Monday, November 28, 2016

Improvements in US Air Pollution

The US government passed its first Air Pollution Control Act in 1955, but the major amendments to that law passed in 1970--including the creation of the Environmental Protection Agency to administer the law--greatly expanded the federal and state enforcement efforts. The EPA has published a web report called "Our Nation's Air: Status and Trends through 2015."

It's been common since 1970 to refer to the six "criteria" air pollutants, which include carbon monoxide, lead, nitrogen oxides, ozone, particulates, and sulfur dioxide. The lines on the graph, from top to bottom, show the rise since 1970 in US GDP, vehicle-miles traveled, population, energy consumption, and carbon emissions--and the fall in the overall emissions of the six criteria pollutants since 1970.

Here's more detail since 1990. On this figure, the vertical axis shows the level of various measures of the criteria air pollutants relative to the National Ambient Air Quality Standards (NAAQS). These air pollutants are below the national standard, and falling since 1990s.

As the report notes:
Nationally, concentrations of the criteria air pollutants have dropped significantly since 1990:
Carbon Monoxide (CO) 8-Hour, 77%
Lead (Pb) 3-Month Average, 99%
Nitrogen Dioxide (NO2) Annual, 54%
Nitrogen Dioxide (NO2) 1-Hour, 47%
Ozone (O3) 8-Hour, 22%
Particulate Matter 10 microns (PM10) 24-Hour, 39%
Particulate Matter 2.5 microns (PM2.5) Annual, 37%
Particulate Matter 2.5 microns (PM2.5) 24-Hour, 37%
Sulfur Dioxide (SO2) 1-Hour, 81%
In my experience, this kind of news tends to produce extreme and opposing reactions, either self-congratulatory or self-flagellatory. The self-congratulatory view points to the progress. The self-flagellatory view had no trouble pointing out shortcomings. The reduction in air pollutant emissions might have happened sooner, or at lower cost. There are hot spots of air pollution across the country where air pollution is often above these levels. The criteria pollutants don't include carbon emissions.
The self-congratulatory sometimes point to this progress as an argument that efforts toward cleaner air can be relaxed; the self-flagellatory argue that past progress is a reason to accelerate such efforts. 

At least for today, I'd like to step out of that dichotomy and just emphasize that economic growth in high-income countries can, at least in these important cases, happen together with outright reductions in air pollution. Given that air pollution is the world's biggest health hazard, according to the World Health Organization, this is potentially very good news.

Friday, November 25, 2016

The Plague of Long-Term Unemployment in Europe

There's plenty of legitimate reason for concern about the extent to which the US labor market is producing high quality jobs. But every now and again, Americans might want to glance to the east and contemplate Europe's unemployment issues.

Here's the unemployment rate in Europe (from Eurostat), with the red line showing the unemployment rate in the 19 countries of euro-zone, and the blue line showing the unemployment rate across all 28 countries of the EU. In the euro-zone, the average unemployment rate has been above 9% since 2000, with the exception of a dip just before the Great Recession hit, and it's been in the range of 10% or higher for almost all of the last seven years.

But in at least two ways, Europe's problem is worse than this figure suggests. One is that the averages don't take into account the stress in countries with higher-than-average unemployment: for example, unemployment in France in September 2016 was 10.2%; in Italy, 11.7%; in Spain, 19.3%; and in Greece, 23.2%.

Another dimension is that Europe's overall unemployment rate doesn't show what share of that unemployment is long-term, rather than short-term and transition. A new e-book, Long-Term Unemployment After the Great Recession: Causes and Remedies, edited by Samuel Bentolila and Marcel Jansen, offers a series of short and readable essays with some overall perspectives and close-up looks at long-term unemployment in eight countries: Denmark, France, Germany, Italy, Netherlands, Poland, Spain, and the UK.

In the "Introduction" by Bentolila and Jansen, they point out that if you counted as unemployed only those who have been out of work and looking for a job for more than a year, the unemployment rate across the 28 countries would still have been nearly 5% in 2015. Moreover, in many countries the long-term unemployed are 40%, 50%, and more of the total unemployed. Here's a figure:

As the figure shows, the long-term unemployed (more than a year) in the US economy is less than 20% of its the total number of our much lower unemployment rate.

American readers: can you imagine the social turmoil in the US if the unemployment rate has been above 10% for the last seven years, instead of peaking at 10% back in October 2009 and falling down to about 5% by a year ago in fall 2015? Can you imagine if half of these unemployed had been looking for work for more than a year? Consider the difference, and you'll have a better sense of why the EU is struggling to have much appeal to the European public.

Thursday, November 24, 2016

An Economist Chews Over Thanksgiving

As Thanksgiving preparations arrive, I naturally find my thoughts veering to the evolution of demand for turkey, technological change in turkey production, market concentration in the turkey industry, and price indexes for a classic Thanksgiving dinner. Not that there's anything wrong with that. [Note: This is an updated and amended version of a post that was first published on Thanksgiving Day 2011.]

The last time the U.S. Department of Agriculture did a detailed "Overview of the U.S. Turkey Industry" appears to be back in 2007, although an update was published in April 2014 . Some themes about the turkey market waddle out from those reports on both the demand and supply sides.

On the demand side, the quantity of turkey per person consumed rose dramatically from the mid-1970s up to about 1990, but since then has declined somewhat. The figure below is from the website run by the National Turkey Federation. Apparently, the Classic Thanksgiving Dinner is becoming slightly less widespread.

On the production side, the National Turkey Federation explains: "Turkey companies are vertically integrated, meaning they control or contract for all phases of production and processing - from breeding through delivery to retail." However, production of turkeys has shifted substantially, away from a model in which turkeys were hatched and raised all in one place, and toward a model in which the steps of turkey production have become separated and specialized--with some of these steps happening at much larger scale. The result has been an efficiency gain in the production of turkeys. Here is some commentary from the 2007 USDA report, with references to charts omitted for readability:

"In 1975, there were 180 turkey hatcheries in the United States compared with 55 operations in 2007, or 31 percent of the 1975 hatcheries. Incubator capacity in 1975 was 41.9 million eggs, compared with 38.7 million eggs in 2007. Hatchery intensity increased from an average 33 thousand egg capacity per hatchery in 1975 to 704 thousand egg capacity per hatchery in 2007.
Some decades ago, turkeys were historically hatched and raised on the same operation and either slaughtered on or close to where they were raised. Historically, operations owned the parent stock of the turkeys they raised while supplying their own eggs. The increase in technology and mastery of turkey breeding has led to highly specialized operations. Each production process of the turkey industry is now mainly represented by various specialized operations.
Eggs are produced at laying facilities, some of which have had the same genetic turkey breed for more than a century. Eggs are immediately shipped to hatcheries and set in incubators. Once the poults are hatched, they are then typically shipped to a brooder barn. As poults mature, they are moved to growout facilities until they reach slaughter weight. Some operations use the same building for the entire growout process of turkeys. Once the turkeys reach slaughter weight, they are shipped to slaughter facilities and processed for meat products or sold as whole birds.
Turkeys have been carefully bred to become the efficient meat producers they are today. In 1986, a turkey weighed an average of 20.0 pounds. This average has increased to 28.2 pounds per bird in 2006. The increase in bird weight reflects an efficiency gain for growers of about 41 percent."
The 2014 report points out that the capacity of eggs per hatchery has continued to rise (again, references to charts omitted):
"For several decades, the number of turkey hatcheries has declined steadily. During the last six years, however, this decrease began to slow down. As of 2013, there are 54 turkey hatcheries in the United States, down from 58 in 2008, but up from the historical low of 49 reached in 2012. The total capacity of these facilities remained steady during this period at approximately 39.4 million eggs. The average capacity per hatchery reached a record high in 2012. During 2013, average capacity per hatchery was 730 thousand (data records are available from 1965 to present)."
U.S. agriculture is full of examples of remarkable increases in yields over perionds of a few decades, but they always drop my jaw. I tend to think of a "turkey" as a product that doesn't have a lot of opportunity for technological development, but clearly I'm wrong. Here's a graph showing the rise in size of turkeys over time from the 2007 report.

