the formal rules. "Anecdotally, teachers and principals often cite school-based norms that shape the culture and tone around teacher attendance – perhaps more effectively than the broader and more distant formal district policies. Something as straightforward as principals expecting their teachers to call them directly when they must take leave can often shape school culture concerning teacher attendance. Other teachers report that absenteeism is held low when the school has a policy of not hiring substitutes, but distributing an absent teacher's students to other teachers in the school."

For the record, all three of my children have either gone through public K-12 schools or are still doing so. My experiences with their teachers have been overwhelmingly positive. But yes, every other year or so, there will be a teacher in one of the classes who misses a lot of classes. My own philosophy about education is that the students come first. That subset of teachers who are chronically absent--especially year after year--needs to be actively monitored, and in some cases changes need to be made.

Wednesday, October 18, 2017

Housing Markets: A European Perspective

Americans are all-too-familiar with issues in the US housing market: fluctuations in housing prices, along with problems of affordability and even homelessness. I'm not sure whether it is consoling or confounding to observe that similar problems exist across the European Union, but The State of Housing in the EU 2017, just published by Housing Europe, which is a federation of 45 national and regional housing-related organizations  that in turn represent about "43.000 public, social and cooperative housing providers in 24 countries." Here are a few comments  of the report:

  • "Residential construction as a share of GDP is currently just over half than its 2006 level, and construction is recovering much slower than prices. ... 
  • High building standards and requirements are posing a significant challenge to the provision of social and affordable housing in a number of countries. ,,, 
  • As a consequence of construction not keeping up with demand, housing shortages are emerging more clearly, especially in large cities/metropolitan areas with a growing population. ...
  • Shortage contributes to increasing prices and rents."

Overall, the homeownership rate in the EU is similar to the United States. But one ironical pattern is that the countries with the highest homeownership rates tend to be the formerly Communist states that were part of the Soviet Union, because people in those countries were able to receive ownership of the homes in which they had been living for a low price. The report explains:
"The most common tenure in Europe is owner occupation, with an average 69.4% of the population living in owner-occupied housing against 30.6% tenants. However, this masks wide variations in tenure distribution across countries. Most former communist countries of Central and Eastern Europe show a very high share of home-owners without mortgage, as after the fall of the communist regimes tenants were offered to buy the dwellings in which they lived at a low price. In Southern European countries outright ownership rates are also high. In most English-speaking and Nordic countries, Belgium and the Netherlands owners with outstanding mortgages are the most common tenure type. Only in Switzerland and Germany renting is more common than owning ..." 
Here's a figure showing homeownership shown by the blue bars across countries of the EU, while private rental appears as the orange bars.

In addition, homeownership rates have been declining in Europe in the 21st century:
"However, a number of countries have registered a decrease in the share of owner-occupation since the turn of the century, corresponding to an increase in the share of tenant households in the private rental market - for instance in Ireland and the United Kingdom. This trend is reflected in the EU average: keeping in mind that there are significant cross-country variations, since 2007 the share of owners with a mortgage increased slightly (from 25.6 to 27%), that of owners outright decreased (from 47.2 to 42.2%). Over the same period, the proportion of tenants at market price increased significantly (from 12.6 to 19.9%) and that of tenants paying a reduced rent decreased (from 14.6 to 10.9%) ..."
A further irony is that the high rates of homeownership in a number of eastern European countries may be deceiving in the sense that a substantial share of this housing stock is in extremely poor quality, and the new owners don't have the resources to fix it up. Others experience "fuel poverty," meaning they don't have the resources to keep the property heated or cooled. 

