Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, July 1, 2019

AI Summary. Rising labor-force participation among workers over 55 in Italy, Japan, the U.S., the U.K., Germany, and France added 18.8m workers, a 5.5% boost to labor supply, according to OECD data. In Germany, participation gains among those aged 55-79 turned a projected 2.4% workforce contraction into 9.6% growth, adding 3.8m people.

Sarah Chaney Wall Street Journal
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Uptick in labor-force participation among over-55s in Italy, Japan, the U.S., the U.K., Germany, and France has increased by 18.8m workers, a 5.5% boost in labor supply, according to @WSJ @SarahChaney3.

Are older workers offsetting shrinking workforces in advanced economies?

Core argument: Labor-force participation among over-55s in Italy, Japan, the U.S., U.K., Germany, and France has added 18.8m workers since 2001, a 5.5% boost to labor supply, according to OECD data.

Since 2001, labor-force participation among over-55s in Italy, Japan, the U.S., the U.K., Germany, and France has increased by 18.8m workers, a 5.5% boost in labor supply, according to OECD data. If Germany's 55-79 age group had maintained 1991 participation rates, its workforce would have shrunk by 2.4% by 2018; instead, it grew by 9.6%, adding 3.8m people. Similarly, Italy's workforce would have contracted without increased elderly participation. Japan exemplifies this trend, with labor-force participation among those aged 55-64 rising from 68.2% in 2011 to 77% in 2018. This suggests potential for further employment rate increases if other nations emulate Japan's approach, providing a significant boost to slow-growing economies.

Takeaways by Macro Roundup® AI

  1. Labor-force participation among over-55s in Italy, Japan, the U.S., U.K., Germany, and France has added 18.8m workers since 2001, a 5.5% boost to labor supply, according to OECD data.
  2. Germany's workforce grew 9.6% by 2018, adding 3.8m people, whereas it would have shrunk 2.4% had its 55–79 age group kept 1991 participation rates; Italy's workforce likewise would have contracted.
  3. Japan's labor-force participation among those aged 55–64 rose from 68.2% in 2011 to 77% in 2018, suggesting room for further employment-rate gains if other nations follow Japan's approach.

WSJ reports on the same OECD data showing an uptick in LFP by older workers that we pulled a few weeks ago

"...The rise in labor-force participation of over-55 year olds in Italy, Japan, the U.S., the U.K., Germany and France since 2001 equates to a combined 18.8 million workers, or a 5.5% boost in their supply of labor, according to the Organization for Economic Cooperation and Development....If the same share of Germans age 55 to 79 were in the labor force in 2018 as in 1991, Germany’s overall workforce would have contracted by 2.4%, or nearly 1 million people, over that period, according to an analysis by Mark Keese, an OECD employment economist. Instead, it expanded by 9.6%, or 3.8 million people. Italy’s labor force also would have contracted without growth in elderly participation..... Still, Mr. Keese points to Japan, which continues to defy economic odds despite its population’s advanced age. In 2018, 77% of Japanese aged 55 to 64 were in the labor force, up from 68.2% in 2011. “If other countries follow Japan’s pathway, then there’s still scope for employment rates to rise quite considerably, even from their current high levels,” he said...."

Sarah Chaney, "Gray Wave of Workers Gives Slow-Growing World a Boost,"Wall Street Journal, June 30, 2019, https://www.wsj.com/articles/gray-wave-of-workers-gives-slow-growing-world-a-boost-11561899600

Monday, July 8, 2019

AI Summary. Research finds no significant effect of minimum wage or Earned Income Tax Credit increases on drug-related deaths, but estimates a 10% rise in either reduces non-drug suicides among adults with a high school education or less by 3.6% and 5.5% respectively, preventing roughly 1,230 suicides annually.

William Dow National Bureau of Economic Research
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Research by @WilliamDow suggests economic policies like minimum wage & EITC have limited impact on reducing “deaths of despair”, particularly drug-related mortality. They can reduce non-drug suicides but overall effect is modest.

Do income-boosting policies reduce drug deaths and suicides?

Core argument: A 10% increase in the minimum wage is estimated to reduce non-drug suicides among adults with a high school education or less by 3.6%, and a 10% increase in the Earned Income Tax Credit by 5.5%.