The production of turkey remains an industry that is not very concentrated, with three relatively large producers and then more than a dozen mid-sized producers. Here's a list of top turkey producers in 2014 from the National Turkey Federation:

In the last couple of years, the US turkey industry has at times been affected by an outbreak of HPAI
(Highly Pathogenic Avian Influenza). In the November 17, 2015 issue of the "Livestock, Dairy, and Poultry Outlook" from the US Department of Agriculture, Kenneth Mathews and Mildred Haley offer some details.
U.S. turkey meat production in third-quarter 2015 was 1.35 billion pounds, down 9 percent from a year earlier. This continued the downward path for turkey production in 2015 ... The third-quarter decline was due to both a lower number of turkeys slaughtered and a drop in their average live weight at slaughter. The slaughter number fell to 57.5 million, 6 percent lower than a year earlier, while the average live weight at slaughter declined to 29.3 pounds, a drop of 3 percent from the previous year. Since April the average live weight at slaughter has been lower than the previous year, for a period of 6 consecutive months—reflecting the impact of the HPAI outbreak, which caused processors to slaughter birds somewhat earlier than they normally would in order to maintain supply levels. ... Lower turkey meat production during third-quarter 2015 helped to lower overall turkey stocks, which, in turn, put upward pressure on whole bird prices. ... Turkey meat production in 2016 is forecast at 6 billion pounds, which would be an increase of 8 percent from the HPAI-reduced production of the previous year; much of the increase will come in the second half of the year. ... Prices for whole frozen hen turkeys at the wholesale level averaged $1.36 per pound in October, up from $1.16 per pound the previous year (17 percent). ... The quarterly price for frozen whole hens in 2016 is forecast higher through the first half of the year, but then to average below year-earlier levels in the second half, as higher production mitigates traditional seasonal price increases.
For some reason, this entire post is reminding me of the old line that if you want to have free-flowing and cordial conversation at dinner party, never seat two economists beside each other. Did I mention that I make an excellent chestnut stuffing?

Anyway, the starting point for measuring inflation is to define a relevant "basket" or group of goods, and then to track how the price of this basket of goods changes over time. When the Bureau of Labor Statistics measures the Consumer Price Index, the basket of goods is defined as what a typical U.S. household buys. But one can also define a more specific basket of goods if desired, and since 1986, the American Farm Bureau Federation has been using more than 100 shoppers in states across the country to estimate the cost of purchasing a Thanksgiving dinner. The basket of goods for their Classic Thanksgiving Dinner Price Index looks like this:

The cost of buying the Classic Thanksgiving Dinner actually declined by a bit in 2016, compared with 2015. The top line of the graph that follows shows the nominal price of purchasing the basket of goods for the Classic Thanksgiving Dinner. The lower line on the graph shows the price of the Classic Thanksgiving Dinner adjusted for the overall inflation rate in the economy. The line is relatively flat, which means that inflation in the Classic Thanksgiving Dinner has actually been a pretty good measure of the overall inflation rate.

Thanksgiving is a distinctively American holiday, and it's my favorite. Good food, good company, no presents--and all these good topics for conversation. What's not to like?

Origins of the Thankgiving Holiday: George Washington, Sarah J. Hale, Abraham Lincoln

Thanksgiving is a day for a traditional menu, and I take a holiday by reprinting this annual column on the origins of the day:

The first presidential proclamation of Thanksgiving as a national holiday was issued by George Washington on October 3, 1789. But it was a one-time event. Individual states (especially those in New England) continued to issue Thanksgiving proclamations on various days in the decades to come. But it wasn't until 1863 when a magazine editor named Sarah Josepha Hale, after 15 years of letter-writing, prompted Abraham Lincoln in 1863 to designate the last Thursday in November as a national holiday--a pattern which then continued into the future.

An original and thus hard-to-read version of George Washington's Thanksgiving proclamation can be viewed through the Library of Congress website. The economist in me was intrigued to notice that some of the causes for giving of thanks included "the means we have of acquiring and diffusing useful knowledge ... the encrease of science among them and us—and generally to grant unto all Mankind such a degree of temporal prosperity as he alone knows to be best."

Also, the original Thankgiving proclamation was not without some controversy and dissent in the House of Representatives, as an example of unwanted and inappropriate federal government interventionism. As reported by the Papers of George Washington website at the University of Virginia.
The House was not unanimous in its determination to give thanks. Aedanus Burke of South Carolina objected that he “did not like this mimicking of European customs, where they made a mere mockery of thanksgivings.” Thomas Tudor Tucker “thought the House had no business to interfere in a matter which did not concern them. Why should the President direct the people to do what, perhaps, they have no mind to do? They may not be inclined to return thanks for a Constitution until they have experienced that it promotes their safety and happiness. We do not yet know but they may have reason to be dissatisfied with the effects it has already produced; but whether this be so or not, it is a business with which Congress have nothing to do; it is a religious matter, and, as such, is proscribed to us. If a day of thanksgiving must take place, let it be done by the authority of the several States.”

Here's the transcript of George Washington's Thanksgiving proclamation from the National Archives.
Thanksgiving Proclamation
By the President of the United States of America. a Proclamation.
Whereas it is the duty of all Nations to acknowledge the providence of Almighty God, to obey his will, to be grateful for his benefits, and humbly to implore his protection and favor—and whereas both Houses of Congress have by their joint Committee requested me “to recommend to the People of the United States a day of public thanksgiving and prayer to be observed by acknowledging with grateful hearts the many signal favors of Almighty God especially by affording them an opportunity peaceably to establish a form of government for their safety and happiness.”
Now therefore I do recommend and assign Thursday the 26th day of November next to be devoted by the People of these States to the service of that great and glorious Being, who is the beneficent Author of all the good that was, that is, or that will be—That we may then all unite in rendering unto him our sincere and humble thanks—for his kind care and protection of the People of this Country previous to their becoming a Nation—for the signal and manifold mercies, and the favorable interpositions of his Providence which we experienced in the course and conclusion of the late war—for the great degree of tranquillity, union, and plenty, which we have since enjoyed—for the peaceable and rational manner, in which we have been enabled to establish constitutions of government for our safety and happiness, and particularly the national One now lately instituted—for the civil and religious liberty with which we are blessed; and the means we have of acquiring and diffusing useful knowledge; and in general for all the great and various favors which he hath been pleased to confer upon us.
and also that we may then unite in most humbly offering our prayers and supplications to the great Lord and Ruler of Nations and beseech him to pardon our national and other transgressions—to enable us all, whether in public or private stations, to perform our several and relative duties properly and punctually—to render our national government a blessing to all the people, by constantly being a Government of wise, just, and constitutional laws, discreetly and faithfully executed and obeyed—to protect and guide all Sovereigns and Nations (especially such as have shewn kindness unto us) and to bless them with good government, peace, and concord—To promote the knowledge and practice of true religion and virtue, and the encrease of science among them and us—and generally to grant unto all Mankind such a degree of temporal prosperity as he alone knows to be best.
Given under my hand at the City of New-York the third day of October in the year of our Lord 1789.
Go: Washington
Sarah Josepha Hale was editor of a magazine first called Ladies' Magazine and later called Ladies' Book from 1828 to 1877. It was among the most widely-known and influential magazines for women of its time. Hale wrote to Abraham Lincoln on September 28, 1863, suggesting that he set a national date for a Thankgiving holiday. From the Library of Congress, here's a PDF file of the Hale's actual letter to Lincoln, along with a typed transcript for 21st-century eyes. Here are a few sentences from Hale's letter to Lincoln:
"You may have observed that, for some years past, there has been an increasing interest felt in our land to have the Thanksgiving held on the same day, in all the States; it now needs National recognition and authoritive fixation, only, to become permanently, an American custom and institution. ... For the last fifteen years I have set forth this idea in the "Lady's Book", and placed the papers before the Governors of all the States and Territories -- also I have sent these to our Ministers abroad, and our Missionaries to the heathen -- and commanders in the Navy. From the recipients I have received, uniformly the most kind approval. ... But I find there are obstacles not possible to be overcome without legislative aid -- that each State should, by statute, make it obligatory on the Governor to appoint the last Thursday of November, annually, as Thanksgiving Day; -- or, as this way would require years to be realized, it has ocurred to me that a proclamation from the President of the United States would be the best, surest and most fitting method of National appointment. I have written to my friend, Hon. Wm. H. Seward, and requested him to confer with President Lincoln on this subject ..."
William Seward was Lincoln's Secretary of State. In a remarkable example of rapid government decision-making, Lincoln responded to Hale's September 28 letter by issuing a proclamation on October 3. It seems likely that Seward actually wrote the proclamation, and then Lincoln signed off. Here's the text of Lincoln's Thanksgiving proclamation, which characteristically mixed themes of thankfulness, mercy, and penitence:

Washington, D.C.
October 3, 1863
By the President of the United States of America.
A Proclamation.
The year that is drawing towards its close, has been filled with the blessings of fruitful fields and healthful skies. To these bounties, which are so constantly enjoyed that we are prone to forget the source from which they come, others have been added, which are of so extraordinary a nature, that they cannot fail to penetrate and soften even the heart which is habitually insensible to the ever watchful providence of Almighty God. In the midst of a civil war of unequaled magnitude and severity, which has sometimes seemed to foreign States to invite and to provoke their aggression, peace has been preserved with all nations, order has been maintained, the laws have been respected and obeyed, and harmony has prevailed everywhere except in the theatre of military conflict; while that theatre has been greatly contracted by the advancing armies and navies of the Union. Needful diversions of wealth and of strength from the fields of peaceful industry to the national defence, have not arrested the plough, the shuttle or the ship; the axe has enlarged the borders of our settlements, and the mines, as well of iron and coal as of the precious metals, have yielded even more abundantly than heretofore. Population has steadily increased, notwithstanding the waste that has been made in the camp, the siege and the battle-field; and the country, rejoicing in the consiousness of augmented strength and vigor, is permitted to expect continuance of years with large increase of freedom. No human counsel hath devised nor hath any mortal hand worked out these great things. They are the gracious gifts of the Most High God, who, while dealing with us in anger for our sins, hath nevertheless remembered mercy. It has seemed to me fit and proper that they should be solemnly, reverently and gratefully acknowledged as with one heart and one voice by the whole American People. I do therefore invite my fellow citizens in every part of the United States, and also those who are at sea and those who are sojourning in foreign lands, to set apart and observe the last Thursday of November next, as a day of Thanksgiving and Praise to our beneficent Father who dwelleth in the Heavens. And I recommend to them that while offering up the ascriptions justly due to Him for such singular deliverances and blessings, they do also, with humble penitence for our national perverseness and disobedience, commend to His tender care all those who have become widows, orphans, mourners or sufferers in the lamentable civil strife in which we are unavoidably engaged, and fervently implore the interposition of the Almighty Hand to heal the wounds of the nation and to restore it as soon as may be consistent with the Divine purposes to the full enjoyment of peace, harmony, tranquillity and Union.
In testimony whereof, I have hereunto set my hand and caused the Seal of the United States to be affixed.
Done at the City of Washington, this Third day of October, in the year of our Lord one thousand eight hundred and sixty-three, and of the Independence of the United States the Eighty-eighth.
By the President: Abraham Lincoln
William H. Seward,
Secretary of State

Wednesday, November 23, 2016

Paying Bone Marrow Donors

US law says that "organ" donors, like those donating a kidney or part of their liver, can't be legally paid. However, most of the US supply of blood plasma comes from paid donors; indeed, the US exports blood plasma to other countries. While the US supply of blood for transfusions primarily comes from unpaid donors, a number of other countries (for example, in Latin America) rely on paid blood donors. Donors of eggs and sperm, as well as surrogate mothers, can be legally paid. But is bone marrow an organ, or is it more similar to blood plasma?

The answer to the question is a matter of life and death. About 275 American die every year because they have a disease like leukemia or certain kinds of anemia that sharply reduces the ability of their bone marrow to generate red blood cells--and they can't get a transplant. Offering payment of perhaps $2,000 to donors could potentially save those lives. Samuel Hammond makes the case in "Bone Marrow Mismatch:How compensating bone marrow donors can end the transplant shortage and save lives," written as a discussion paper for the Niskanen Center (November 15, 2016).

Developments in medical technology have given the arguments over paying bone marrow donors an extra twist. It used to be that bone marrow was extracted from donors by inserting a needle into a large bone, which was apparently even more painful than it sounds. But it's now possible to collect the cells through a technique called "apheresis," in which the cells are taken out of blood. The donor takes a drug a few days beforehand to stimulate production of these cells. Then the donor is connected to a machine so that some of their blood passes through the machine, which extract the needed cells and then returns the rest of the blood to the person.

About 70% if donations of the needed cells for bone marrow transplants now happen through the apheresis method.  The cells that are extracted by this method are just as good for bone marrow transplants as those from the big-needle-extraction approach. For donors, a Mayo Clinic study found that the frequency of adverse reactions by donors is lower than it is for standard donations of whole blood.

Thus, a federal court in 2011 ruled that apheresis was more similar to blood plasma donation than to donating a kidney, and thus donors could be paid. However, the federal government, through the Health Resources and Services Administration (HRSA) is now proposing a rule that would treat all all hematopoietic (that is, blood forming) stem cells as "organs," regardless of whether they were extracted by needle or by apheresis.

Here's a figure from Hammond that illustrates the situation. Transplants of HSC cells (that is,m hematopoietic stem cells) have risen from almost zero in 1990 to more than 6,000 per year. Extraction of the cells from apheresis, or from umbilical cords, is providing the additional source of cells for these transplants.

Peripheral blood stem cells

Hammond's report cites statistics that each year, about "30,000 people in the U.S. are diagnosed with a life threatening blood diseases like leukemia, of whom only 30% find a match within their family. For the remaining 70% who must find an unrelated donor," Although 6,000 procedures are carried out each year, another 10,000 are on the waiting list for such proposals. Several hundred of these people are dying each year while waiting for a HSC cell transplant.

There's a considerable literature of arguments most focused on blood donors and kidney donors, on whether paying donors is a good idea. Hammond offers an overview of these arguments, and they have arisen in various earlier posts here concerning blood and plasma, kidneys, and human breast milk. Interested readers might consult:

I won't try to review the arguments here, but several points are especially salient to me in this case. First, pretty much everyone else involved in HSC cell procedures gets  paid--doctors, nurses, equipment-makers, administrators--while the actual donors get a congratulatory lecture about doing their civic duty and a hearty handshake. Second, the volunteer system for signing up donors for HSC cell donation isn't providing a sufficient supply, and people are dying while the government writes new regulations.

Tuesday, November 22, 2016

More on the Rise of "Alternative" Work Arrangements

One major change for US workers in recent years is the rise of alternative work arrangements, which is an intentionally broad category that includes jobs like driving for Uber or Lyft, but more broadly includes all forms of jobs where the employee doesn't expect to have an ongoing regular and full-time connection to the employer that extends into the future: thus, it includes contingent jobs, temporary jobs, contract work, part-time work, on-call work, jobs in the "sharing economy," and other arrangements. By some estimates, as I've pointed out, "All the Job Growth is in `Alternative' Jobs" (April 11, 2016). Indeed, "Nonstandard Employment Around the World" (November 16, 2016) is an issue everywhere. Three other discussions of this issue, with varying perspectives, have crossed my desk in the last couple of weeks.