Affordable housing is a problem across the European Union, too (citations omitted):
"Housing costs is the single highest expenditure item for households, at about a quarter of total households’ budget in 2015, increasing from 21.7 in 2000 and 22.5% in 2005 to 24.4 in 2015 ... A large number of households are ‘overburdened’ by housing costs (i.e. they spend over 40% of their disposable income on housing) ...  11.3 of the overall EU population was ‘overburdened’ by housing costs in 2015 ... Most interestingly, although the average housing overburden rate for the overall population has remained more or less stable in recent years, the share of poor people overburdened by housing costs has increased significantly over the past decade, from 35% in 2005 to over 39% in 2015. This increase has been particularly steep in some crisis-ridden countries where the housing cost overburden rate among the poor has more than doubled over this period (Greece, Ireland, Portugal and Spain) ..." 
Affordable housing policy across the European Union has been shifting away from having governments building additional housing to providing housing support to those with lower income levels.
"[T]he literature on housing research broadly distinguishes between supply and demand side interventions or, sometimes also referred  to as object and subject subsidies. Historically, the housing shortages many European countries faced in the wake of World War I and II have been tackled by large government investment programmes into building new homes. Building subsidies were seen as the most effective way of dealing with this problem. In many cases this was achieved via the construction of public or social housing. As a result the most severe housing shortages have been alleviated and housing standards have improved. Despite the diversity of European housing systems and several exceptions in this regard (notably Austria for instance), there has been a noticeable shift from supply to demand side subsidies over recent decades in many European countries, with many now spending more on housing allowances than on supply-side subsidies or building new homes. A trend towards declining capital investment into housing has been particularly prevalent in countries with a comparatively large rented sector, including Denmark, France, the Netherlands and Sweden."

Finally, the report expresses considerable concern about the high cost of housing in cities. Along with the common problems of a rising urban population, and limited amounts of land in urban centers, issues of foreign investors buying up properties and existing owners using options like  AirBnB to turn their properties into short-term rentals are big topics. And a backdrop for all of this is that construction is not only down, but in many European cities faces a semi-hostile regulatory environment. From the report:
"Some of Europe’s most fashionable cities are indeed facing a ‘housing gap’: a large number of people wanting to live in these cities in order to benefit from the education, jobs, lifestyles and cultural life that they offer. At the same time the buoyant demand for property in some of Europe’s most popular cities has also attracted investors, many of whom seek to establish property portfolios. Given that land in urban centres is a finite resource, such an increase in demand may result in spiralling property and rental prices (unless adequately regulated). ... In “hedge cities”, prime destinations for global capital seeking safe havens for investments, housing prices have increased to levels that most residents cannot afford, creating huge increases in wealth for property owners in prime locations while excluding moderate- and low-income households from access to homeownership or rentals due to unaffordability. Those households are pushed to peri-urban areas with scant employment and services ..."
Europeans are quite likely to report that their cities lack affordable housing. Only in Greece (EL) and Croatia (HR) do a majority of people believe that in their city it is easy to find good housing at a reasonable price. (A list of two-letter country codes is available here.)
It seems to me that American political discourse can sometimes have a tendency to romanticize how life is better in European nations. When it comes to  housing markets, at least, both the US and EU are struggling with a lot of similar issues.

Tuesday, October 17, 2017

Online Dating and Interracial Marriage

Online dating has already altered romance, and it may be on its way to altering society more broadly by changing the way that people from different groups make connections.  Josué Ortega and Philipp Hergovich provide some evidence and analysis in "The Strength of Absent Ties: Social Integration via Online Dating" (posted online October 2, 2017). Here's some striking evidence that they cite from another paper on the rise of online romance.

The top graph shows heterosexual couples; the bottom graph shows same-sex couples. In each case, the red line that starts shooting up a few years before 2000 shows the share that "met online." Met in "bar/restaurant" has also rise, and one suspect that some of these meetings have an online component as well.Meanwhile, "met through friends," "met in church," and other categories have declined.

The Ortega and Hergovich working paper lays out a mathematical model of marriage matching that will be heavy going for most readers. But much of the intuition behind the model is fairly straightforward. Their focus is on the implications of online-dating for interracial marriage.