Recent research suggests that economic policies like the minimum wage and Earned Income Tax Credit (EITC) have limited impact on reducing "deaths of despair," particularly drug-related mortality. The study found no significant effects of these policies on drug-related deaths. However, a 10% increase in the minimum wage can reduce non-drug suicides among adults with a high school education or less by 3.6%, while a similar increase in the EITC can reduce suicides by 5.5% in the same demographic. Despite these reductions, the overall effect is modest, with an estimated prevention of only 1230 suicides annually. The findings highlight that while income-boosting policies can mitigate some forms of despair, they are not a panacea for drug-related deaths, underscoring the need for targeted interventions in addressing the broader crisis of midlife mortality.

Takeaways by Macro Roundup® AI

  1. A 10% increase in the minimum wage is estimated to reduce non-drug suicides among adults with a high school education or less by 3.6%, and a 10% increase in the Earned Income Tax Credit by 5.5%.
  2. The research found no significant effects of minimum wage or Earned Income Tax Credit increases on drug-related mortality.
  3. The policies are estimated to prevent about 1,230 suicides annually, a modest effect that points to the need for targeted interventions against midlife mortality.

though this might be interesting flight reading. new NBER paper implies that the tightened labor market will have little impact on "deaths of despair" though looking at the impact of minimum wage/EITC state levels policies and said deaths. paper finds the higher incomes have an impact on non-drug suicides but no impact on drug related mortality, "....find no significant effects of the minimum wage and EITC on drug-related mortality. However, higher minimum wages and EITCs significantly reduce non-drug suicides. A 10 percent increase in the minimum wage reduces non-drug suicides among adults with high school or less by 3.6 percent; a 10 percent increase in the EITC reduces suicides among this group by 5.5 percent...." buta 10% increase in the minimum wage would likely prevent only 1200 suicides a year

"....Midlife mortality has risen steadily in the U.S. since the 1990s for non-Hispanic whites without a bachelor’s degree, and since 2013 for Hispanics and African-Americans who lack a bachelor’s degree. These increases largely reflect increased mortality from alcohol poisoning, drug overdose and suicide. We investigate whether these “deaths of despair” trends have been mitigated by two key policies aimed at raising incomes for low wage workers: the minimum wage and the earned income tax credit (EITC). To do so, we leverage state variation in policies over time to estimate difference-in-differences models of drug overdose deaths and suicides, using data on causespecific mortality rates from 1999-2015. Our causal models find no significant effects of the minimum wage and EITC on drug-related mortality. However, higher minimum wages and EITCs significantly reduce non-drug suicides. A 10 percent increase in the minimum wage reduces non-drug suicides among adults with high school or less by 3.6 percent; a 10 percent increase in the EITC reduces suicides among this group by 5.5 percent. Our estimated models do not find significant effects for a college-educated placebo sample. Event-study models confirm parallel pre-trends, further supporting the validity of our causal research design. Our estimates suggest that increasing both the minimum wage and the EITC by 10 percent would likely prevent a combined total of around 1230 suicides each year..."
William Dow, Anna Godøy, Christopher Lowenstein and Michael Reich, "Can Economic Policies Reduce Deaths of Despair?," National Bureau of Economic Research, April 2019, https://www.nber.org/papers/w25787

AI Summary. Research indicates the Federal Reserve acts more as a rate taker than a maker: unexpected federal funds rate increases raise Treasury yields over 3-5 years, have a moderate negative effect on prospective inflation, and predict higher output growth the following year, since rates are adjusted to economic strength.

Robert Barro Project Syndicate
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Robert Barro suggests the Fed acts more as a rate taker than a maker, with policy changes having weak & delayed effects on inflation.

Is the central bank a rate taker rather than a rate maker?

Core argument: Barro argues the Fed acts more as a rate taker than a rate maker, since its policy changes have weak and delayed effects on inflation, with unexpected funds-rate hikes producing only a moderate negative impact on prospective inflation.

Barro suggests that the Fed acts more as a rate taker than a maker, as its policy changes have weak and delayed effects on inflation. Research indicates that unexpected federal funds rate hikes lead to higher Treasury yields over 3-5 years, with a peak at two years, and a moderate negative impact on prospective inflation. Despite being labeled contractionary, rate increases predict higher output growth in the following year, as the Fed adjusts rates based on economic strength. An unanticipated 50 basis point rate cut can boost the S&P 500 by 5%, overshadowing negative impacts on expected real GDP growth due to lower expected returns on competing instruments. The Fed's credible threat of extreme responses maintains inflation within the 1.5-2% range without needing drastic actions, but this reliance on hypothetical scenarios raises concerns about the robustness of current monetary policy.