Lael Brainard gave a nice overview talk on "The "Gig" Economy: Implications of the Growth of Contingent Work," (November 16, 2017). She notes some of the underlying economic forces that drive alternative work arrangements, how the changes will affect various macroeconomic measures, and the social tradeoffs that arise:
If market forces and technology are driving the growing prevalence of gig work, these trends will likely continue, and policymakers must better understand these changes. ... One possibility is that new technologies, by lowering the barriers to workforce entry, could raise employment and labor force participation. Because there are fixed costs to obtaining and maintaining a job--such as searching for the job, learning about the job, and traveling to the job site every workday--the traditional work arrangement embeds incentives for individuals to work only one job, thus minimizing these fixed costs. And for those individuals who desire to work relatively few hours, these fixed costs in the past may have led to a decision to remain out of the labor force. But if technology makes it less costly for individuals to find work, manage multiple work relationships, and flexibly work more or fewer hours as their schedule permits, this could significantly increase workers' options and have important effects on labor market behavior. Importantly, any such increases in participation and employment would likely be structural, not cyclical, enabling the economy to run at a sustainably higher level.
New technologies could also make it easier for individuals' actual hours to match their desired hours of work in a day or a week. Instead of seeing hours per week bunched around 40, we may see greater variation in the hours that individuals work. Lower barriers to workforce entry may make it more attractive for more individuals to work only a few hours a week if they desire--and can afford--to do so. At the same time, by making it easier to find additional work, new technologies may lead to more individuals working greater-than-full-time hours every week. In addition, we may see individuals changing the number of hours they work more frequently, as these changes become less costly. ...
The increasing prevalence of gig work may also affect the unemployment rate and productivity. To the extent that gigs provide an easy entryway to employment, unemployment may decrease. However, if gig work is less stable, it may increase job loss. The net effect on unemployment is, thus, unclear. Regarding productivity, gig work could lower aggregate productivity to the extent that it requires less human capital or specialized knowledge than traditional jobs, or if it primarily increases hours worked by lower-skilled individuals. That said, gig work, especially when enabled by new technologies, may allow hours to respond more flexibly to changes in demand and individuals to more easily connect with many different clients or employers. As a result, workers' downtime and the time required to acquire new clients and manage existing clients may decrease, in which case resource utilization and productivity may increase.
It is also possible that the increasing prevalence of gig work will cause the cyclical behavior of unemployment, participation, and the workweek to change, with implications for how we assess the amount of slack. We know that contingent work increases when the economy worsens. If new technologies make it easier to find gig work, then we could see unemployment rise less in recessions, to the extent that gig workers are counted as employed. However, it could be that individuals who are able to avoid unemployment through contingent work would still be underemployed if it is difficult to cobble together enough gigs to achieve full-time employment. This would likely show up as lower average workweeks and higher levels of involuntary part-time employment during downturns. As a result, cyclical changes in resource utilization could be reflected less in movements in the unemployment rate and more in variation in hours per worker.
Beyond the behavior of macroeconomic variables, it is unclear how the growth of different types of gig work affects the welfare of workers. Welfare should increase in cases where gig work meets the needs of workers by providing a low-barrier means of accessing employment and by allowing workers to better match actual hours worked with desired hours of work, especially if the gig work is available at times and in places where traditional work opportunities are in short supply. There is some evidence that this has, indeed, been the case. ...
However, there are likely many workers who would prefer regular full-time traditional work to contingent work, particularly if much of the power in determining hours worked in alternative work arrangements belongs to the employer. Technological advances have enabled firms to use just-in-time strategies for their employees, making them in effect on-call workers. This is a rising trend in industries such as retail and food preparation. Several recent articles describe the challenges faced by these just-in-time workers, who must conform their hours to the daily and even hourly ebbs and flows of business, often not knowing whether they will have work on a given day until they call in that morning to inquire. These arrangements can leave workers scrambling to patch together child care, elder care, and transportation to meet the often unpredictable demands of their workplace, while making it difficult to engage in regularly scheduled activities to enhance their income and opportunities, such as a second job or career training. While such workers often are not given full-time work, they often must make themselves available to work full-time hours. According to one survey, 71 percent of retail workers in New York stated that their hours fluctuated from week to week, while half said their employers could change their hours at will. It is also notable that the increase in contingent work over the past decade has coincided with an increase of one-third in the share of employees working part time but who would prefer to work full time from 3 percent prior to the Great Recession to close to 4 percent today.
In addition, contingent workers may receive lower wages, less training, and fewer benefits than their counterparts with traditional jobs. Typically, the wages of low-skilled employees within a company are boosted by social norms regarding pay equity, and nonpecuniary benefits are often equalized across a company's employees, in certain cases as mandated by law. However, the wages that contractors receive are unlikely to reflect the same equity considerations. Moreover, contingent work generally does not offer employer-based benefits and workplace protections that come with traditional employment opportunities, like overtime compensation, minimum wage protections, health insurance, family leave, employer-sponsored retirement plans, workers' compensation, and paid sick leave. As a result, for some, contingent work may entail greater risks than in traditional full-time employment, with more variable and less predictable hours and earnings. ...
These findings suggest that employers, policymakers, and workers should seek ways to help individuals better manage the risks inherent in most forms of contingent work. For example, we may need to enhance social safety net programs, such as unemployment and disability insurance, to better support some types of contingent work. Another possibility is to make benefits, such as health insurance and retirement saving, portable across different employers. We may also want to encourage the additional saving that many contingent workers need to ensure that their basic consumption needs are not sacrificed when demand for their work declines, perhaps by providing monetary or other types of incentives.
The Pew Foundation has just published a report on "Gig Work, Online Selling and Home Sharing" (November 17, 2016). "a new Pew Research Center survey of U.S. adults finds that a relatively substantial share of the public has earned money recently from a digital commerce platform. In the context of gig employment, nearly one-in-ten Americans (8%) have earned money in the last year using digital platforms to take on a job or task. Meanwhile, nearly one-in-five Americans (18%) have earned money in the last year by selling something online, while 1% have rented out their properties on a home-sharing site. Adding up everyone who has performed at least one of these three activities, some 24% of American adults have earned money in the “platform economy” over the last year."

Here's a figure from the report that I found interesting, focused on the 8% who earned money using a digital platform. Of that group, more than half--that is, about 4% of US workers--view these earnings as "essential or important." Also, the biggest activity for this group is

Differences between casual ‘gig workers’ and those who are more financially reliant

Finally, the Federal Trade Commission has published "The “Sharing” Economy: Issues Facing Platforms, Participants & Regulators," which is a report that summarizes various issues and viewpoints from a mid-2015 workshop, as well as over 2,000 responses to an FTC "request for comments." The report is an even-handed discussion of various issues: for example, how digital platforms might deal with trust issues through methods including rating mechanisms; how the regulations for such firms might differ from those for incumbent competitors in, say, the taxi or hotel business; what the rise of these platforms could mean for competition policy. Here's a snippet (footnotes omitted for readability):
PricewaterhouseCoopers estimates that sharing economy marketplaces in five sectors – peer-to-peer finance, online staffing, peer-to-peer accommodation, car sharing, and music/video streaming – generated $15 billion in revenues worldwide in 2013, and projects that these revenues will rise more than twentyfold to $335 billion by 2025. The magnitude of the sharing economy’s impact has registered in the financial world as well. Some of the largest companies in this space have gone through multiple rounds of funding, in some cases reflecting valuations in the tens of billions of dollars. Based on a round of funding in December 2015, Uber was valued at $62.5 billion, while a November 2015 financing placed Airbnb’s valuation at $25.5 billion. Etsy, the peer-to-peer marketplace for handmade or vintage items, went public in April 2015 and opened with a value of nearly $4 billion. Incumbent businesses are also providing financing to sharing economy marketplaces – partnering with, investing in, or acquiring sharing economy platforms. Since the beginning of 2015, General Motors made a $500 million investment in Lyft, valuing Lyft’s equity interest at $5.5 billion, and Apple invested $1 billion in Didi Chuxing, China’s biggest for-hire transportation platform. Hotelier Hyatt has purchased a stake in British accommodations platform OneFineStay, while Expedia paid $3.9 billion to acquire the lodging site HomeAway.
Two sectors of the travel industry have been at the epicenter of the explosion of sharing economy activity: short-term lodging (specifically, rental stays like those provided by hotels and bed-and-breakfasts) and for-hire transportation service (specifically, services akin to those provided by traditional taxis and limousines). Airbnb has become a leading platform for facilitating short-term rental transactions. Started in 2008 by roommates who rented out space in their apartment during a local convention, Airbnb reported over two million listings in over 34,000 cities, and a cumulative total of 60 million guests by the end of 2015.  Platforms facilitating the provision of for-hire transportation service are often referred to as transportation network companies (or “TNCs”). The leading TNC, Uber, began operations in 2009 in San Francisco, and as of 2014 reported providing 140 million rides (including one million rides per day by year-end) and a driver base of over 162,000. Pew Research Center found that by 2015, 11 percent of American adults had used an “on-line home-sharing service” and 15 percent had used “ride-hailing apps.” ...
[T]he sharing economy has expanded well beyond the accommodation and transportation sectors. A panelist observed that a start-up tracking site lists “about 600 peer-to-peer startups.”One expert has developed an infographic “honeycomb” describing 16 broad sectors and approximately 40 subsectors in which sharing economy platforms operate, and specifying the location of 280 platforms within these categories. His research reveals that the sharing economy model now extends to small businesses or individuals providing a wide range of goods and services, including, but by no means limited to: preparing meals, shipping or storing goods, renting tools or clothing, performing household tasks, providing health services, ordering custom-made goods, and obtaining funding for projects. And the expansion continues, as new platforms arise, each vowing to become the “Uber” or “Airbnb” of some other market sector.