Here's a figure from their paper, showing the upward trend in interracial marriage (in this data, marriage of newlyweds) over time. As it explains under the diagram, "The red, green, and purple lines represent the creation of Match.com, OKCupid, and Tinder, three of the largest dating websites." They argue that it is not a coincidence that the rate of interracial marriage rises faster than it's long-term trend as dating websites arrive.

A standard model of marriage markets works like this. Those on one side of the market propose marriage to those on the other side. Those who like a proposal they receive can retain their preferred proposal--without actually accepting that proposal. However, all of those who are turned down go make another proposal. Again, those who like the proposal they receive can retain it, without saying "yes," and the cycle continues until no one wants to make any additional proposals. At that point, all those who have retained a desired proposal say "yes." This is an application of the famous Gale-Shapley algorithm, which was part of justification behind the 2012 Nobel price in economics.  In the Ortega and Hergovich, people belong to certain communities, and at first you can only marry someone from within your community. Like the survey results above suggest, you are introduced by friends or an organization like your church. But online dating changes these dynamics. People can reach outside their usual community more easily, and a faster rate of increase in interracial marriage is one of the dynamics.

For a longer-term review of patterns related to interracial marriage, a useful starting point is Roland G. Fryer Jr., "Guess Who’s Been Coming to Dinner?Trends in Interracial Marriage over the20th Century," in the Spring 2007 issue of the Journal of Economic Perspectives

My suspicion is that online dating affects marriage patterns in other ways, too. For example, people have become more likely to marry others with similar educational and socioeconomic background, as I discussed in "Marriage: Homogamy or Heterogamy?" (January 12, 2016).

Monday, October 16, 2017

Learning, Not Just Schooling: World Development Report 2018

The World Development Report 2018, one of the flagship reports of the World Bank, focuses on the theme "LEARNING To Realize Education's Promise." The thrust of the report is that school enrollments are up dramatically in developing countries across the world, but in a disturbingly high number of cases, the larger numbers of children attending school are not leading to a similarly high increase in actual student learning.

For example, here's a figure showing rises in school attendance by region, over the long run. Primary school attendance has become almost (if not quite) universal around the world. Secondary school attendance is rising sharply in Sub-Saharan Africa and South Asia.
But as the report says at the very start (footnotes omitted):
"Schooling is not the same as learning. In Kenya, Tanzania, and Uganda, when grade 3 students were asked recently to read a sentence such as “The name of the dog is Puppy,” three-quarters did not understand what it said.1 In rural India, just under three-quarters of students in grade 3 could not solve a two-digit subtraction such as 46 – 17, and by grade 5 half could still not do so. Although the skills of Brazilian 15-year-olds have improved, at their current rate of improvement they won’t reach the rich-country average score in math for 75 years. In reading, it will take more than 260 years. Within countries, learning outcomes are almost always much worse for the disadvantaged. In Uruguay, poor children in grade 6 are assessed as “not competent” in math at five times the rate of wealthy children. ... 
Although not all developing countries suffer from such extreme shortfalls, many are far short of the levels they aspire to. According to leading international assessments of literacy and numeracy—Progress in International Reading Literacy Study (PIRLS) and
Trends in International Mathematics and Science Study (TIMSS)—the average student in low-income countries performs worse than 95 percent of the students in high-income countries, meaning that student would be singled out for remedial attention in a class
in high-income countries. Many high-performing students in middle-income countries—young men and women who have risen to the top quarter of  their cohorts—would rank in the bottom quarter in a wealthier country."

Here's one of many striking figures along these lines. It shows a share of second-graders who cannot read a single word of text, or who cannot subtract two-digit numbers. The footnotes warn that these figures draw upon individual studies, and the ones in India are focuses on rural areas, so the numbers should not be treated as nationally representative. But national data aren't available, and the evidence from the partial data is worrisome.

