The stock market confounds its observers

Great story by Corrie Dreibusch in this weekend's edition of the Wall Street Journal.

The Grumpy Economist: Mankiw on endowment taxes

The Grumpy Economist: Mankiw on endowment taxes

An excellent post by Scott Sumner

One key point that caught my attention:

To summarize, I see little evidence to support the claims of either the Democrats or Republicans. The tax bill is certainly not revolutionary, although it does have some useful reforms. But it also boosts the budget deficit, which is bad for investment. There has been increased regulation in some areas and reduced regulation in others. In addition, there have been no significant moves to slow the growth in overall government spending.

Read the whole blog entry.  Scott Sumner is always worth reading.

Massachusetts Employment Situation: November Jobs +6,700; U-Rate: 3.6%

OVERVIEW

• According to the Executive Office of Labor and Workforce Development, the state’s total unemployment rate dropped to 3.6 percent in November from 3.7 percent in October.
• From November 2016 to November 2017, the U.S. Bureau of Labor Statistics estimates Massachusetts has added 65,200 jobs.
• In November, the Leisure and Hospitality sector lead the way in job creation by adding 4,200 jobs over the month.  
• The Education and Health Services sector the Construction sector each added 2,800 jobs.
• The Professional, Scientific and Business Services, which has gained the most jobs year over year (+19,500), gained 2,400 jobs in the past month.
• Manufacturing added 1,600 jobs while the Information, Financial Activities, Other Services and Trade Transportation and Utilities sectors lost jobs. Of the private sector categories, only the Information sector lost jobs year over year.  
• Government (Federal, state and local) which has shed 3,500 jobs since last November lost 600 jobs.
• The EOLWD noted that the state’s labor force participation rate decreased one-tenth of a percentage point to 65.4 percent over the month. However, the LFP rate increased by 0.7 percentage point since November 2016.

ANALYSIS

The state’s unemployment rate 3.6 percent continued to remain lower than the national rate (4.1 percent). “Year-to-date the jobs and labor force estimates indicate a strong and stable economy in the Commonwealth.  November also marks the 13th consecutive month of private sector job growth, " remarked Labor and Workforce Development Secretary Rosalin Acosta. 

The labor force participation rate, the share of working-age population employed and unemployed, was 65.4 percent with 63,300 residents entering the work pool.  Only 18,300 of those were unable to find work. The state’s long-suffering manufacturing sector employment picture improved in November adding 1,600 jobs which represent an increase of 2,600 year over year.  The growth is significant since the state specializes in high tech rather than mass-production manufacturing. 

The state's largest sectors Professional, Scientific and Business Services and Education and Health Services rose 3.5 percent and 2.1 percent, respectively. 

The lower-wage Leisure and Hospitality sector, however, is up 3.1 percent. Economists agree the state is at full-employment. Massachusetts. 

The number of workers ages 55 and over declined less in the Bay State than the nation. In other words, the demographic drag is offset by the number of older workers who are postponing retirement. Perhaps due to seasonality, the Other Services sector lost 1,900 jobs in the month but is up 3,900 since last November. 

East Boston Economics

East Boston Economics

Is There a Productivity Miracle Lurking in the Economy? - WSJ

From the Streewise column in the Wall Street Journal, Is There a Productivity Miracle Lurking in the Economy?

Perhaps 2018 will be the year productivity finally begins to pick up. Technologies such as speech recognition, online chatbots and machine learning are being quickly adopted, capital spending is picking up and tight labor markets give companies an incentive to find better ways of working.

But productivity defies forecasters, and the lesson of the past is to be humble. This is a story of how little anyone really understands about what moves productivity, even though it’s the key to long-run prosperity—and to what happens to inflation and share and bond prices.

"Did the American Recovery and Reinvestment Act Help Those Most in Need?

"Did the American Recovery and Reinvestment Act Help Those Most in Need? A County-Level Analysis," a new NBER working paper by Mario J. Crucini and  Nam T. Vu. 

Abstract: 

One of the statements of purpose of the American Recovery and Reinvestment Act (ARRA) was "to assist those most impacted by the recession." The ARRA is assessed along this dimension using theoretical concepts from the risk-sharing literature. We estimate a model of income dynamics using a county-level panel of wage income in order to isolate the innovation to income. We then regress these income shocks on ARRA transfers and find 13.1% of the shock is offset by the transfer. While this is a long way from complete risk-sharing, the impacts are economically and statistically significant. Surprisingly, there are large state-contingent effects in the second and third quartiles 25.6% and 15.7% versus a mere 8.5% in the first quartile. By this metric, the policy of helping those most in need was not achieved. 

Paper is available here. 

US EMPSIT November 2017: 4.1 percent U-Rate; Payrolls +228,000

OVERVIEW

• The unemployment rate remained at 4.1 percent in November while payrolls expanded by 228,000, according to the Bureau of Labor Statistics.
• The Labor Force Participation (LFP) remained at 62.7 percent for November. The employment-population ratio was little changed at 60.1 percent. 
• The manufacturing sector added 31,000 jobs. The BLS reports “that since a recent low in November 2016, manufacturing has increased by 189,000 jobs.”
• Professional and business services added 46,000 jobs in November and health care added 30,000. 
• Employment in the other major sectors— mining, wholesale trade, retail trade, transportation and warehousing, information, leisure and hospitality, financial activities and government —changed little. 
• In November, average hourly earnings for all employees increased by 5 cents to $26.55; over the past year, hourly earnings have risen by 64 cents or 2.5 percent. 
• The September employment report was revised up from +18,000 to +38,000 and the change in October was revised down from +261,000 to +244,00 Over the past three months, job gains have averaged 170,000 a month.  The six-month average monthly growth is 177,600. From January, the economy added on average 174,000 monthly jobs.