Takeaways by Macro Roundup® AI

  1. Barro argues the Fed acts more as a rate taker than a rate maker, since its policy changes have weak and delayed effects on inflation, with unexpected funds-rate hikes producing only a moderate negative impact on prospective inflation.
  2. Unexpected federal funds rate hikes raise Treasury yields over 3–5 years with a peak at two years, and predict higher output growth the following year because the Fed adjusts rates based on economic strength, according to Barro.
  3. An unanticipated 50 basis point rate cut can raise the S&P 500 by 5%, outweighing negative effects on expected real GDP growth because expected returns on competing instruments fall, according to Barro.

from over the weekend, Barro alludes to the Fed as a rate taker, not maker

"....There is a large body of research into how changes in the federal funds rate influence the economy. A 2018 paper by Emi Nakamura and Jón Steinsson in the Quarterly Journal of Economics, for example, finds that a contractionary monetary shock - an unanticipated rise in the federal funds rate - raises yields on Treasury securities over a 3-5-year horizon, with a peak effect at two years. (Results for expansionary shocks are symmetric.) Most of these effects apply to real (inflation-adjusted) interest rates, and show up in indexed bonds as well as conventional Treasuries. The effect of a contractionary shock on the prospective inflation rate is negative but moderate in size, and sets in significantly only after 3-5 years. Although unexpected increases in the federal funds rate are conventionally labeled as contractionary, Nakamura and Steinsson find that “forecasts about output growth” actually rise for the year following an unexpected rate hike. That is, a rate increase predicts higher growth, and a decrease predicts lowergrowth. This pattern likely occurs because the Fed typically raises interest rates when it gets information that the economy is stronger than expected, and it cuts rates when it suspects that the economy is weaker than it previously thought. The same paper also finds that an unanticipated rise in the federal funds rate is bad for the stock market (and vice versa), which accords with the deeply held views of many financial commentators, not to mention US President Donald Trump. The authors estimate that an unanticipated rate cut of 50 basis points raises the S&P 500 stock-market index by about 5%, even though projected real GDP growth declines. The likely reason is the decrease in expected real returns on competing financial instruments, such as Treasury bonds, over the next 3-5 years. This discount-rate effect overshadows the negative influence on stock prices from lower expected future real earnings. But, again, the puzzle is how the Fed can keep inflation steady at 1.5‑2% per year by relying on a policy tool that seems to have only weak and delayed effects. Presumably, if inflation were to rise substantially above the 1.5-2% range, the Fed would initiate the type of dramatic increases in short-term nominal interest rates that Volcker carried out in the early 1980s, and these changes would have major and rapid negative effects on inflation. Similarly, if inflation were to fall well below target, perhaps becoming negative, the Fed would sharply cut rates - or, after hitting the zero-lower bound, use alternative expansionary policies - and this would have major and rapid positive effects on inflation. According to this view, the credible threat of extreme responses from the Fed has meant that it does not actually have to repeat the Volcker-era policy. Rate changes since that time have had modest associations with inflation, but the hypothetical possibility of much sharper changes has remained powerful. Frankly, I am unhappy with this explanation. It is like saying that the inflation rate is subdued because it just is. And, no doubt, a key factor is that actual and expected inflation have both been low - the two are intimately connected twins. But this suggests that the monetary policy behind today’s low and stable actual and expected inflation will keep working until, suddenly, it doesn’t. This makes me wish that I had a better understanding of monetary policy and inflation. It also makes me wish that the people responsible for monetary policy had a better understanding than I have...."

Robert Barro, "Mysteries of Monetary Policy," Project Syndicate, July 4, 2019, https://www.project-syndicate.org/commentary/inflation-monetary-policy-mystery-by-robert-j-barro-2019-07

AI Summary. The Congressional Budget Office estimates a $15 minimum wage would raise earnings for 27.3m workers while costing 1.3m jobs. Studies also associate higher minimum wages with lower suicide rates among less-educated adults, reduced reoffending, productivity gains, wage increases for workers above the minimum, and a 5.3% decline in poverty.

Andrew Van Dam Washington Post
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Raising the minimum wage has multifaceted benefits beyond increasing paychecks. A $15 minimum wage could boost earnings for 27.3m workers, though it may result in 1.3m job losses. Recent studies suggest minimal job loss, with productivity rising as employers hire more skilled workers.

Does raising the minimum wage deliver benefits beyond higher paychecks?

Core argument: The Congressional Budget Office estimates a $15 minimum wage would raise earnings for 27.3m workers while causing 1.3m job losses, though recent studies find minimal job loss as productivity rises with employers hiring more skilled workers.