Monday, November 21, 2016

Janet Yellen Doesn't Know What Determines Inflation

Janet Yellen, the Chair of the Federal Reserve, doesn't know what determines inflation. I'm not being snarky here. I have an unimpeachable source, which is Yellen herself. 

In a speech at a conference held at the Federal Reserve Bank of Boston last month (video and presentations available here), Yellen gave a keynote address on "Macroeconomic Research After the Crisis." She said: "Today I would like to reflect on some ways in which the events of the past few years have revealed limits in economists' understanding of the economy and suggest several important questions I hope the profession will try to answer." The first three questions she raised are fairly standard topics in current macroeconomic research.
"The first question I would like to pose concerns the distinction between aggregate supply and aggregate demand: Are there circumstances in which changes in aggregate demand can have an appreciable, persistent effect on aggregate supply?"
"My second question asks whether individual differences within broad groups of actors in the economy can influence aggregate economic outcomes--in particular, what effect does such heterogeneity have on aggregate demand?"
"My third question concerns a key issue for monetary policy and macroeconomics that is less directly addressed by this conference: How does the financial sector interact with the broader economy?" 
Her brief comments on these topics are interesting, but it was the fourth and final question that caught my eye:
"My fourth question goes to the heart of monetary policy: What determines inflation?"
It's more than a little astonishing to have the chair of the Fed ask such a question. After all, one major mandate of the Fed is to keep inflation under control. In recent years, the Fed has been confronted with fears about risks of deflation, and a set of ongoing arguments that a slightly higher inflation rate in the range of 2-4% might help the economy. Concerns about Fed policies like quantitative easing were often phrased in terms of worries about inflation. If the Fed chair doesn't know what determines inflation, how are such issues to be addressed?

But Yellen deserves credit for her forthrightness, because the honest truth is that the behavior of inflation over the last 20 years is tricky to explain. For a sense of the problem, consider this figure, which shows two common measures of inflation.  The blue line is the well-known Consumer Price Index; the red line is the measure of inflation that the Fed officially watches, which is called the Personal Consumption Expenditures index. (For a discussion of the differences between them, see my October 2012 post on "Consumer Price Index vs. Personal Consumption Expenditures Index.") Both measures are the so-called "core" measures of inflation, which means that they strip out the fluctuations in energy and food prices so that it's possible to focus on underlying trends.

The key element to this story is the numbers on the vertical axis. During the last 20 years, inflation as measured by the PCE rate has varied within a range of 1.5 percentage points, from 1.0 to 2.5%. Inflation as measured by the CPI has varied by a ltitle more, but it's still within a range of about 2 percentage points. Yellen refers to "the remarkable stability of various measures of expected inflation in recent years."
In comparison to inflation moving very little, consider an abbreviated list of the the economic and political events of the last 20 years, starting in 1996: the dot-com boom; the investment and stock market drops that followed; the 2001 recession; the 9/11 terrorist attacks; the federal funds interest rate being cut from about 6% in January 2001 to 1% by August 2003; the Bush tax cuts; China joining the World Trade Organzation in 2001 and the dramatic rise in China's trade surpluses that followed; the arrival of the euro as a full-fledged currency at the start of 2002; the US housing price bubble; a monthly unemployment rate at 5% or lower from June 2005 to February 2008; the federal funds interest rate being pushed up above 5% for a year from July 2006 through July 2007; the collapse of the housing bubble; the financial crisis and the Great Recession; the enormous federal budget deficits from 2009-2012; the federal funds interest rate being pushed down to near zero in December 2008, where it would stay for seven years; the Fed's quantitative easing policies of buying $4 trillion worth of Treasury and mortgage-backed bonds; the stock market falling in the Great Recession and then rebounding. 

The issue for economists and policymakers is that we would have expected at least some of these changes to have affected inflation in a substantial way. But inflation has just stayed more-or-less stuck, within its range of 1.5 percentage points.  What is holding inflation in this range, and will it stay there? A lot of decisions rest on the answer to that question, from personal and corporate finance to macroeconomic policy. If you know the answer to "what determines inflation," in a way that makes sense of the patterns in the last 20 years, please feel free to drop Janet Yellen and the Federal Reserve a note.  

Thursday, November 17, 2016

A Skeptical Look at the Rigor of Antitrust Enforcement

Pro Publica is an nonprofit that does long-form investigative journalism. Like most such journalism, its work typically tells a story--which is to say that it has a slant. But the stories are also scrupulously sourced  and well-written in a strong-but-fact-based tone. The organization has recently published two stories that offer a skeptical look at antitrust enforcement.

Justin Elliott has written "The American Way," which is subtitled "President Obama promised to fight corporate concentration. Eight years later, the airline industry is dominated by just four companies. And you’re paying for it" (October 11, 2016). Here's the start:

Three years ago, the Obama administration unleashed its might on behalf of beleaguered American air travelers, filing suit to block a mega-merger between American Airlines and US Airways. The Justice Department laid out a case that went well beyond one merger. "Increasing consolidation among large airlines has hurt passengers,” the lawsuit said. “The major airlines have copied each other in raising fares, imposing new fees on travelers, reducing or eliminating service on a number of city pairs, and downgrading amenities.”
The Obama administration itself had helped create that reality by approving two previous mergers in the industry, which had seen nine major players shrink to five in a decade. In the lawsuit, the government was effectively admitting it had been wrong. It was now making a stand. Then a mere three months later, the government stunned observers by backing down. It announced a settlement that allowed American and US Airways to form the world’s largest airline in exchange for modest concessions that fell far short of addressing the concerns outlined in the lawsuit.
The Justice Department’s abrupt reversal came after the airlines tapped former Obama administration officials and other well-connected Democrats to launch an intense lobbying campaign, the full extent of which has never been reported. They used their pull in the administration, including at the White House, and with a high-level friend at the Justice Department, going over the heads of staff prosecutors. And just days after the suit was announced, the airlines turned to Chicago Mayor Rahm Emanuel, Obama’s first White House chief of staff, to help push back against the Justice Department.
Some lawyers and officials who worked on the American-US Airways case now say they were “appalled” by the decision to settle, as one put it.
Jesse Eisinger and Justin Elliott wrote the second article, called "These Professors Make More Than a Thousand Bucks an Hour Peddling Mega-Mergers" (November 16, 2016).  The subtitle reads: "The economists are leveraging their academic prestige with secret reports justifying corporate concentration. Their predictions are often wrong and consumers pay the price." Here's a taste:
"Economists who specialize in antitrust — affiliated with Chicago, Harvard, Princeton, the University of California, Berkeley, and other prestigious universities — reshaped their field through scholarly work showing that mergers create efficiencies of scale that benefit consumers. But they reap their most lucrative paydays by lending their academic authority to mergers their corporate clients propose. Corporate lawyers hire them from Compass Lexecon and half a dozen other firms to sway the government by documenting that a merger won’t be “anti-competitive”: in other words, that it won’t raise retail prices, stifle innovation, or restrict product offerings. Their optimistic forecasts, though, often turn out to be wrong, and the mergers they champion may be hurting the economy.
"Some of the professors earn more than top partners at major law firms. Dennis Carlton, a self-effacing economist at the University of Chicago’s Booth School of Business and one of Compass Lexecon’s experts on the AT&T-Time Warner merger, charges at least $1,350 an hour. In his career, he has made about $100 million, including equity stakes and non-compete payments, ProPublica estimates. Carlton has written reports or testified in favor of dozens of mergers, including those between AT&T-SBC Communications and Comcast-Time Warner, and three airline deals: United-Continental, Southwest-Airtran, and American-US Airways."

What I especially like about these two Pro Publica stories is that they vividly illustrate two lessons worth keeping in mind, one about the economy and one about economic policy-making. 