ANALYSIS

In November, the American factory kicked into high gear. Since last year the manufacturing sector has added 189,000 jobs. Subsector growth took place in machinery (+8,000), fabricated metal products (+7,000), computer and electronic products (+4,000), and plastics and rubber products (+4,000).  The payroll employment report exceeded the  Wall Street consensus of 200,000 jobs.  According to an ADP report earlier this week, private sector employment increased by 190,000 jobs in November. The unemployment rolls decreased over the past 12 months by 799,000 workers. The number of part-time for economic reasons remained at 4.8 million. Nonetheless, there is talk of a labor shortage in the manufacturing sector where employers are investing in resources to train new workers and by increasing automation.  The tight labor market suggests that wages should be  increasing faster that today’s reported annual rate of 2.5%. But percentage growth in lower paid jobs since 2007 in the leisure and hospitality sectors (0.2) have outstripped high-value-adding professional and business services (0.1) and the overall job (0.1) growth (See table below). Another view is more generational than structural. According to USAToday, “Some economists say the government's measure of average earnings growth may be skewed downward by the retirements of higher-paid Baby Boomers and the entry into the labor force of lower paid Millennials.” For now, holding a job is more important than higher wages. Overall, the job market is on solid ground giving the Federal Reserve an opportunity to raise rates.

PDF version of this post.

ADP estimate for November 2017: 190,000 Jobs

My co-authored Massachusetts State Revenue Estimate from the Beacon Hill Institute

Is life better or worse than 50 years ago?

You will find more statistics at Statista

Knowing shortfalls of dynamic scoring key to sound tax reform | TheHill

Knowing shortfalls of dynamic scoring key to sound tax reform | TheHill

Sources of tax revenue for the Commonwealth of Massachusetts

What are the sources of state tax revenue?  A useful pie chart from State Auditor Suzanne Bump's September 2017 report, "Determination of Whether Net State Tax Revenues Exceeded Allowable State Tax Revenues: For the Period July 1, 2016 through June 20, 2017," illustrates the components of the state's revenue stream.

Which nation has the highest tax burden?

You will find more statistics at Statista.

Fear the robots!

You will find more statistics at Statista

NEEP: "Employment growth will be constrained by the number of available workers"

From Alan Clayton-Matthews' presentation to the New England Economic Partnership conference at the Boston Fed yesterday.  A recurring challenge faces Massachusetts and New England: "demographic constraints." Because the region is not growing its working-age population as quickly as the rest of the nation, employers will struggle to find workers. For a variety of reasons older workers may see the need to remain in the labor force due to either financial considerations or in response to other incentives to remain on the job.  

More from Professor Clayton-Matthews: "Construction will be the fastest growing sector, but health services and skilled business sectors will add the most jobs."  Through 2021 the composition of the Massachusetts workforce will not be radically different than what we see today with the erosion of jobs in manufacturing. 

For a recap of the discussion from yesterday's conference, read Michael Norton's State House News Service dispatch. 

Casey Mulligan's latest study on the labor market effects of the Affordable Care Act

From University of Chicago's Casey Mulligan, a new paper titled, "The Employer Penalty, Voluntary Compliance, and the Size Distribution of Firms: Evidence from a Survey of Small Businesses."

Abstract: 

A new survey of 745 small businesses shows little change in the size distribution of businesses between 2012 and 2016, except among businesses with 40-74 employees, in a way that is closely related to whether they offer health insurance coverage.  Using measures of both size and voluntary regulatory compliance, the paper links these changes to the Affordable Care Act's employer mandate.  Between 28,000 and 50,000 businesses nationwide appear to be reducing their number of full-time-equivalent employees to below 50 because of that mandate.  This translates to roughly
250,000 positions eliminated from those businesses. 

The gated paper is available at the National Bureau of Economic Research.

A look at the MA jobs picture for October 2017

Source: Executive Office of Labor and Workforce Development, Author's calculations.

The job picture in Boston over the past year

Housing consumes 39.2% of all spending for Boston

Only 4 percent of Internet users in Germany access the web by mobile; For India it's 70%

You will find more statistics at Statista

When it comes to business data, is Yelp as good as the U.S. Census?

From the paper titled, "Nowcasting the Local Economy: Using Yelp Data to Measure Economic Activity," by Edward L. Glaeser, Hyunjin Kim and Michael Luca

Here's the abstract from NBER.

Abstract:

Can new data sources from online platforms help to measure local economic activity? Government datasets from agencies such as the U.S. Census Bureau provide the standard measures of local economic activity at the local level.  However, these statistics typically appear only after multi-year lags, and the public-facing versions are aggregated to the county or ZIP code level. In contrast, crowdsourced data from online platforms such as Yelp are often contemporaneous and geographically finer than official government statistics.  In this paper, we present evidence that Yelp data can complement government surveys by measuring economic activity in close to real time, at a granular level, and at almost any geographic scale.  Changes in the number of businesses and restaurants reviewed on Yelp can predict changes in the number of overall establishments and restaurants in County Business Patterns.  An algorithm using contemporaneous and lagged Yelp data can explain 29.2 percent of the residual variance after accounting for lagged CBP data, in a testing sample not used to generate the algorithm.  The algorithm is more accurate for denser, wealthier, and more educated ZIP codes.

My Boston Business Journal op-ed on Amazon and Massachusetts

An argument for Massachusetts as the site for Amazon's second headquarters. (Subscription required). 

The rise of the machines. What does it mean?

