Notes on the May 2019 Massachusetts Employment Situation: U-Rate: 3.0 %; Jobs: -3,600

OVERVIEW

• The state’s total unemployment rate for May increased to 3.0 percent according to the Executive Office of Labor and Workforce Development.  
• From May 2018 to May 2019, the Bureau of Labor Statistics estimates that Massachusetts added 26,700 jobs.  
• Professional, Scientific and Business Services added 1,000 jobs with 7,100 jobs added over the past 12 months. 
• Education and Health Services lost 300 jobs over the month. Over the year, this sector gained 14,300 jobs
• Manufacturing gained 100 jobs in May and has lost 1,800 jobs over the year. 
• The Construction sector lost 2,300 jobs and has lost 700 over the year. 
• Trade, Transportation and Utilities lost 2,300 jobs over the month. Over the year, the sector lost 600 jobs.
• Financial Activities lost 100 while Information added 300 jobs in May. 
• Growth in the Other Services sector remained unchanged but is up 2,300 over the year. 
• Government added 400 jobs in May. Over the past 12 months this sector has gained 4,900 jobs.
• The 3.0 percent rate in Massachusetts is six-tenths of a point lower than the national rate of 3.6 percent.
• According to the Bureau of Labor Statistics, unemployment rates were lower in 6 states, higher in 2 states, and stable in 42 states and the District of Columbia in May. Nonfarm payroll employment increased in Washington state and was essentially unchanged in 49 states and in D.C. 

ANALYSIS

Until last month, December 2016 was the last time the unemployment rate in Massachusetts ticked up by one-tenth of a point. In May 2019, the state’s rate ticked up to 3.0 percent.  The state’s economy is still at full employment.  

“Massachusetts continues to experience a strong economy with a low unemployment rate of 3.0 percent and over 60,000 more employed residents and 17,500 fewer unemployed residents in the last year. Also, the Commonwealth’s labor force participation rate remains at a near 15-year high and is 5 points above the US rate,” Labor and Workforce Development Secretary Rosalin Acosta said.  

The state’s labor force totals 3.84 million representing a 67.8 percent labor force participation rate. 

Manufacturing gained 100 jobs over the month, but the sector is still losing jobs since last year (1,800). Trade, Transportation and Utilities lost 2,300 jobs and Education and Health Services lost 300 jobs. However, Government added 400 jobs, part of the 4,200 jobs it gained year over year. 

Since the end of the Great Recession in June 2009, the state’s unemployment rate has dropped significantly from 8.1 percent. During the recovery, the Massachusetts unemployment rate increased by no more than 0.1 percent six times. That means the rate has dropped or remained unchanged for 109 of the 120 months that mark the recession (see Chart A). 

Chart A.

Massachusetts enjoys the 12th best unemployment rate in the U.S. (See Table A.) Two other New England states are atop the nation: Vermont has the lowest unemployment rate at 2.1 percent while New Hampshire registers third in the nation with its 2.4 percent rate.  

Table A: New England Unemployment Rates

Source: Bureau of Labor Statistics

The BLS updated the state’s county employment picture with April 2019 data.  Middlesex and Hampshire counties enjoyed the lowest unemployment rates. More than half of the counties — 8 of 14— recorded rates lower than the statewide rate of 3.0 percent for April 2019 (See Table B).

Table B: County Unemployment Rates

New NBER Working Paper: "Work of the Past, Work of the Future" by David Autor

From a new NBER Working Paper, "work of the Past, Work of the Future," by David Autor 

Abstract:

Labor markets in U.S. cities today are vastly more educated and skill-intensive than they were five decades ago. Yet, urban non-college workers perform substantially less skilled work than decades earlier. This deskilling reflects the joint effects of automation and international trade, which have eliminated the bulk of non-college production, administrative support, and clerical jobs, yielding a disproportionate polarization of urban labor markets. The unwinding of the urban non-college occupational skill gradient has, I argue, abetted a secular fall in real non-college wages by: (1) shunting non-college workers out of specialized middle-skill occupations into low-wage occupations that require only generic skills; (2) diminishing the set of non-college workers that hold middle-skill jobs in high-wage cities; and (3) attenuating, to a startling degree, the steep urban wage premium for non-college workers that prevailed in earlier decades. Changes in the nature of work—many! of which are technological in origin—have been more disruptive and less beneficial for non-college than college workers.

Gated copy here.

The threat of automation, another paper on the topic

A new NBER Working Paper by David E. Bloom, Mathew McKenna, Klaus Prettner  "Demography, Unemployment, Automation, and Digitalization: Implications for the Creation of (Decent) Jobs, 2010-2030"

Abstract:

Globally, an estimated 734 million jobs will be required between 2010 and 2030 to accommodate recent and ongoing demographic shifts, account for plausible changes in labour force participation rates, and achieve target unemployment rates of at or below 4 percent for adults and at or below 8 percent for youth. The facts that i) most new jobs will be required in countries where "decent" jobs are less prevalent and ii) workers in many occupations are increasingly subject to risks of automation further compound the challenge of job creation, which is already quite sizable in historical perspective.  Failure to create the jobs that are needed through 2030 would put currently operative social security systems under pressure and undermine efforts to guarantee the national social protection floors enshrined in the Sustainable Development Goals (SDGs).

Paper available for NBER members.

How Large are the U.S. Economy Gains from Trade?

From a working paper by Arnaud Costinot and Andrés Rodríguez-Clare: 

Abstract: 

About 8 cents out of every dollar spent in the United States is spent on imports. What if, because of a wall or some other extreme policy intervention, imports were to remain on the other side of the US border? How much would US consumers be willing to pay to prevent this hypothetical policy change from taking place? The answer to this question represents the welfare cost from autarky or, equivalently, the welfare gains from trade. In this article, we discuss how to evaluate these gains using the demand for foreign factor services. The estimates of gains from trade for the US economy that we review range from 2 to 8 percent of GDP. 