One lesson is that there are concrete and well-researched examples of how mergers between firms have led to higher prices for consumers. Two examples that get a lot of attention in these articles are the recent spate of airline mergers, and the 2006 deal in which Whirlpool acquired its competitor Maytag. These examples (and others) help to emphasize the importance of competition, and the potential for government antitrust action to benefit consumers. As the articles readily acknowledge, most mergers are simply approved by the government with only cursory examination, which is appropriate, because they don't raise competitive issues of importance and firms should be able to make their own decisions (for better or worse) in a market-oriented economy. But in teaching and arguing, it's useful to have some examples of mergers that don't seem so harmless.

The second lesson is that government regulatory decisions are not formulated in a laboratory or a seminar room. They are made through a process of politics and law, which includes lobbying and behind-the-scenes pressure early in the process, which can then be followed by lawsuits and high-priced consultants if needed. Economists refer to a theory of "regulatory capture," meaning that those who are being regulated have powerful incentives to learn to manipulate the regulatory apparatus. There are of course attempts to insulate the regulators from such pressures, and then to insulate the insulation. But those who supposed to be the targets of regulation can often find way to avoid or minimize the way the rules are applied to them, and also often find ways to use the regulatory apparatus to their own advantage--for example, to impose costs or block entry on other competitors. (For a classic statement of this argument, see George Stigler's 1971 article, "The Theory of Regulation," in the Bell Journal of Economics and Management Science, available here or through JSTOR.)

An honest defense of the role of markets in economic activity needs to be warts-and-all, both pointing out strengths and acknowledging weaknesses and failings. An honest defense of the role of government regulation needs to be warts-and-all, too, which means not just discussing what angelically perfect regulators might accomplish, but how real-world regulators actually perform.

Wednesday, November 16, 2016

Nonstandard Employment Around the World

Standard employment refers to a situation where a worker has a full-time job, and can presume an ongoing relationship with the employer. Non-standard employment describes other kinds of jobs: daily, seasonal, short-term contract, part-time, temporary agencies,and others. Sometimes non-standard employment is what a worker wants; other times, it's all that seems to be available to a worker. But the distinction is potentially importance, because the relationship between employer and worker in a standard jobs is more likely to involve stable income, predictable hours of work, benefits, a safer workplace, on-the-job training, a few steps along a career path, a voice in the workplace. The International Labour Organization lays out available facts and evidence in its November 2016 report: "Non-Standard Employment Around the World: Understanding challenges, shaping prospects."

As a starting point, it's useful to be clear that nonstandard employment is still employment--that is, working for a wage or salary--and thus it's not subsistence agriculture or what the ILO calls "petty trade." In much of the world, substantial shares of the workforce don't work for a wage; indeed, one of the dividing lines between the very poor and the rising middle-class in a number of developing countries is whether workers in a household have an ongoing wage relationship. Here's a figure showing the prevalence of wage-related work around the world:

I won't run through all the evidence on categories of non-standard employment here, but as one example, consider the prevalence of temporary work. In the US, less than 5% of all wage employees are temp workers. In lots of European countries, it's 10-20%. In other countries around the world, it's not that unusual for more than half of wage employees to be temp workers. The upper panel is data on temp workers in Europe, while the bottom panel is the rest of the world.

Survey data in Europe suggests that about 60% of those in temp jobs would prefer a permanent job, but can't find one. Similarly, countries across Europe, about 10-15% of workers are on fixed-term contracts. In Europe, the US, and Canada, about 25% of workers are part-time, and survey results suggest that up to about one-third of this group would prefer full-time employment.

The evidence on trends in non-standard employment over time doesn't seem especially clear to me, since many of these categories are overlapping in some ways and not well-defined. In some low-income and middle-income countries, people may be moving from non-wage work to non-standard employment. But as a broad statement, it does seem that non-standard employment is on the rise, because lots of firms like the flexibility that it offers. Indeed, many firms now think of themselves as having a "core" set of mostly full-time employees, surrounded by a periphery of other employment relationships that include part-timers, temps, and work that is contracted out or outsourced in some way. The result can be a two-track labor force, made up of insiders and outsiders.

Non-standard employment raises difficult questions of public policy. For some, the flexibility of part-time, seasonal, or contract work is an attractive feature. For others, non-standard work is a stepping-stone, a mechanism to get a foot in the door and show what you can do. But for others, non-standard work is a trap, in which you are treated as a labor commodity that can easily be replaced, and it is not clear. The ILO report has a lengthy discussion of the studies on work hours, pay conditions, health and safety, and so on. Here's a flavor of what it says about "stepping stones" and "traps" (footnotes and references to figures are omitted):
Evidence on the prevalence of “stepping stones” versus “traps” phenomena can be examined both through the length and the probability of transitions between various employment statuses for different types of NSE [non-standard employment]. The evidence on these two aspects of transitions shows that, in a vast majority of examined countries, yearly transitions from non-standard to standard employment remain below 55 per cent,  and even below 10 per cent in some instances (see review of literature given in the Appendix to this chapter, table A5.1). The “stepping-stone” hypothesis is confirmed  in some instances (Denmark, Italy, the Netherlands, United States), in that being employed in a temporary job, rather than being unemployed, significantly increases the probability of obtaining a regular job. The effect varies, however, for specific population groups. It seems to be strongest for young graduates, immigrants and workers initially disadvantaged either in terms of education or of pay. These are indeed the workers for whom the benefits of having lower initial screening, obtaining general rather than specific work experience, and expanding their network through nonstandard jobs are high. In some instances, for example in Uganda, men also have a higher likelihood of moving out of part-time and temporary work to full-time permanent employment, compared to women, who seem to be penalized in terms of labour market transitions. However, when temporary work is further liberalized and the pool of temporary workers increases, then longer-term evidence, such as for Spain or Japan, suggests that over a lifetime of working, those workers who started off with a temporary job have a greater chance of switching between non-standard work and unemployment, compared to workers who start with a permanent contract. In these cases, temporary
work ceases to be a stepping stone. Most recent evidence from European countries also shows that there is a negative correlation between the share of temporary workers  among employees and the share of temporary employees who moved to permanent employment.
A natural political reaction here is to start passing laws about how employees can be treated, and a number of countries have tried to pass laws, for example, that companies are not allowed to hire workers on fixed-term contracts to do "permanent" work, or to pass rules about minimum hours, minimum wages, predictability of hours,  limits on hiring temp worker or on renewing temp arrangements repeatedly, limits on on-call contracts, bringing nonstandard workers into collective bargaining arrangements, and more. The ILO offers an extended discussion of the prevalence such policies.

My own sense is that while such regulations may often be beneficial in preventing abusive practices, I am not confident that a focus on telling firms what they need to do is a sufficient answer. Indeed, many countries have found themselves in a situation where they pass rules to limit certain practices in non-standard employment, but then immediate start carving out exceptions that keep allowing flexibility in jobs for the young, the long-term unemployed, the old, those trying exit from public assistance, and so on. Also, when government passes lots of rules governing what firms must do in an employment relationship, firms are going to think twice before hiring at all--and are going to take a second look at how they can outsource or automate various tasks. Thus, it seems important to me have some deeper research on the incentives that firms have to use non-standard employment, and whether those incentives might be tweaked, as well as to think about institutions outside the job relationship that might help non-standard employees by organizing mechanisms to finance additional job training, health insurance, retirement savings, and protection against fluctuations in earnings. 

Tuesday, November 15, 2016

Active Labor Market Policies: Time for Aggressive Experimentation

Both passive and active labor market policies are aimed at the unemployed and underemployeed. Passive labor market policies refer to providing financial assistance, like unemployment insurance, to those without job. Active labor market policies refer to some combination of job search assistance, training, and government-subsidized private- or public sector employment.  In both areas, the US lags behind other most other high-income countries.

Here's an abridged form of a table from the OECD Employment Outlook 2016. Of course, the amount that countries spend on either active or passive labor market policies will be related to the number of unemployed, so for illustrative purposes it's perhaps useful to focus on 2013, when the US unemployment rate was still in the range of 7-8% and thus more comparable to typical unemployment rates in many European countries.

As the graph shows, the OECD average for spending on labor market policies was 1.46% of GDP in 2013; for comparison, the US total was about one-fourth that amount at .36% of GDP. To break this down, the OECD average was that .54% of GDP on active labor market policies and .92% of GDP on passive labor market policies in 2013. The comparable figures for the US were .12% of GDP on active labor market policies and .24% of GDP on passive labor market policies in 2013.