A new working paper from the National Bureau of Economic Research by Erik Brynjolfsson, Daniel Rock, Chad Syverson. Abstract:  

We live in an age of paradox.  Systems using artificial intelligence match or surpass human-level performance in more and more domains, leveraging rapid advances in other technologies and driving soaring stock prices.  Yet measured productivity growth has declined by half over the past decade, and real income has stagnated since the late 1990s for a majority of Americans.  We describe four potential explanations for this clash of expectations and statistics:  false hopes, mismeasurement, redistribution, and implementation lags.  While a case can be made for each, we argue that lags have likely been the biggest contributor to the paradox.  The most impressive capabilities of AI, particularly those based on machine learning, have not yet diffused widely.  More importantly, like other general purpose technologies, their full effects won't be realized until waves of complementary innovations are developed and implemented.  The required adjustment costs, organizational changes, and new skills can be modeled as a kind of intangible capital. A portion of the value of this intangible capital is already reflected in the market value of firms. However, going forward, national statistics could fail to measure the full benefits of the new technologies and some may even have the wrong sign.

New NBER Working Paper: Diagnosing the Italian Disease

A new working paper by Bruno Pellegrino and Luigi Zingales. From the abstract: 

We try to explain why Italy's labor productivity stopped growing in the mid-1990s.  We find no evidence that this slowdown is due to trade dynamics, Italy's inefficient governmental apparatus, or excessively protective labor regulations.  By contrast, the data suggest that Italy's slowdown was more likely caused by the failure of its firms to take full advantage of the ICT revolution.  While many institutional features can account for this failure, a prominent one is the lack of meritocracy in the selection and rewarding of managers.  Familyism and cronyism are the ultimate causes of the Italian disease. 

Read more at NBER Working Papers.  

The Massachusetts economy is roaring

Massachusetts Benchmarks today reports:

Based on the latest available data, MassBenchmarks now estimates that the state economy grew at a 4.9 percent pace, versus 3.1 percent nationally during the second quarter of 2017. In the first quarter the BEA estimates that Massachusetts grew at a 1.1 percent rate as compared to 1.2 percent for the U.S.

Read the entire report here. 

Who's holding the most cash outside of the U.S.?

You will find more statistics at Statista

A one-year look at where the jobs are in Massachusetts

The state's total unemployment rate dropped to 3.9 percent in September from 4.2 percent according to the Executive Office of Labor and Workforce Development. From September 2016 to September 2017, BLS estimates Massachusetts has added 62,300 jobs. 

Job growth was strong in the state's Health Care and Education and Professional Services supersectors. Specifically, the Health Care and Social Assistance subsector added 20,600 jobs since September 2016 with Professional, Scientific and Technical Services adding 8,500. Meanwhile, Construction added 6,200 jobs. 

Chart by East Boston Economics

• Chart: The World's Most And Least Competitive Countries | Statista

• Chart: The World's Most And Least Competitive Countries | Statista

Tech's push to teach coding isn't about kids' success – it's about cutting wages | Technology | The Guardian

Tech's push to teach coding isn't about kids' success – it's about cutting wages | Technology | The Guardian

More money for Massachusetts transportation won't solve problems

The Massachusetts Taxpayers Foundation this week released a new report on the state's transportation system.  Key take-away:

“What is clear is that the state lacks the requisite information to make profoundly difficult choices,” the report writes. “Questions such as which projects to fund and when, and how revenue sources should be allocated must be included as part of a long-term sustainable transportation finance plan to address our transportation needs. Unfortunately, the state has not yet adopted such a plan.”

MassLive.com has a good summary of the report. 

Boston Fed President Eric Rosengren: Trends point to higher inflation

From the Boston Fed:

Speaking in New York, Boston Fed President Eric Rosengren said that underlying trends suggest "an economy that risks pushing past what is sustainable, raising the probability of higher asset prices, or inflation well above the Federal Reserve's 2 percent target."

"Steps lowering the probability of such an outcome seem advisable – in other words, seem like insurance worth taking out at this time," he said. "As a result, it is my view that regular and gradual removal of monetary accommodation seems appropriate."

Noting that the weakness in inflation readings appears to be transitory, Rosengren said "the declines in the unemployment rate below the level most see as sustainable seem likely to be more long-lasting."

"Discerning the underlying trends in unemployment and inflation – looking through transitory effects – is likely to be quite difficult in coming months," Rosengren said, citing the impact of recent hurricanes on economic data.

In addition, Rosengren noted that the Federal Reserve's dual mandate indicators – employment and inflation – are sending somewhat conflicting signals of late: labor markets have continued to improve, yet inflation has slipped down a notch this year.

Asking how policymakers might resolve the conflicting signals when "the central bank's dual mandate is 'dueling,'" Rosengren explored the forecasts of both central bankers and private forecasters. Both suggest that by the end of next year, inflation is expected to be close to target, while the unemployment rate will continue to fall – and as a result, will move further below most estimates of a sustainable unemployment rate.



Read more: Trends and Transitory Shocks - Federal Reserve Bank of Boston

35.  Tarnishing the Golden and Empire States: Land-Use Restrictions
and the U.S. Economic Slowdown
by Kyle F. Herkenhoff, Lee E. Ohanian, Edward C. Prescott  -  #23790 (EFG)

Abstract:

This paper studies the impact of state-level land-use restrictions on
U.S. economic activity, focusing on how these restrictions have
depressed macroeconomic activity since 2000.  We use a variety of
state-level data sources, together with a general equilibrium spatial
model of the United States to systematically construct a panel
dataset of state-level land-use restrictions between 1950 and 2014. 
We show that these restrictions have generally tightened over time,
particularly in California and New York.  We use the model to analyze
how these restrictions affect economic activity and the allocation of
workers and capital across states.  Counterfactual experiments show
that deregulating existing urban land from 2014 regulation levels
back to 1980 levels would have increased US GDP and productivity
roughly to their current trend levels. California, New York, and the
Mid-Atlantic region expand the most in these counterfactuals, drawing
population out of the South and the Rustbelt.  General equilibrium
effects, particularly the reallocation of capital across states,
accounts for much of these gains.  

http://papers.nber.org/papers/w23790?utm_campaign=ntw&utm_medium=email&utm_source=ntw

Structural Transformation, Deep Downturns, and Government Policy

Joseph E. Stiglitz

NBER Working Paper No. 23794
Issued in September 2017
NBER Program(s):   DAE   EFG

Most recessions are a result of some shock to the economic system, typically amplified by financial accelerators, and leading to large balance sheet effects of households and firms, which result in the effects persisting. But, over time, the balance sheets get restored. Even banks recover.

