Massachusetts State Tax Revenue by Source: Fiscal 2018

From the Office of State Auditor, "Determination of Whether Net State Tax Revenues Exceeded Allowable State Tax Revenues - Fiscal Year 2018."

U.S. Job Growth over the last 7.8 years: Pretty good!

You will find more infographics at Statista

Hal Varian's new working paper on AI

A new NBER Working Paper by Hal Varian Artificial Intelligence, Economics, and Industrial Organization

Abstract:

Machine learning (ML) and artificial intelligence (AI) have been around for many years. However, in the last 5 years, remarkable progress has been made using multilayered neural networks in diverse areas such as image recognition, speech recognition, and machine translation.  AI is a general purpose technology that is likely to impact many industries.  In this chapter I consider how machine learning availability might affect the industrial organization of both firms that provide AI services and industries that adopt AI technology.   My intent is not to provide an extensive overview of this rapidly-evolving area, but instead to provide a short summary of some of the forces at work and to describe some possible areas for future research.

The Working Paper is available at NBER (gated).

Who Benefits From Productivity Growth?

From a new NBER working paper by Richard Hornbeck, Enrico Moretti,  "Who Benefits From Productivity Growth? Direct and Indirect Effects of Local TFP Growth on Wages, Rents, and Inequality"

Abstract:

We estimate the local and aggregate effects of total factor productivity (TFP) growth on US workers' earnings, housing costs, and purchasing power.  Drawing on four alternative instrumental variables, we consistently find that when a city experiences productivity gains in manufacturing, there are substantial local  increases in employment and average earnings.  For renters, increased earnings are largely offset by increased cost of living; for homeowners, the benefits are substantial. 

Strikingly, local productivity growth reduces local inequality, as it raises earnings of local less-skilled workers more than the earnings of local more-skilled workers.  This is due, in part, to lower geographic mobility of less-skilled workers. 

However, local productivity growth also has important general equilibrium effects through worker mobility.  We estimate that 38% of the overall increase in workers' purchasing power occurs outside cities directly affected by local TFP growth.  The indirect effects on worker earnings are substantially greater for more-skilled workers, due to greater geographic mobility of more-skilled workers, which increases inequality in other cities.  Neglecting these general equilibrium effects would both understate the overall magnitude of benefits from productivity growth and misstate their distributional consequences. 

Overall, US workers benefit substantially from productivity growth.  Summing direct and indirect effects, we find that TFP growth from 1980 to 1990 increased purchasing power for the average US worker by 0.5-0.6% per year from 1980 to 2000.  These gains do not depend on a worker's education; rather, the benefits from productivity growth mainly depend on where workers live.

Gated version of paper is available here. 

Research Note on the December 2017 Massachusetts Employment Situation

December 2017 Report: U-Rate: 3.5%; Jobs: 63,000 YoY 

OVERVIEW

•  According to the Executive Office of Labor and Workforce Development, the state’s total unemployment rate dropped to 3.5 percent in December from 3.6 percent in November.
• The state lost 500 jobs in the month.
• The state's labor force participation decreased one-tenth of a percentage point to 65.3 percent over the month. Compared to December 2016, the LFP rate over the year has increased by 0.7 percentage point.
• Construction gained 1,600 (+1.0%) jobs over the month and Manufacturing added 800 (+0.3%) jobs; Leisure and Hospitality gained 500 jobs (+0.1%); Financial Activities added 400 (+0.2%) jobs. 
• Professional, Scientific and Business Services lost 1,000 (-0.2%) while Education and Health Services lost 1,000 (-0.1%)  
• Other Services lost 200 (-0.1%) jobs over the month; Trade, Transportation and Utilities lost 500 (-0.1%) and Information lost 700 (-0.8%) and Government lost 100 jobs. 
• The November jobs number was revised from the originally reported 6,700 to 7,800 jobs. 

ANALYSIS

The December unemployment rate was six-tenths of a percentage point lower than the national rate of 4.1 percent reported by the Bureau of Labor Statistics. The largest private sector percentage job gains over the year were in Construction, Manufacturing, Financial Activities and Leisure and Hospitality. 

“While much of these [year over year] job gains continue to be in sectors like Professional, Business, and Scientific Services, Manufacturing posted a preliminary 2,800 over the year job gain, the first over the year over job gain in that sector in 18 years," Labor and Workforce Development Secretary Rosalin Acosta said in yesterday's statement. 

Over the last decade, Manufacturing has lost 43,100 jobs. (See table.) However, if we were to rank wages in the sectors with employment growth sectors such as Management and Professional Services, we find that manufacturing wages would rank 3rd (with $1,625 per week) and significantly higher than the private sector average of $1,273.   