Do active labor market policies pay off? David Card, Jochen Kluve and Andrea Weber discuss their literature review of 207 studies evaluating such policies in "Active labour market policies and
long-term unemployment," which appears as Chapter 2 in the November 2016 ebook, Long-Term Unemployment After the Great Recession: Causes and Remedies, edited by Samuel Bentolila and Marcel Jansen.

As a suggestive set of facts about how such policies might work, consider this figure from Card, Kluve, and Weber. The horizontal axis shows the share of GDP spent on active labor market policies the vertical axis shows long-term unemployment (defined here as being unemployed and looking for work for a year or more) as a share of total unemployment. The correlation is far from perfect, and there are a number of countries with less-than-average spending on active labor market policies and less-than-average long-term unemployment as a share of total unemployment.

In more specific terms, their summary of the evidence is that such studies have often found positive and statistically significant effects. They break down the numbers in a variety of ways, but this figure shows the share of studies in their literature review that found positive effects on three different groups--the short-term unemployed (UI), long-term unemployed (LTU) or the "disadvantaged" who have a low level of educational background or live in an area with few job prospects. The graph shows that about half the studies find positive effects of active labor market policies for these groups in the short run--with the effects being lower for the short-term unemployed--but 60% or more of the studies find positive effects of such policies for all of  these groups in the long-term.

The full version of the Card, Kluve and Weber literature review is freely available online as a "What Works? A Meta Analysis of RecentActive Labor Market Program Evaluations," published by the German Institute for the Study of Labor (IZA Discussion Paper No. 9236, July 2015).

 A skeptic might reasonably point out that this glass is also half-empty: that is, a lot of the evaluation studies also didn't find statistically significant effects, and there could be "publication bias" in which studies that don't find an effect are more likely to end up unpublished. My own take would be that there is a sufficient evidence for looking at the kinds of policies that have worked best in other high-income countries, and trying some large-scale experiments with such policies in the US. In Chapter 3 in the ebook, Lawrence F. Katz, Kory Kroft, Fabian Lange, and Matthew J.
Notowidigdo present this view in their essay, "Addressing long-term unemployment in the aftermath
of the Great Recession." They write:
"Our reading of the evidence [from literature reviews] ... is that programme effectiveness varies a lot across ALMPs [active labor market policies)and that relatively little is known about what generates this heterogeneity. In particular, little is known whether the heterogeneity is linked to the design of the ALMP or to the treated populations. This reading of the evidence is reinforced by the experimental evidence of the UK Employment Retention and Advancement demonstration (ERA). The ERA experiment covered three different populations, including a group of long-term unemployed. Over the medium term, the treatment was only effective for the long-term unemployed. For the long-term unemployed, the treatment consisted primarily of financial rewards for searching for jobs and for maintaining employment once a job was found. This treatment was found to generate fairly large effects on employment and earnings over the 5-year study period and was found to be cost-effective. The evidence of the ERA thus suggests that financial incentives can help reintegrate the long-term unemployed into the labour market. The ERA however also provides evidence that programme effectiveness varies substantially with the treated population."
These authors also worry about the possibility of "displacement" effects, in which active labor market just reshuffle a fixed number of jobs, making some more likely to get those jobs than others, but without expanding the overall number of job opportunities. They suggest that displacement may be a problem when the economy is especially weak. They write:
"One speculative possibility, based on the (weak) existing evidence, is to focus on providing unemployment assistance and long-term training to the long-term unemployed in the depths of a downturn, but then move towards more aggressive use of ALMPs, such as job-search assistance and hiring subsidies, to try and re-employ the long-term unemployed, as the labour market tightens in a recovery."
It seems to me that the possibility of a dramatic expansion of active labor market policies through aggressive experimentation deserves more attention in the current US economy. Moreover, when US workers express how traumatized they feel by the tectonic changes that are shaking up US labor markets, it's worth contemplating the fact that the US does far less than typical high-income countries either to cushion the shocks or to help in the transition to new jobs.

For those interested in this topic, I've posted before about "The Case for Active Labor Market Policies" (December 5, 2011).

Friday, November 11, 2016

Alexander Hamilton on Infant Industries

The idea that government should offer temporary support for starting up a new industry, until it becomes established and can stand on its own, has become known as the "infant industry" argument. The "infant" terminology, as well as a prominent example of the underlying argument, dates back to Alexander Hamilton's 1791 "Report on Manufactures" (available at various places around the web, like here and here).

However, Hamilton's discussion of how to support what he called "infant manufactures" (a term he uses only one time) isn't quite as simple as just using tariffs to protect a domestic industry from foreign competition. He is focused how to encourage new manufacturing industries, and he argues that "bounties--that is, subsidies--funded from other government revenues are the best way to do so. Hamilton only argues for import tariffs as one way of collecting revenue for the government to provide such "bounties." A few points worth noting about this line of argument would include:

1) Hamilton prefers bounties over tariffs, in part, because subsidies avoid raising the price of the good--as tariffs would tend to do. He recognizes that import tariffs cause an "expense to the community," in the form of higher prices,and in this sense they are just like a tax that is used to support a government subsidy.  Conversely, Hamilton argues that explicit subsidies will tend to attract additional competition.

2) Hamilton also favors bounties because he notes that limits on imports only give a domestic producer an advantage in the home market, without providing any incentive for exporting. This suggests that the goal of supporting an infant industry, and a way such a policy can be judged, is whether it leads to export sales.

3) Hamilton emphasizes that any such "infant manufactures" policy should be temporary.

4) Hamilton also points out that the US manufacturers of his time already have a considerable advantage over foreign competition because they have much lower costs of transportation.

5) Hamilton's "infant manufactures" argument is not an argument for tariffs to protect jobs in existing established industries. It applies to subsidizing new industries.

6) From a political economy point of view, it's interesting to contemplate whether how a policy of using revenue from tariffs to fund subsidies for domestic industry would play in the contemporary world. It would make explicit, in the form of government collecting revenue and cutting checks, that that tariffs imposing costs to benefit a domestic industry. I don't know if this would make such a policy more popular or less so.

7) It's interesting to reconsider Hamilton's argument for bounties in the context of the modern economy. Modern governments have a lot of tools that give indirect support to new industry: for example, support of education at K-12 and university level, support of R&D, well-developed institutions of intellectual property, legal institutions that support enforceable contracts and financial markets, and so on. Modern governments also have sources and quantities of revenue undreamed  of in Hamilton's time: thus, a standard modern argument against tariffs is that if you want to subsidize a certain industry (and I'm leaping over a Grand Canyon of arguments with that "if"), then setting up a situation in which domestic producers can charge consumers more (because of limited competition) is an odd and potentially counterproductive way to do it.