But episodically, the “shock” is deeper. It is structural. Among advanced countries, the movement from agricultural to manufacturing in the last century, and the more recent movement from manufacturing to the service sector reflect such a large economic transformation. The associated downturns are longer lasting. The usual responses, in particular, monetary policy, are only of limited efficacy. Policies have to be designed to facilitate such transformations: markets on their own typically do not do well.

This paper explains why such transformations are associated with persistently high unemployment, and describes the effects of particular government policies. It looks at the lessons of the Great Depression both for the advanced countries and the developing countries as they go through their structural transformations.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Which sectors provided the most job growth since January 2007: A 10-year look

Source: Bureau of Labor Statistics, CES Series

Last Friday, the Bureau of Labor Statistics reported the U.S. economy created 156,000 jobs in August 2017, a number below economists' consensus estimates. The unemployment rate "was little unchanged" according to the BLS, but actually ticked upward to 4.4 percent. Major job gains emerged in manufacturing, construction, professional and technical services, health care and mining. How have these sectors fared since the peak before the Great Recession, which began in December 2007 and ended in June 2009? How does Friday's snapshot relate to longer term trends? 

The decline in manufacturing jobs in the United States has trended downward over the decades. Few workers are producing more output. The interesting takeaway from this chart is the decline in construction jobs. Despite the uptick in the economy, construction jobs are down 800,000 since January 2007.  The high-paying education and health services and professional the business services added more than two-thirds of the decade long gain to total non-farm employment. Less impressive is the gain in the generally lower paid professions of leisure and hospitality which added 2.6 million since January 2007. 

When pot laws are not the same across states, can we expect seepage?

In their new working paper, Benjamin Hansen, Keaton Miller, Caroline Weber ask "How Extensive is Inter-State Diversion of Recreational Marijuana?" Only a small amount they say. 

Abstract:

Despite federal prohibition, recreational marijuana is available to 21% of the United States population.  A chief concern among policy makers across multiple levels of government and political parties is inter-state diversion of marijuana from states with legal markets to others.  We measure this diversion with a natural experiment.  Oregon opened a recreational market on October 1, 2015, next to an existing market in Washington, which opened on July 8, 2014.  Using comprehensive administrative data on the universe of Washington sales, we find Washington retailers along the Oregon border experienced a 41% decline in sales immediately following Oregon's market opening.  Retailers along Washington's borders with Idaho and Canada experienced no such decline.  The decline occurred equally across weekdays and weekends, and was largest among the largest transaction sizes, suggesting diversion, not drug tourism, was to blame. Our estimates suggest that 11.9% of the marijuana sold in Washington was diverted out of the state before Oregon legalized and
7.5% remains diverted today.

A gated copy of the research paper can be found here. 

Upon whom does an energy tax fall? Who bears the burden?

Who Bears the Economic Costs of Environmental Regulations? by Don Fullerton, Erich Muehlegger

Abstract:
Public economics has a well-developed literature on tax incidence -
the ultimate burdens from tax policy.  This literature is used here
to describe not only the distributional effects of environmental
taxes or subsidies but also the likely incidence of non-tax
regulations, energy efficiency standards, or other environmental
mandates.  Recent papers find that mandates can be more regressive
than carbon taxes.  We also describe how the distributional effects
of such policies can be altered by various market conditions such as
limited factor mobility, trade exposure, evasion, corruption, or
imperfect competition. Finally, we review data on carbon-intensity
of production and exports around the world in order to describe
implications for effects of possible carbon taxation on countries
with different levels of income per capita.
Complete working paper from the National Bureau of Economic Research.

A new paper: Gender: An Historical Perspective

A new paper by Paola Giuliano
Social attitudes toward women vary significantly across societies. This chapter reviews recent empirical research on various historical determinants of contemporary differences in gender roles and gender gaps across societies, and how these differences are transmitted from parents to children and therefore persist until today. We review work on the historical origin of differences in female labor-force participation, fertility, education, marriage arrangements, competitive attitudes, domestic violence, and other forms of difference in gender norms. Most of the research illustrates that differences in cultural norms regarding gender roles emerge in response to specific historical situations, but tend to persist even after the historical conditions have changed. We also discuss the conditions under which gender norms either tend to be stable or change more quickly.

Wages and Perks

Wages and Perks

Today's Massachusetts jobs number: 4.3% U-rate; 200 jobs lost in July 2017

OVERVIEW

• The state’s total unemployment rate increased to 4.3 percent in July and lost 200 jobs according to the Executive Office of Labor and Workforce Development. 
• Since last July the state’s economy has added 45,200 jobs while the state’s labor force participation rate has increased by 1.5 percent. 
• The strongest job growth came in the Construction (+2,500), with Financial Activities and Education & Health Services each adding 1,300 jobs. 
• Trade, Transportation & Utilities lost 1,400 jobs over the month while Leisure and Hospitality lost 900 jobs. Information lost 300 jobs; Professional, Scientific and Business Services lost 100.
• Government lost 1,700 jobs over the month and Other Services lost 1,400 jobs.
• The new jobs estimate for June was revised to 10,900 from the 10,000 jobs reported originally.  
• Over the past year, the Health Care and Social Assistance subsector added 20,600 jobs, a sector whose year-over-year growth is nearly four times that of the growth of the Financial Activities sector. 
• On average, Massachusetts employment grew by 3,767 jobs a month since last July. 
• On average, the private sector generated 3,575 jobs monthly over the past 13 months. 