The state’s high-tech manufacturing may account for the high wages in an overall shrinking sector — highlighting how output increases with fewer workers.  Weekly wages in the management subsector are nearly double when compared to all private industries. 

The latest Beige Book: Most firms retain positive outlook in New England

The Federal Reserve Bank of Boston contribution to the latest Beige Book

Business activity expanded modestly in the First District as 2017 came to a close. Most contacted retailers, manufacturers, and software and information technology (IT) services firms saw revenues increase, although a minority reported flat to slight declines in revenues or sales from a year earlier. Among responding retailers, online sales performed better than in-store sales. Revenue increases among software and IT services firms were strong, ranging from 10 percent to 20 percent year over year. Commercial and residential real estate markets continued much as in the last report, with commercial rents and residential prices increasing in general, while sales were mixed. Labor markets continued to be tight and difficulty in hiring workers has constrained expansion for some firms. Few contacts mentioned price changes. Most responding firms in the region retained a positive outlook for their business.

More on the automated economy from NBER

From a new NBER working paper, "Artificial Intelligence, Automation and Work,"  by Daron Acemoglu and Pascual Restrepo. 

Abstract:

We summarize a framework for the study of the implications of automation and AI on the demand for labor, wages, and employment.  Our task-based framework emphasizes the displacement effect that automation creates as machines and AI replace labor in tasks that it used to perform.  This displacement effect tends to reduce the demand for labor and wages.  But it is counteracted by a productivity effect, resulting from the cost savings generated by automation, which increase the demand for labor in non-automated tasks.  The productivity effect is complemented by additional capital accumulation and the deepening of automation (improvements of existing machinery), both of which further increase the demand for labor. These countervailing effects are incomplete.  Even when they are strong, automation increases output per worker more than wages and reduce the share of labor in national income.  The more powerful countervailing force against automation is the creation of new labor-intensive tasks, which reinstates labor in new activities and tends to increase the labor share to counterbalance the impact of automation.  Our framework also highlights the constraints and imperfections that slow down the adjustment of the economy and the labor market to automation and weaken the resulting productivity gains from this transformation:  a mismatch between the skill requirements of new technologies, and the possibility that automation is being introduced at an excessive rate, possibly at the expense of other productivity-enhancing technologies.

Manufacturing says "See you in December": BLS: NFP +148,000 U-Rate 4.1%

OVERVIEW

• The unemployment rate remained at 4.1 percent for the third consecutive month in December while payrolls expanded by 148,000, according to the Bureau of Labor Statistics.
• The Labor Force Participation (LFP) remained at 62.7 percent. The employment-population ratio was unchanged at 60.1 percent. 
• Employment in health care increased by 31,000 while construction added 36,000 jobs. 
• The manufacturing sector added 25,000 jobs. The BLS reports that this sector added 196,000 jobs in 2017 after a dismal 2016 which saw a loss of 16,000 jobs. 
• Professional and business services kept pace in 2017 with the previous year adding 44,000 jobs per month. In December, the sector added 19,000 jobs 
• Employment in the other major sectors— mining, wholesale trade, transportation and warehousing, information, financial activities and government —changed little over the month. 
• Over the year, the BLS reports the unemployment rate and the number of unemployed were down by 0.6 percentage point and 926,000, respectively.

ANALYSIS

In December, the American jobs machine took a breather. The payroll employment (+148,000) fell below the Wall Street consensus of 190,000 jobs.  According to an ADP report earlier this week, private sector employment increased by 250,000 jobs in December.  The unemployment rate for the major work groups remained low. The unemployment rate for African-Americans fell to 6.8 percent the lowest ever.  The retail sector fared better under the last year of the previous administration where it increased by 203,000 in 2016. In 2017 it lost 67,000. Employment in general merchandise edged down in 2017 shedding 67,000 jobs. However, Manufacturing added 196,000 jobs in 2017 following little net change in 2016. The November employment report was revised up from +228,000 to +252,000 and the change in October was revised down from +244,000 to +211,000 (Combined over two months, a net loss of 9,000 jobs). Over the past three months, job gains have averaged 204,000 a month.  In December, average hourly earnings for all employees increased by 9 cents to $26.63; over the past year, hourly earnings have risen by 65 cents or 2.5 percent. The labor force participation rate has not changed over the year. It remains at 62.7 percent.  The number of workers employed part-time for economic reasons has declined by 639,000 over the past year.  

 

The stock market confounds its observers

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

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. 

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.

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. 

Housing consumes 39.2% of all spending for Boston

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.

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. 

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

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. 

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.

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.