On my reading list: Selected papers

Some collected readings for my list. 


Julian Reiss. The Methodology of Positive Economics: Reflections on the Milton Friedman Legacy, ed. Uskali Mäki. Cambridge: Cambridge University Press,  Link.

Pablo D. Fajgelbaum, Pinelopi K. Goldberg, Patrick J. Kennedy and Amit K. Khandelwal. The Return to Protectionism. Link.

Gilbert Cette, Lorraine Koehl, Thomas Philippon. Labor Shares in Some Advanced Economies. Link.

Grace Weishi Gu, Eswar Prasad. New Evidence on Cyclical Variation in Labor Costs in the U.S. Link.

Robert J. Gordon. Friedman and Phelps on the Phillips Curve Viewed from a Half Century's Perspective. Link. 

Andrew B. Hall, Jesse Yoder. Does Homeownership Influence Political Behavior? Evidence from Administrative Data. Link.

Anna Maria Mayda, Giovanni Peri, Walter Steingress. The Political Impact of Immigration: Evidence from the United States. Link.

Patrick Bajari, Victor Chernozhukov, Ali Hortaçsu, Junichi Suzuki. The Impact of Big Data on Firm Performance: An Empirical Investigation. Link. 

Jared Walczak, Tax Trends at the Dawn of 2020. Tax Foundation. Link.

David Neumark, Peter Shirley. The Long-Run Effects of the Earned Income Tax Credit on Women's Earnings. Link.

David Autor, David Dorn, Lawrence F. Katz, Christina Patterson, John Van Reenen. Concentrating on the Fall of the Labor Share. Link.

David Autor, David Dorn, Lawrence F. Katz, Christina Patterson, John Van Reenen. The Fall of the Labor Share and the Rise of Superstar Firms. Link.

Murray Rothbard. Robert Nozick and the Immaculate Conception of the State. Link.

Austan Goolsbee. Public Policy in an AI Economy. NBER. Link. 

Dani Rodrik. What Do Trade Agreements Really Do? Link. 

Statista: Where U.S. home prices are rising the fastest (and slowest)

You will find more infographics at Statista

Statista tackles this chart: "How much do countries spend on education"

You will find more infographics at Statista

U.S. Employment Situation: 3.7% unemployment rate with 134,000 new payrolls

OVERVIEW

• The unemployment rate dropped to 3.7 percent in September with payrolls expanding by 134,000 jobs, according to the Bureau of Labor Statistics.  The unemployment rate is the lowest since 1969. 
• The Labor Force Participation (LFP) remained at 62.7 percent. The Employment-population ratio finished for the month at 60.4 percent, little changed. The number of unemployed for the month was 6.0 million, declining by 270,000. 
• The economy added 137,000 jobs in September.  Job gains took place in Professional and business services (+54,000), Health care (+26,000) and the Transportation and warehousing sector (+24,000).
• In addition, Construction added 23,000 jobs while Manufacturing added 18,000 jobs.  
• According to the BLS, the following sectors saw little or no change in employment: Wholesale trade, Retail trade, Information, Financial activities and Government. 
• Over the year, average hourly earnings have increased by 73 cents or 2.8 percent. In September the average hourly private nonfarm wage rang in at $27.24, an increase of eight cents. The average workweek for all employees was unchanged at 34.5 hours. 
• Despite Hurricane Florence, the BLS said its surveys were within normal ranges. Major analysts appeared to agree.  
• The number of persons employed part-time for economic reasons increased by 263,000 to 4.6 million. The number of long-term unemployed was little changed at 1.4 million. This group represents 22.9 of all unemployed persons.

ANALYSIS

Total nonfarm payroll employment rose by 134,000 in September well below the 12-month average of 201,000.  Wall Street expected a payroll increase by 185,000 jobs. The BLS reported 121,000 new private sector jobs were created compared with the ADP payrolls report released earlier this week of 230,000 private payrolls. 