ANALYSIS 

The state’s unemployment rate, which inched up in July, has converged with the national rate at 4.3 percent. 

According to the EOLWD, the last time the state and national rates matched was April 2008 when the rate was 5.0 percent. Over the year, the state’s seasonally adjusted unemployment rate increased seven-tenths of a percentage point from 3.6 percent in July 2016. 

Meanwhile, the LFP rate increased by three-tenths of a point to 66.4 percent in July. 

The labor force decreased by 11,300 from 3,708,800 in June, says EOLWD as 11,500 fewer residents were employed and 300 more residents were unemployed.  

The unemployment rate remains at a stable low level but the state faces a skills gap. This may be reflected in the subpar growth of mid-tech jobs classified under Leisure and Hospitality and Other Services. 

“Although the unemployment rate remains low, we continue to see persistent gaps between the skill sets of available workers and the qualifications needed for in-demand jobs,” Labor and Workforce Development Secretary Rosalin Acosta said. 

Job growth in Massachusetts continues to rely on the strength of the Education and Health Care and Professional Services super-sectors, which saw gains of 21,900 and 9,500 over the past year, respectively. In related news, the most recent Boston metropolitan survey released this week by the Bureau of Labor Statistics showed job growth over the past year across all sectors except for manufacturing. 

Is it worth it to compare state sales taxes when making a purchase?

A new National Bureau of Economic Research working paper from Scott R. Baker, Stephanie Johnson and Lorenz Kueng that might underscore the ongoing effects of interstate sales tax competition. 

Abstract:

Using comprehensive high-frequency state and local sales tax data, we show that household spending responds strongly to changes in sales tax rates.  Even though sales taxes are not observed in posted prices and have a wide range of rates and exemptions, households adjust in many dimensions, stocking up on storable goods before taxes rise and increasing online and cross-border shopping.  Interestingly, households adjust spending similarly for both taxable and tax-exempt goods. We embed an inventory problem into a continuous-time consumption-savings model and demonstrate that this seemingly irrational behavior is optimal in the presence of shopping trip fixed costs. The model successfully matches estimated short-run and long-run tax elasticities with a reasonable implied reservation wage of $7-10.  We provide additional empirical evidence in favor of this new shopping-complementarity mechanism.  While our results reject non-salience of sales tax changes, on average, we also show that upcoming tax changes that are more salient prompt larger responses.

The paper, "Shopping for lower state sales tax rates," can be found here. 

About those low wage jobs and robots: People versus machines: The Impact of minimum wages on at-risk jobs

A growing automated workforce of robots does not bode well for low-income workers, particularly older ones. Minimum wages don't help. Here's a new working paper by Grace Lordan, and David Neumark 

Abstract:

We study the effect of minimum wage increases on employment in automatable jobs - jobs in which employers may find it easier to substitute machines for people - focusing on low-skilled workers from whom such substitution may be spurred by minimum wage increases.  Based on CPS data from 1980-2015, we find that increasing the minimum wage decreases significantly the share of automatable employment held by low-skilled workers, and increases the likelihood that low-skilled workers in automatable jobs become unemployed. The average effects mask significant heterogeneity by industry and demographic group, including substantive adverse effects for older, low-skilled workers in manufacturing.  The findings imply that groups often ignored in the minimum wage literature are in fact quite vulnerable to employment changes and job loss because of automation following a minimum wage increase.

More at NBER.

Another study on health insurance for low-income adults based on the Massachusetts health care law

A new NBER Working Paper by Amy Finkelstein, Nathaniel Hendren, Mark Shepard 

Abstract:

How much are low-income individuals willing to pay for health insurance, and what are the implications for insurance markets? Using administrative data from Massachusetts' subsidized insurance exchange, we exploit discontinuities in the subsidy schedule to estimate willingness to pay and costs of insurance among low-income adults.  As subsidies decline, insurance take-up falls rapidly, dropping about 25% for each $40 increase in monthly enrollee premiums.  Marginal enrollees tend to be lower-cost, consistent with adverse selection into insurance.  But across the entire distribution we can observe - approximately the bottom 70% of the willingness to pay distribution - enrollee willingness to pay is always less than half of own expected costs.  As a result, we estimate that take-up will be highly incomplete even with generous subsidies:  if enrollee premiums were 25% of insurers' average costs, at most half of potential enrollees would buy insurance; even premiums subsidized to 10% of average costs would still leave at least 20% uninsured. We suggest an important role for uncompensated care for the uninsured in explaining these findings and explore normative implications.

More here.

Comment on the BEA report on Massachusetts GDP state

OVERVIEW

• Real gross domestic product (GDP) state increased in 43 states and the District of Columbia where real gross domestic product (GDP) increased in the first quarter of 2017, according to statistics on the geographic breakout of GDP released by the U.S. Bureau of Economic Analysis.
• The Massachusetts economy grew by 1.1 percent in the first quarter of 2017. This was slightly below the 1.2 national average. 
• The growth rate was slower than the annual rate for 2016 which posted at 2.0 percent but was an improvement over the first quarter of 2016 which contracted by 2.0. 
• Real GDP by state growth in the first quarter ranged from 3.9 percent in Texas to -4.0 percent in Nebraska. See Chart 1 from the BEA. 
• As a region, the six states of New England only grew by 0.9 percent. The Southwest — Texas, New Mexico, Arizona and Oklahoma — grew the largest for Qtr1-2017 at 3.3 percent nearly three times the adjusted-for-state comparison U.S. rate of 1.2 percent. 
• The current dollar size of the Massachusetts GDP by State is $519.9 billion. 