Of course, the educational system in any country faces difficulties that the schools alone are ill-suited to address. As the report notes: "[C]hildren often arrive in school unprepared to learn—if they
arrive at all. Malnutrition, illness, low parental investments, and the harsh environments associated with poverty undermine early childhood learning. Severe deprivations—whether in terms of nutrition,
unhealthy environments, or lack of nurture by caregivers—have long-lasting effects because they
impair infants’ brain development. Thirty percent of children under 5 in developing countries are
physically stunted, meaning they have low height for their age, typically due to chronic malnutrition.
The poor developmental foundations and lower levels of preschool skills resulting from deprivation mean many children arrive at school unprepared to benefit fully from it ..."

But with these outside issues and others duly noted, the report is also explicit and clear on the problems of teachers who lack skills and motivation, operating in a system of poor governance. education systems suffering under poor governance.  The report summarizes the needed policy reforms under three categories: 
  • Assess learning—to make it a serious goal. Measure and track learning better; use the results to guide action.
  • Act on evidence—to make schools work for all learners. Use evidence to guide innovation and practice.
  • Align actors—to make the whole system work for learning. Tackle the technical and political barriers to learning at scale.
The report rewards reading with a number of examples of such policies in action. But it's worth noting two broader points as well. One is that the report suggests that lack of inputs to education is not the primary problem in most places: "Public discourse often equates problems of education quality with input gaps. Devoting enough resources to education is crucial, and in some countries resources have not kept pace with the rapid jumps in enrollment. For several reasons, however, input shortages explain only a small part of the learning crisis. First, looking across systems and schools, similar levels of resources are often associated with vast differences in learning outcomes. Second, increasing inputs in a given setting often has small effects on learning outcomes. Part of the reason
is that inputs often fail to make it to the front lines."

The other issue is that all education-related policy reforms happen in a broader context. The report emphasizes over and over that education reforms happen in a context of whether a society is genuinely committed and dedicated to raising the educational performance of its young people. A society that is not committed will find numerous and ever-multiplying reasons to hesitate from any serious action: Can we really measure education outcomes accurately, after all? Is it worthwhile to track students? Might tracking make some students and teachers feel bad? Isn't experimenting with alternatives often a waste of time? Who decides what incentives should be built into the system, and will such incentives be allocated fairly or politically? Can't pretty much anyone teach young children, so there's no need to worry much about training? Shouldn't teachers be able to run their classrooms without outside interference? Shouldn't teachers or principals who have been in place for a long time receive considerable deference to their experience? 

These kinds of questions aren't wrong, or illegitimate. But they can very easily become an excuse for inertia. Only if a society is able to put the learning of children clearly first, in a way that makes flexibility and change imperative, will these kinds of questions turn into ways of usefully shaping new policies, rather than excuses for keeping the same system on track. The report notes various success stories.
"When improving learning becomes a priority, great progress is possible. In the early 1950s, the Republic of Korea was a war-torn society held back by very low literacy levels. By 1995 it had achieved universal enrollment in high-quality education through secondary school. Today, its young people perform at the highest levels on international learning assessments. Vietnam surprised the world when the 2012 results of the Programme for International Student Assessment (PISA) showed that its 15-year-olds were performing at the same level as those in Germany— even though Vietnam was a lower-middle-income country. Between 2009 and 2015, Peru achieved some of the fastest growth in overall learning outcomes—an improvement attributable to concerted policy action."
It's difficult to overstate the importance of education in economic development and growth. To put it bluntly, there are zero examples of countries in the modern world economy that have experienced lasting growth and development without a workforce of growing educational attainment and skills. The report includes various comments like this:
"When delivered well, education cures a host of societal ills. For individuals, it promotes employment, earnings, health, and poverty reduction. For societies, it spurs innovation, strengthens institutions, and fosters social cohesion. But these benefits depend largely on learning. Schooling without learning is a wasted opportunity. More than that, it is a great injustice: the children whom society is failing most are the ones who most need a good education to succeed in life."
It's easy to skim over such statements, and to view them as just another dose of overbroad feelgood boilerplate rhetoric. Except when you read it slowly, it's all true.