While jobs created were below expectations, the BLS revised numbers for July (from 147,000 to 165,000) and August from 201,000 to 270.000). After revisions, the BLS found the three-month average for new jobs arrived at 190,000 per month. Manufacturing continues to improve. Over the past year the sector has added 278,000 jobs — four-fifths of that growth taking place in the high-wage durable goods sector. 

That could continue to improve as the nation’s manufacturing system continues to express optimism despite a worker shortage. According to the National Association of Manufacturers, “Nearly 93 percent of manufacturers are projecting further expansion for their businesses, and positive sentiment among smaller companies is up to 91.3 percent.” 

In one of the only downsides of today’s report, Hurricane Florence may have caused some weakness in the Leisure and hospitality sector (-17,000).  
Hispanic unemployment is at an all-time low.  

Unemployment drifted downward for all groups by educational attainment (See chart below). "The labor market is in excellent shape heading into the end of 2018, perhaps the best it has been in 50 years,"  Gus Faucher, chief economist at PNC told CNBC. "Job growth was a bit softer in September, but some of that was from Hurricane Florence, and it should bounce back through the rest of 2018 and into 2019."

Chart by East Boston Economics - BLS,Table A4 - Educational Attainment

September 2018 ADP National Employment Report : +230,000 nonfarm private sector jobs

ADP National Employment Report | September 2018

New article from Econ Journal Watch: And the IMF Said, Let There Be Data, and There Was Data: Private Capital Stocks in the Eastern Bloc

From two graduates of the Suffolk University PhD program in Economics I had the pleasure of knowing and working with over the years. Here's Ryan Murphy and Colin O'Reilly's new paper. 

And the IMF Said, Let There Be Data, and There Was Data: Private Capital Stocks in the Eastern Bloc

Abstract

The International Monetary Fund has recently published a dataset on public and private capital stocks for 170 countries from 1960–2015 using the perpetual inventory methodology. Following a reckless assumption, opaquely imposed, the dataset likely overstates levels of private investment as a percentage of total investment in former Eastern bloc countries, and thereby likely overstates their private capital stocks. This comment explores the nature and implications of the assumption, and suggests that, in light of the problem, the scope of the IMF project be significantly diminished to address the issue.

Read more here (PDF). 

Hat tip to MarginalRevolution.com.

On Dynamic Stochastic General Equilibrium

"On DSGE Models," a new NBER working paper by Lawrence J. Christiano, Martin S. Eichenbaum and Mathias Trabandt 

Abstract

The outcome of any important macroeconomic policy change is the net effect of forces operating on different parts of the economy.  A central challenge facing policy makers is how to assess the relative strength of those forces.  Dynamic Stochastic General Equilibrium (DSGE) models are the leading framework that macroeconomists have for dealing with this challenge in an open and transparent manner.  This paper reviews the state of DSGE models before the financial crisis and how DSGE modelers responded to the crisis and its aftermath.  In addition, we discuss the role of DSGE models in the policy process.

Gated copy at NBER.

June 2018 Employment Situation: U-Rate: 4.0%; Jobs: +213,000

OVERVIEW

• The unemployment rate rose to 4.0 percent in June with payrolls expanding by 213,000 jobs, according to the Bureau of Labor Statistics.
• The Labor Force Participation (LFP) edged up by 0.2 percentage point to 62.9 percent. The employment-population ratio was unchanged in June at 60.4 percent and has remained flat since February. The number of unemployed for the month of June was 6.6 million. One year ago, that number was 7.0 million. 
• In June employment grew in the manufacturing, health care, construction and mining sectors.
• Manufacturing added 36,000 jobs with durable goods manufacturing accounting for most of the increase. 
• Professional and business services added 50,000 jobs. This sector has added 521,000 jobs over the past year. Retail lost 22,000 jobs in June offsetting May’s gain of 25,000 jobs. 
• Employment in the other major sectors—wholesale trade, transportation and warehousing, information, financial activities, leisure and hospitality and government —changed little over the month.
• The average duration of unemployment declined over the past year from 24.9 to 21.2 weeks.