ANALYSIS 

GDP-State is the market value of goods and services produced by labor and property (or capital) in a state. The sum of GDP for all states released this week (1.2 percent for Qtr1-2017) differs from the national GDP number (1.2 percent)* since outputs like military and overseas activity can’t be attributed to any one state.  The Massachusetts economy comprises 2.7 percent of the total U.S. economy according to the BEA update. New England, as a region comprises one of the smallest at 5.4 percent outpacing the Rocky Mountain states which accounts for 3.4 of the national total. 

Real Estate and Rental and Leasing, Mining and Durable Goods Manufacturing were the leading contributors nationally. In Massachusetts, the leading contributions to the percent change were: Real Estate and Rental and Leasing, Construction, Health Care and Social assistance, Durable-goods Manufacturing, Wholesale Trade, Nondurable-goods Manufacturing, and Administrative and Waste Management Services. (See Table 1 p. 2.) 

Massachusetts ranked 25th in growth during the first quarter.  How did Massachusetts rank in this latest BEA report compared with its high-technology competitors?  The state of Washington grew by 2.7 percent, Virginia by 2.0 percent while the Utah economy grew by 1.9 percent. Meanwhile, California slowed to 0.1 percent, Colorado by 0.4 percent; North Carolina grew by 0.7 percent as Minnesota contracted by 0.3 percent. 

*Revised figure from 7/28 GDP press release; The originally reported figure was 1.4 percent.

Why people are getting the hell out of the Northeast | New York Post

Why people are getting the hell out of the Northeast | New York Post

The value of the mortgage interest deduction is overstated

A study that should have implications for tax reform. An optimal tax system collects revenue from the broadest base. Economists have long believed that the homeowner mortgage deduction misallocates capital to the housing sector. This new study, "Do People Respond to the Mortage Interest Deduction?: Quasi-Experimental Evidence from Denmark," from Jonathan Gruber, Amalie Jensen and Henrik Kleven finds that prospective homeowners are not swayed by the tax incentive.

Using linked housing and tax records from Denmark combined with a major reform of the mortgage interest deduction in the late 1980s, we carry out the first comprehensive long-term study of how tax subsidies affect housing decisions.  The reform introduced a large and sharp reduction in the mortgage deduction for top-rate taxpayers, while reducing it much less or not at all for lower-rate taxpayers.  We present three main findings.  First, the mortgage deduction has a precisely estimated zero effect on homeownership. This holds even in the very long run.  Second, the mortgage deduction has a sizeable impact on housing demand at the intensive margin, inducing homeowners to buy larger and more expensive houses.  Third, the largest effect of the mortgage deduction is on household financial decisions, inducing them to increase indebtedness. These findings suggest that the mortgage interest deduction distorts the behavior of homeowners at the intensive margin, but is ineffective at promoting homeownership at the extensive margin and any externalities that may be associated with it.

The paper is available at the National Bureau of Economic Research.

MA Employment Situation: Urate: 4.3 percent -- 10,000 jobs added in June

OVERVIEW

• The state’s total unemployment rate increased to 4.3 percent in June from the May rate of 4.2 percent according to the Executive Office of Labor and Workforce Development.
• Preliminary estimates suggest that Massachusetts added 10,000 jobs in June.  Since last June the economy has added 65,900 jobs.
• The labor force participation rate (LFP) remained at 66.7 percent over the month; however, this represents a 1.8 percent increase from June 2016.
• Education and Health Services added 6,700 jobs over the month. Over the year, Education and Health Services gained 28,200 jobs.
• Information added 200 jobs over the month; over the year, this sector gained 1,300 jobs.
• Federal, state and local government combined gained 400 jobs (5,500 over the past 12 months).
• Professional, Scientific, Business Service subsector lost 2,200 jobs bringing year over year to 13,900.
• Construction lost 2,800 jobs in June but since last year the sector has added 1,800 jobs.
• In June, the manufacturing sector gained 500 jobs but posted a 12-month loss of 1,400 jobs.
• The May estimate was revised with a gain of 2,000 jobs as opposed to the 2,900 originally reported.

ANALYSIS

 "During the first six months of 2017, Massachusetts has experienced the largest increase in the labor force on record, and the 66.7 labor force participation rate is now 3.9 points higher than the U.S. rate. These marked labor force gains should help ease labor market pressures and are signs of a growing economy in the Commonwealth," Labor and Workforce Development Secretary Rosalin Acosta said upon yesterday’s release. 

The increase in the unemployment rate is due to the fact more workers are rejoining the labor force. The LWD office says that 121,400 workers re-entered the market from June 2016.  Only construction and professional services lost jobs over the month. But all other sectors posted strong growth with education and health services leading the way. 

Government continues to grow employment rising by 1.2 percent over the past year.  

The growth in Massachusetts jobs should ensure that state income tax revenues grow, thus alleviating some of the sales tax revenue drift.  

The often-neglected “Other Services” category continues to move with Professional, Scientific and Business Services as a percentage of total nonfarm employment, roughly 4 percent and 15 percent respectively. 

Both are strongly correlated. The Bureau of Labor Statistics defines “Other Services” as those jobs (except for Public Administration) that provide services such as machine repair, administering religious services, grantmaking, personal and pet care services as well as other establishments. Sector growth since the last recession has been mostly flat at 0.22 percent since 2007.

Currently reading: Dani Rodrik's ECONOMICS RULES: THE RIGHTS AND WRONGS OF THE DISMAL SCIENCE

Thus far a wonderful explanation on economic models.  Can't wait to finish it.