A less technical overview is presented in the NBER Digest from April 2018

New NBER Working Paper: "The Role of Financial Policy"

From a new paper by Roger Farmer, "The Role of Financial Policy."

Abstract:

I review the contribution and influence of Milton Friedman's 1968 presidential address to the American Economic Association.  I argue that Friedman's influence on the practice of central banking was profound and that his argument in favour of monetary rules was responsible for thirty years of low and stable inflation in the period from 1979 through 2009.  I present a critique of Friedman's position that market-economies are self-stabilizing, and I describe an alternative reconciliation of Keynesian economics with Walrasian general equilibrium theory from that which is widely accepted today by most neo-classical economists. 

Gated copy is available here.

New NBER Working Paper on Bitcoin Economics

From Some Simple Bitcoin Economics, by Linda Schilling and Harald Uhlig 

Abstract:

How do Bitcoin prices evolve? What are the consequences for monetary policy? We answer these questions in a novel, yet simple endowment economy.  There are two types of money, both useful for transactions:  Bitcoins and Dollars.  A central bank keeps the real value of Dollars constant, while Bitcoin production is decentralized via proof-of-work.  We obtain a "fundamental condition," which is a version of the exchange-rate indeterminacy result in Kareken-Wallace (1981), and a "speculative" condition. Under some conditions, we show that Bitcoin prices form convergent supermartingales or submartingales and derive implications for monetary policy.
Available at the National Bureau for Economic Research (NBER): Working Paper #24483  

New NBER Working Paper: U.S. Employment and Opioids: Is There a Connection?

From a new NBER Working Paper "U.S. Employment and Opioids: Is There a Connection?" by Janet Currie, Jonas Y. Jin and Molly Schnell.

Abstract:

This paper uses quarterly county-level data to examine the relationship between opioid prescription rates and employment-to-population ratios from 2006-2014.  We first estimate models of the effect of opioid prescription rates on employment-to-population ratios, instrumenting opioid prescriptions for younger ages using opioid prescriptions to the elderly.  We also estimate models of the effect of employment-to-population ratios on opioid prescription rates using a shift-share instrument.  We find that the estimated effect of opioids on employment-to-population ratios is positive but small for women, but there is no relationship for men.  These findings suggest that although they are addictive and dangerous, opioids may allow some women to work who would otherwise leave the labor force.  When we examine the effect of employment-to-population ratios on opioid prescriptions, our results are more ambiguous.  Overall, our findings suggest that there is no simple causal relationship between economic conditions and the abuse of opioids.  Therefore, while improving economic conditions in depressed areas is desirable for many reasons, it is unlikely to curb the opioid epidemic.

The working paper is available here, (gated).

Under the guise of free trade

"What do trade agreements really do?" a new NBER working paper by Dani Rodrik.

Abstract:

As trade agreements have evolved and gone beyond import tariffs and quotas into regulatory rules and harmonization, they have become more difficult to fit into received economic theory. Nevertheless, most economists continue to regard trade agreements such as the Trans Pacific Partnership (TPP) favorably.The default view seems to be that these arrangements get us closer to free trade by reducing transaction costs associated with regulatory differences or explicit protectionism.  An alternative perspective is that trade agreements are the result of rent-seeking, self-interested behavior on the part of politically well-connected firms - international banks, pharmaceutical companies, multinational firms.  They may result in freer, mutually beneficial trade, through exchange of market access.  But they are as likely to produce purely redistributive outcomes under the guise of "freer trade."

My commentary will follow at a later date.

"The estimates suggest that the shift to Internet sales substantially increased both seller profits and consumer surplus."

The finding from a new NBER working paper by Glenn Ellison and Sara Fisher Ellison titled, "Match Quality, Search, and the Internet Market for Used Book."

Abstract:

This paper examines the effect of the Internet on markets in which match-quality is important, including an analysis of the market for used books.  A model in which sellers of unusual objects wait for high-value buyers to arrive brings out match quality and competition effects through which improved search technologies may increase both price dispersion and social welfare.  A reduced-form empirical analysis finds support for a number of more nuanced predictions of the model in the context of the used book market, exploiting both cross-sectional differences across books and time-series differences in the wake of Amazon's acquisition and incorporation of a large used book marketplace.  The paper develops a framework for structural estimation of a model based on the theory.  The estimates suggest that the shift to Internet sales substantially increased both seller profits and consumer surplus.

"How to save humanity from the Malthusian destiny" resulting from AI

From the new NBER working paper by Anton Korinek, Joseph E. Stiglitz  titled, "Artificial Intelligence and Its Implications for Income Distribution and Unemployment."

Abstract:

Inequality is one of the main challenges posed by the proliferation of artificial intelligence (AI) and other forms of worker-replacing technological progress.  This paper provides a taxonomy of the associated economic issues:  First, we discuss the general conditions under which new technologies such as AI may lead to a Pareto improvement.  Secondly, we delineate the two main channels through which inequality is affected - the surplus arising to innovators and redistributions arising from factor price changes. Third, we provide several simple economic models to describe how policy can counter these effects, even in the case of a "singularity" where machines come to dominate human labor. Under plausible conditions, non-distortionary taxation can be levied to compensate those who otherwise might lose.  Fourth, we describe the two main channels through which technological progress may lead to technological unemployment via efficiency wage effects and as a transitional phenomenon. Lastly, we speculate on how technologies to create super-human levels of intelligence may affect inequality and on how to save humanity from the Malthusian destiny that may ensue.

Read the whole working paper here. (Gated)

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.

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.

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.

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.

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.

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.

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?