ANALYSIS

The U.S. economy added 213,000 jobs beating economists’ expectations in the range of 200,000 and 195,000 jobs. 

The report looks even better when considering the revisions. April’s report was revised upward to 175,000 jobs from the previously reported 159,000 and May’s report was revised upward to 244,000 from 223,000. The BLS reported that after these revisions, job gains have averaged 211,000 per month over the last three months. 

The private sector created 202,000 new jobs, a figure higher than this week’s ADP report for the same month (+177,000). 

The unemployment rate rose to 4.0 percent from 3.8 percent but remains lower than 12 month ago (4.3 percent). The increase may be attributable to the 0.2 percentage point increase in labor force participation over the past month. 

Over the past year the manufacturing sector has added 285,000 jobs, an impressive number that will be tested as trade disputes intensify with new tariffs on foreign goods. 

Average hourly earnings for all employees rose by five cents to $26.98, representing a gain of 2.7 percent over the past year. The average work week remained at 34.5 hours. 

The number of long-term unemployment increased by 289,000 to 1.5 million. These individuals who have been unemployed for more than 27 weeks account for 23 percent of all unemployed. The percent distribution of this group has increased over the past five months suggesting the hardships of returning to work after long periods of unemployment.

What Happened: Financial Factors in the Great Recession

From a new NBER working paper by Mark Gertler and Simon Gilchrist

Abstract:

Since the onset of the Great Recession, an explosion of both theoretical and empirical research has investigated how the financial crisis emerged and how it was transmitted to the real sector. The goal of this paper is to describe what we have learned from this new research and how it can be used to understand what happened during the Great Recession. In the process, we also present some new evidence on the role of the household balance sheet channel versus the disruption of banking. We examine a panel of quarterly state level data on house prices, mortgage debt and employment along with a measure of banking distress. Then exploiting both panel data and time series methods, we analyze the contribution of the house price decline versus the banking distress indicator to the overall decline in employment during the Great Recession. We confirm a common finding in the literature that the household balance sheet channel is important for regional variation in employment. However, we also find that the disruption in banking was central to the overall employment contraction.

Gated copy of the paper is here.  

Robert Gordon's latest working paper: "Why has economic growth slowed when innovation appears to be accelerating?

From the eminent Robert Gordon of Northwestern University, a new working paper on the productivity slowdown in the West. 

Abstract:

Measured between quarters with identical unemployment rates, U. S.  economic growth slowed by more than half from 3.2 percent per year during 1970-2006 to only 1.4 percent during 2006-16, and only half of this GDP growth slowdown is accounted for diminished productivity growth.  The paper starts from the proposition that GDP growth matters, not just productivity growth, because slower GDP growth provides fewer resources to address the nation's problems, including faltering education, aging infrastructure, and the looming shortfall in funding for Social Security and Medicare, and it also implies lower net investment and a reduced rate at which new capital can embody the latest technology.   

The paper documents the contribution to slower GDP growth of the separate components of demography -- fertility, mortality, life expectancy, and immigration.  Particular emphasis is placed on the interaction between rising inequality and the slower secular rise of life expectancy in the U.S. compared to other developed countries, both in the form of a large gap in life expectancy between rich and poor, and the stagnation of life expectancy for the lowest income quintile.  Further contributions to slowing growth are made by a decline in the population share of both legal and illegal immigration and a turnaround from rising to declining labor force participation.  Rising inequality creates a gap between the growth of average real per-capita income relative to that of median real income, and alternative measures of the evolution of this gap are compared and assessed. 

Read more of the abstract at NBER.