Retail urgent care: It helps

A new working paper from Diane Alexander, Janet Currie, Molly Schnell examines a much-needed innovation in health care deliveries: 

Retail clinics are an innovation that has the potential to improve
competition in health care markets.  We use the universe of emergency room (ER) visits in New Jersey from 2006-2014 to examine the impact of retail clinics on ER usage. We find significant effects of retail clinics on ER visits for both minor and preventable conditions; Residents residing close to an open clinic are 4.1-12.3 percent less likely to use an ER for these conditions.  Our estimates suggest annual cost savings from reduced ER usage of over $70 million if retail clinics were made readily available across New Jersey.
A few years ago, Boston Mayor Menino prevented the opening of such "minute clinics" at CVS stores primarily to protect Boston Medical Center and community health centers. There's a public choice lesson to be learned. 

New Working Paper: The Employment Effects of Minimum Wages: Some Questions We Need to Answer

Here's a new paper from labor economist David Neumark: 

The literature on the employment effects of minimum wages is about a
century old, and includes hundreds of studies. Yet the debate among
researchers about the employment effects of minimum wages remains
intense and unsettled. This essay discussed the key questions that
have arisen in the past research that, if we can answer them, may
prove most useful in making sense of the conflicting evidence. I
also focus on additional questions we should consider to better
inform the policy debate, in particular in the context of the very
high minimum wages coming on line in the United States, about which
past research is quite uninformative.
Certain to add to the debate on how we think about minimum wages in the U.S.

Mercatus Center: Massachusetts fiscal situation at risk

Massachusetts ranks 48th in fiscal health according to a new study from the Mercatus Center at George Mason University. Here's the summary:

On the basis of its fiscal solvency in five separate categories, Massachusetts is ranked 48th among the US states for its fiscal health. On a short-run basis, Massachusetts holds between 45 percent and 111 percent of the cash needed to cover short-term obligations. Revenues cover 96 percent of expenses, and net position decreased by $319 per capita in FY 2015. On a long-run basis, a net asset ratio of −1.84 points to a heavy reliance on debt and large unfunded obligations. Long-term liabilities are 239 percent of total assets, for a per capita long-term liability of $9,919. Total primary government debt is $28.43 billion, or 6.9 percent of personal income, nearly twice the average in the states. The best score for Massachusetts was for trust fund solvency. On a guaranteed-to-be-paid basis, unfunded pension obligations are $115.75 billion, or 28 percent of state personal income. OPEB is 4 percent of state personal income. 

Here's an interesting chart: 

Read the whole study.  Here's a gated SHNS article on the study.

Economist Dani Rodrik: Populism should not be a surprise

The new Dani Rodrik paper: Populism and the Economics of Globalization

Populism may seem like it has come out of nowhere, but it has been on the rise for a while. I argue that economic history and economic theory both provide ample grounds for anticipating that advanced stages of economic globalization would produce a political backlash. While the backlash may have been predictable, the specific form it took was less so. I distinguish between left-wing and right-wing variants of populism, which differ with respect to the societal cleavages that populist politicians highlight. The first has been predominant in Latin America, and the second in Europe. I argue that these different reactions are related to the relative salience of different types of globalization shocks.

Men and Republicans Are the Best Tippers - Bloomberg

Men and Republicans Are the Best Tippers - Bloomberg

Analysis of US EMPSIT U-Rate 4.4%; Jobs added: 220,000;

OVERVIEW

• The unemployment rate rose to 4.4 percent in June while payrolls expanded by 222,000, according to the Bureau of Labor Statistics.
• The Labor Force Participation (LFP) rate rose by 0.1 percentage point to 62.8 percent for June. The employment-population ratio was little changed at 60.1 percent.
• Health care added 37,000 jobs and social assistance added 23,000 jobs.
• Employment in the other major sectors— construction, manufacturing, wholesale trade, retail trade, transportation and warehousing, information and government —were unchanged.
• Employment in the financial activities sector rose by 17,000 in June after stalling in May.
• In June, average hourly earnings for all employees increased by 4 cents to $26.25, representing a 2.5 percent year over year increase.
• In June, employment in the professional services sector rose by 35,000.
• The April employment situation report was revised up from 174,000 to 207,000 and the change from May was also revised up from the 138,000 to 152,000.  The two-month revisions accounted for 47,000 jobs that were previously not identified.
• The average workweek for all employees rose by 0.1 hour to 34.5 hours.

ANALYSIS
The payroll employment report highlighting 220,000 new jobs exceeded the Wall Street consensus of 170,000 jobs.  The new number arrived as a pleasant surprise. According to an ADP report earlier this week, private sector employment increased by 158,000 jobs from May to June. According to the BLS, employment growth has averaged 180,000 per month thus far this year — slightly below the 2016 average monthly gain of 187,000.   

The positive news in today’s report underscores that since January, the unemployment rate and the number of unemployed are down by 0.4 percentage point and 658,000. The rolling three-month average with the new revisions indicate job gains of 194,000 a month. 

However, the LFP rate continues to plague the jobs recovery; it has changed little from 62.8 percent and shows “no clear trend over the past year.” The number of persons employed part-time (but who would like more hours), was little changed at 5.3 million. In June, 1.6 million persons were marginally attached to the labor force, down by 197,000.  

The BLS estimates that 1.1 million persons marginally attached remain out of the workforce for reasons such as family responsibilities and school attendance. Teen-age unemployment has trimmed down from 15.9 percent last June to 13.3 percent in June 2017. 

Relative to the growth in jobs, wage gains remain weak. The report "is another illustration that the real economy is in good health," said Paul Ashworth, chief U.S. economist at Capital Economics. "The only disappointment is that wage growth still shows few signs of accelerating."

PDF version of this Research Note

Debate: Is Adam Smith the Father of Economics and Free-Market Capitalism?

Reason presents a lively debate among libertarians -- Mark Skousen of FreedomFest and Gene Epstein of Barron's-- that argues for a favorite founding father of economics: Adam Smith alone on the pedestal or a the lesser known Frenchman, Richard Cantillon leading a contingent of competing economists? 


Transcript here.