Here's the relevant passage from Hamilton:
Pecuniary bounties. This has been found one of the most efficacious means of encouraging manufactures, and is, in some views, the best. Though it has not yet been practised upon by the Government of the United States (unless the allowance on the expiration of dried and pickled fish and salted meat could be considered as a bounty), and though it is less favored by public opinion than some other modes, its advantages are these:
 1. It is a species of encouragement more positive and direct than any other, and, for that very reason, has a more immediate tendency to stimulate and uphold new enterprises, increasing the chances of profit, and diminishing the risks of loss, in the first attempts.
 2. It avoids the inconvenience of a temporary augmentation of price, which is incident to some other modes; or it produces it to, a less degree, either by making no addition to the charges on the rival foreign article, as in the case of protecting duties, or by making a smaller addition. The first happens when the fund for the bounty is derived from a different object (which may or may not increase the price of some other article, according  to the nature of that object), the second, when the fund is derived from the same, or a similar object, of foreign manufacture. One per cent. duty on the foreign article, converted into a bounty on the domestic, will have an equal effect with a duty of two per cent., exclusive of such bounty; and the price of the foreign commodity is liable to be raised, in the one case, in the proportion of one per cent.; in the other in that of two per cent. Indeed the bounty, when drawn from another source, is calculated to promote a reduction of price; because, without laying any new charge on the foreign article, it serves to introduce a competition with it, and to increase the total quantity of the article in the market.
3. Bounties have not, like high protecting duties, a tendency to produce scarcity. An in-crease of price is not always the immediate, though, where the progress of a domestic manufacture does not counteract a rise, it is, commonly, the ultimate effect of an additional duty. In the interval between the laying of the duty and the proportional increase of price, it may discourage importation, by interfering with the profits to be expected from the sale of the article.
4. Bounties are, sometimes, not only the best, but the only proper expedient for uniting the encouragement of a new object of agriculture with that of a new object of manufacture. It is the interest of the farmer to have the production of the raw material promoted by counteracting the interference of the foreign material of the same kind. It is the interest of the manufacturer to have the material abundant and cheap. If, prior to the domestic production of the material, in sufficient quantity to supply the manufacturer on good terms, a duty be paid upon the importation of it from abroad, with a view to promote the raising of it at home, the interest both of the farmer and manufacturer will be disserved. By either destroying the requisite supply, or raising the price of the article beyond whit can be afforded to be given for it by the conductor of an infant manufacture, it is abandoned or fails, and there being no domestic manufactories to create a demand for the raw material, which is raised by the farmer, it is in vain that the competition of the like foreign article may have been destroyed.
It cannot escape notice, that a duty upon the importation of an article can no otherwise aid the domestic production of it, than by giving the latter greater advantages in the home market. It can have no influence upon the advantageous sale of the article produced in foreign markets -- no tendency, therefore, to promote its exportation.
The true way to conciliate these two interests is to lay a duty on foreign manufactures of the material, the growth of which is desired to be encouraged, and to apply the produce of that duty, by way of bounty, either upon the production of the material itself, or upon its manufacture at home, or upon both. In this disposition of the thing, the manufacturer commences his enterprise under every advantage which is attainable, as to quantity or price of the raw material; and the farmer, if the bounty be immediately to him, is enabled by it to enter into a successful competition with the foreign material. If the bounty be to the manufacturer, on so much of the domestic material as he consumes, the operation is nearly the same; he has a motive of interest to prefer the domestic commodity, if of equal quality, even at a higher price than the foreign, so long as the difference of price is any thing short of the bounty which is allowed upon the article.
Except the simple and ordinary kinds of household manufacture, or those for which there are very commanding local advantages, pecuniary bounties are, in most cases, indispensable to the introduction of a new branch. A stimulus and a support, not less powerful and direct, is, generally speaking, essential to the overcoming of the obstacles which arise from the competitions of superior skill and maturity elsewhere. Bounties are especially essential in regard to articles upon which those foreigners, who have been accustomed to supply a country, are in the practice of granting them.

The continuance of bounties on manufactures long established, must almost always be of questionable policy: because a presumption would arise, in every such case, that there were natural and inherent impediments to success. But, in new undertakings, they are as justifiable as they are oftentimes necessary.
There is a degree of prejudice against bounties, from an appearance of giving away the public money without all immediate consideration, and from a supposition that they serve to enrich particular classes, at the expense of the community. But neither of these sources of dislike will bear a serious examination. There is no purpose to which public money can be more beneficially applied, than to the acquisition of a new and useful branch of industry; no consideration more valuable, than a permanent addition to the general stock of productive labor.
 As to the second source of objections it equally lies against other modes of encouragement, which are admitted to be eligible. As often as a duty upon a foreign article makes an addition to its price, it causes an extra expense to the community, for the benefit of the domestic manufacturer. A bounty does no more. But it is the interest of the society, in each case, to submit to the temporary expense-which is more than compensated by all increase of industry and wealth; by an augmentation of resources and independence; and by the circumstance of eventual cheapness, which has been noticed in another place. It would deserve attention, however, in the employment of this species of encouragement in the United States, as a reason for moderating the degree of it in the instances in which it might be deemed eligible, that the great distance of this country- from Europe imposes very heavy charges on all the fabrics which are brought from thence, amounting to from fifteen to thirty per cent. of their value, according to their bulk

Thursday, November 10, 2016

Economics and Satellite Data

Empirical work in economics has traditionally been based on numerical data: for example, data on prices and quantities or demographics, or data from government statisticians on GDP, employment, inflation, and the level of trade, or survey data on attitudes. But economics is starting to use data from satellites in a systematic way. Dave Donaldson and Adam Storeygard describe what's happening in "The View from Above: Applications of Satellite Data in Economics," in the Fall 2016 issue of the Journal of Economic Perspectives. (Full disclosure: I've worked as Managing Editor of the JEP since the first issue in 1987.)

The possibilities of using imagery from the sky for illustrating economic differences has been apparent for some years. Two of the most prominent examples involve national borders: South and North Korea at night, and Haiti and the Dominican Republic in the daylight.

Here's a NASA photograph from 2014 of North and South Korea. For those of you whose Asian geography is a little shaky, these two Koreas countries sit on a peninsula, which is attached to China. In the bottom right of the picture is South Korea. The giant city of Seoul is the brightest light. while smaller cities like Gunsan show up as smaller areas of light. In the upper right portion of the photo is China. The dark area between the two--the land mass between the Yellow Sea and the Sea of Japan--is North Korea, whose capital city of Pyongyang appears as a very small illuminated dot. This picture is clearly telling something about electricity availability and consumption, and also about broader standard of living, in North Korea.

Here's some NASA imagery of the border between Haiti and the Dominican Republic, which share the island of Hispaniola. The Haiti side is deforested, almost denuded; the Dominican Republic side is not. The causes of deforestation are typically a combination very poor people looking for any firewood to burn and overgrazing of livestock. Again, this image tells you something about standard of living and goverance in two neighboring countries.
But as social scientists sometimes say, the plural of "anecdote" is not "data." To have data, you need more than images. As Donaldson and Storeygard point out, a number of technological advances are coming together here. Satellite data is getting more detailed. They report:
"Much of the publicly available satellite imagery used by economists provides readings for each of the hundreds of billions of 30-meter-by-30-meter grid cells of land surface on Earth. Many economic decisions (particularly land use decisions such as zoning, building types, or crop choice) are made at approximately this same level of spatial resolution. But since 1999, private companies have offered submeter imagery and, following a 2014 US government ruling, American companies are able to sell imagery at resolutions below 0.5 meters to nongovernment customers for the first time. This is important because even when a coarser unit of analysis is appropriate, 900 1-meter pixels provide far more information available for signal extraction than a single 30-meter pixel covering the same area."
Satellite imagery is of course not primarily about pretty photographs, but can gather a range of images across the spectrum. Machine learning and artificial intelligence can be used to categorize this data. Advances in computing power and clever algorithms for dealing with "gridded" data are making it possible to process all this information and to analyze it. The results provide a window on economic activity that is outside the traditional economic data.

For example, in a lot of places the story from "night lights" may tell you as much about GDP or economic growth as any official government statistics. They write:
"In an annual panel of countries from 1992 to 2008, as well as the corresponding long difference, these authors estimate a lights-GDP elasticity of 0.28 to 0.32, with no evidence of nonlinearity or asymmetry between increases and decreases in lights. In the long difference, the lights-GDP relationship has a correlation coefficient of 0.53. Under a range of assumptions about measurement error of GDP in countries with good data, they estimate a structural elasticity of lights growth with respect to GDP growth of between 1.0 and 1.7."

In some cases, satellite imaged may offer a less-biased source of information. If you want to know about deforestation in Indonesia or Brazil, for example, satellite images may tell you more than government data reported by local politicians. If you want to know about the level of particulate air pollution, satellite images may be more trustworthy than government reporting.

If you want to know about how many buildings are in the mega-slums of certain cities in the developing world, looking at satellite images may beat government data. If you want to know about recent building, you can compare satellite images over time, or one study looked at the reflectivity of roofs--because more recent buildings will tend to have roofs that reflect more light. Here's an image from their paper of roofs in a city in Nairobi:

If you want to know about how drought affects armed conflict, satellite images may be the best data you can get. If you want to know about how local topography and weather affects the spreading of cities, or the location of dams, or the possibilities for altering crop production patterns, satellite data can be enormously useful.

If you want to know about poverty in developing countries, a recent paper in Science shows how to measure poverty with images of things like roads, water, and buildings that can be converted into estimates and maps of household consumption and assets for low-income areas.

Of course, traditional economic data is not going away, and many studies with satellite data used the new data together with traditional data. But the satellite data is getting better and more available at a rapid clip. Among the more recent examples are studies that use the data to "count crowds of people and cars at events such as protests, political rallies, or peak shopping periods ... Similarly, traffic volumes could be measured from snapshots of car densities." It's a new research frontier.