Waves of immigration and educational attainment: What progress looks like

From a new NBER Working Paper, "Socioeconomic Integration of U.S. Immigrant Groups over the Long Term: The Second Generation and Beyond," by Brian Duncan and Stephen J. Trejo  

Abstract:

In this chapter, we document generational patterns of educational attainment and earnings for contemporary immigrant groups.  We also discuss some potentially serious measurement issues that arise when attempting to track the socioeconomic progress of the later-generation descendants of U.S. immigrants, and we summarize what recent research has to say about these measurement issues and how they might bias our assessment of the long-term integration of particular groups.  Most national origin groups arrive with relatively high educational attainment and/or experience enough improvement between the first and second generations such that they quickly meet or exceed, on average, the schooling level of the typical American.  Several large and important Hispanic groups (including Mexicans and Puerto Ricans) are exceptions to this pattern, however, and their prospects for future upward mobility are subject to much debate.  Because of measurement issues and data limitations, Mexican Americans in particular and Hispanic Americans in general probably have experienced significantly more socioeconomic progress beyond the second generation than available data indicate.  Even so, it may take longer for their descendants to integrate fully into the American mainstream than it did for the descendants of the European immigrants who arrived near the turn of the twentieth century.

AIER: Why Fiscal Warnings Fall on Deaf Ears

From the American Institute for Economic Research:

Why Fiscal Warnings Fall on Deaf Ears: The most profound and important insight from Miron's contribution is the political resistance to sufficient spending cuts, which are unavoidable, since neither higher taxes nor higher growth provide a path to solvency.

Trade does not increase income inequality

A recent IMF paper by Diego A. Cerdeiro and Andras Komaromi  "Trade and Income in the Long Run: Are There Really Gains, and Are They Widely Shared?" tackles big questions about income and income inequality related to trade. 

Abstract

In the cross-section of countries, there is a strong positive correlation between trade and income, and a negative relationship between trade and inequality. Does this reflect a causal relationship? We adopt the Frankel and Romer (1999) identification strategy and exploit countries' exogenous geographic characteristics to estimate the causal effect of trade on income and inequality. Our cross-country estimates for trade's impact on real income are consistently positive and significant over time. At the same time, we do not find any statistical evidence that more trade increases aggregate measures of income inequality. Heeding previous concerns in the literature (e.g. Rodriguez and Rodrik, 2001; Rodrik, Subramanian and Trebbi, 2004), we carefully analyze the validity of our geography-based instrument, and confirm that the IV estimates for the impact of trade are not driven by other direct or indirect effects of geography through non-trade channels.

"Financial markets benefit society"

From a new European Central Bank paper by Alexander Popov,  "Evidence on finance and economic growth."

This paper reviews and appraises the body of empirical research on the association between financial markets and economic growth that has accumulated over the past quarter-century. The bulk of the historical evidence suggests that financial development affects economic growth in a positive, monotonic way, yet recent research endeavors have provided useful and important benefits of this conventional wisdom. Moreover, the proliferation of micro-level datasets has enabled researchers to study more precise links between theory and measurement. The paper highlights the mechanisms through which financial markets benefit society, as well as the channels through which finance can slow down long-term growth.

Available here. 

"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. 

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?

Is the growing financialization of an economy a good thing?

Ugo Panizza of the Graduate Institute Geneva and CEPR takes a look at the literature centered on the financialization of economies.

This paper reviews the empirical literature on the links between finance and growth with a special focus on the empirical literature that has shown that the marginal contribution of Financial depth to economic growth becomes negative in countries with large Financial sectors (the ìtoo much Financial result). It then assesses the empirical and theoretical validity of recent criticisms to this literature and concludes by discussing avenues for future research aimed at identifying the channels through which a very large finance sector can slow down economic growth.

Here's a key public choice area for further examination.

There is evidence of substantial lobbying by the financial industry  and given that financial deregulation affects the rents captured by financial industry participants, it is possible that a large financial sector, which increases the lobbying power of the financial industry, would lead to more pressure for socially inefficient financial regulation which, in turn, further increases the lobbying power of the financial industry.

More here.