2.  Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence
from Seattle
by Ekaterina Jardim, Mark C. Long, Robert Plotnick, Emma van Inwegen, Jacob Vigdor, Hilary Wething  -  #23532 (LS)

Abstract:

This paper evaluates the wage, employment, and hours effects of the
first and second phase-in of the Seattle Minimum Wage Ordinance,
which raised the minimum wage from $9.47 to $11 per hour in 2015 and
to $13 per hour in 2016.  Using a variety of methods to analyze
employment in all sectors paying below a specified real hourly rate,
we conclude that the second wage increase to $13 reduced hours worked
in low-wage jobs by around 9 percent, while hourly wages in such jobs
increased by around 3 percent. Consequently, total payroll fell for
such jobs, implying that the minimum wage ordinance lowered low-wage
employees' earnings by an average of $125 per month in 2016. 
Evidence attributes more modest effects to the first wage increase. 
We estimate an effect of zero when analyzing employment in the
restaurant industry at all wage levels, comparable to many prior
studies.

http://papers.nber.org/papers/w23532?utm_campaign=ntw&utm_medium=email&utm_source=ntw

Can the observations of building permit activity explain the stock mr

From a new NBER working paper

Stock volatility during the Great Depression was two to three times
higher than any other period in American financial history.  The period has been labelled a "volatility puzzle" because scholars have been unable to provide a convincing explanation for the dramatic rise in stock volatility (Schwert, 1989).  We investigate the volatility puzzle during the period 1928-1938 using a new series of building permits, a forward-looking measure of economic activity.  Our results suggest that the largest stock volatility spike in American history can be predicted by an increase in the volatility of building permit growth. Markets appear to have factored in a forthcoming economic disaster.

What would building permit activity tell us today?

Federal Reserve Monetary Policy: Nominal-Spending Target Preferable to Inflation Target | National Review

Federal Reserve Monetary Policy: Nominal-Spending Target Preferable to Inflation Target | National Review

Medicaid Scare Tactics Are Irresponsible | Economics21

Medicaid Scare Tactics Are Irresponsible | Economics21

Massachusetts Benchmarks outlook, pessimistic and grounded on "wage-less job growth"

In its latest dispatch, the Editorial Board of MassBenchmarks isn't pleased with the Massachusetts economy: low worker productivity, unfilled niche jobs and near-zero wage growth. These factors will not bode well for state tax receipts say the consortium of economists. They explore some of the reasons for slow wage growth:

There is also some reason to believe that the declining pricing power of firms in some sectors of the economy has hampered their ability to raise wages. And rising health care costs are consuming resources employers might have used to raise employee wages in settings where these benefits are provided. Additionally, the aging of the workforce and the rising number of retirements have allowed some employers to replace their more experienced and more highly paid staff with younger and presumably lower-paid new staff members.

Read the entire summary here.

spi0617.pdf

spi0617.pdf

545353_cshomeprice-release-0627.pdf

545353_cshomeprice-release-0627.pdf

What Dropping Unemployment Doesn't Tell Us | Gerald P. O'Driscoll, Jr.

What Dropping Unemployment Doesn't Tell Us | Gerald P. O'Driscoll, Jr.

Conte at NewBostonPost.com: Millennials Like the Hub, But Can They Afford To Live Here?

Call it the latest attempt to bridge the knowledge gap in Boston between aging Baby Boomers and the Millennials. The eminent Boston Foundation, a century-old, well-endowed charity that doubles as a think tank, is talking a lot more to the next generation as it prompts the city’s civic leaders to hand over the reins to Boston’s millennials.

“The baby boomers have been late in turning their attention to the millennials,” said Paul Grogan, foundation president, last month. “We still think we are young.” Read more at NewBostonPost.com.

MA Employment Situation: 4.2 Percent 2,900 jobs added in May

OVERVIEW

• The state’s total unemployment rate increased to 4.2 percent in May from the April rate of 3.9 percent.
• The April estimate was revised to a loss of 800 jobs per the Bureau of Labor Statistics estimate provided to the Executive Office of Labor and Workforce Development (EOLWD). 
• The labor force increased by 17,100 residents in April, as 4,900 more residents were employed and 12,200 more residents were unemployed over the month.
• Education and Health Services added 2,500 jobs over the month. Over the year, Education and Health Services gained 19,100 jobs. 
• Information added 500 jobs over the month; over the year, Information gained 4,300 jobs.
• Over the year, federal, state and local government combined gained 5,400 jobs.
•  Professional, Scientific, Technical Service subsector lost 2,100 jobs between April and May; while retail trade lost 1,200 jobs.
•  Construction added 300 jobs in May; since last year the sector has added 4,800 jobs.
• Trade, transportation and utilities lost 800 jobs in May but gained 3,900 over the past year. 

ANALYSIS 

From May 2016 to May 2017, the Bureau of Labor Statistics estimates Massachusetts has added 58,300 jobs. The state’s labor force participation rate – the total number of residents 16 or older who worked or were unemployed and actively sought work in the last four weeks – increased thus explaining the higher jobless rate.  “During 2017 Massachusetts continues to experience large increases in the labor force. May’s labor force participation rate of 66.7%, the highest rate since October 2008, allows for ongoing economic growth. As the pool of people actively searching for work increases, our workforce development agencies remain focused on ensuring that the next generation of job seekers have access to next generation job training,” outgoing Labor and Workforce Development Secretary Ronald L. Walker, II said. The LFP over the year has increased 1.7 percent. However, the state’s unemployment rate of 4.2 moved toward the national rate of 4.3 percent.  The state’s retail sector lost 1,200 but has gained 3,200 jobs since last year. Manufacturing continues to decline with 200 lost jobs in May and 1,900 since last year.  At the end of December 2016, the state’s unemployment rate stood at a low of 3.1 percent. That rate was much lower than the rates for medium-sized cities in the Commonwealth (see table below).