Raising the minimum wage has multifaceted benefits beyond increasing paychecks. The Congressional Budget Office (CBO) estimates that a $15 minimum wage could boost earnings for 27.3m workers, though it may result in 1.3m job losses. However, recent studies suggest minimal job loss, with productivity rising as employers hire more skilled workers. A 10% wage increase could reduce suicides by 3.6% among less-educated adults, while a 50-cent rise decreases recidivism by 2.8%. Consumer spending increases, and productivity gains of up to 20% are observed, especially during high unemployment. Wage hikes ripple upward, benefiting workers earning up to $3 more than the new minimum. Contrary to fears, employers do not cut benefits, and poverty rates could fall by 5.3%, lifting 1.3m people above the poverty line. Additionally, job-hopping decreases, and older workers remain employed longer, indicating broader societal advantages of a higher minimum wage.

Takeaways by Macro Roundup® AI

  1. The Congressional Budget Office estimates a $15 minimum wage would raise earnings for 27.3m workers while causing 1.3m job losses, though recent studies find minimal job loss as productivity rises with employers hiring more skilled workers.
  2. A 10% minimum wage increase is associated with a 3.6% reduction in suicides among less-educated adults, and a 50-cent rise with a 2.8% decline in recidivism.
  3. Higher minimum wages are linked to poverty rates falling 5.3%, 1.3m people lifted above the poverty line, productivity gains of up to 20% during high unemployment, and wage gains reaching workers earning up to $3 above the new minimum.

Andrew Van Dam, "It’s not just paychecks: The surprising society-wide benefits of raising the minimum wage,"Washington Post, July 8, 2019, https://www.washingtonpost.com/business/2019/07/08/its-not-just-paychecks-surprising-society-wide-benefits-raising-minimum-wage/It’s not just paychecks: The surprising society-wide benefits of raising the minimum wage The central question in the minimum-wage debate has shifted. Where economists once asked, “Will raising the wage floor kill jobs?” they now ask, “Just how transformative could a higher minimum wage be?” This week, the Congressional Budget Office estimated that raising the minimum wage to the $15 level proposed by many Democratic candidates would lift the earnings of 27.3 million workers but lead to 1.3 million lost jobs. The estimates were released into a research climate which has changed considerably since the CBO last considered the issue in 2014. Notably, a top journal published what many economists regard as the most rigorous analysis yet. It confirms that in recent decades, the minimum wage hasn’t destroyed jobs by making workers too expensive. While the CBO report’s headline result still links the minimum wage to job loss, its estimates of those losses range from no significant job loss to 3.7 million job losses. Economic Policy Institute economist Ben Zipperer says the low-job-loss scenario is an acknowledgment that raising the minimum wage hasn’t proven to be as dangerous as researchers once feared. But he still found the CBO’s median estimate overly pessimistic. The CBO derived many of its estimates of the labor market response to a higher minimum wage from data in 11 academic studies. Michael Reich, a University of California Berkeley economist who was cited elsewhere in the report, said he was skeptical of this approach, noting the CBO included at least two analyses whose results had been questioned. Their inclusion, he argued, “reveals an unwillingness to recognize the major differences in scientific quality among studies." Michael Strain of the American Enterprise Institute, also cited elsewhere in the report, defended the nonpartisan research agency. “CBO did a good job of weighing the evidence and coming to perfectly sensible and reasonable conclusions that reflect the state of knowledge on this issue,” Strain said. The CBO’s publication schedule ruled out the inclusion of a new working paper from Reich and his colleague Anna Godoey measuring the local effect of 51 changes in the minimum wage since 2007. Their work was some of the first to look at hikes as large, in magnitude, as those that we’d see if the U.S. adopted a $15 minimum wage. “We don’t find job losses in places where the local impact of existing minimum wage is similar to what we estimate the impact of a $15 federal minimum wage would be, even in low-wage states,” Godoey said. The Berkeley team builds on a tradition of headline-making, mind-changing research dating to the work of David Card, now of Berkeley, and the late Alan Krueger, in the 1990s. Minimum-wage effects are so fiendish to disentangle given available data, prominent MIT economist David Autor said, that they have pushed scholars to pioneer multiple innovative statistical methods now widely used in economics and related social sciences. In the most definitive study to date, published this year in the top-rated Quarterly Journal of Economics, UMass Amherst economists Doruk Cengiz and Arindrajit Dube as well as Attila Lindner of University College London and EPI’s Zipperer evaluated the local effect of more than 130 minimum-wage increases since 1979 and showed the fall in jobs paying less than the new minimum wage had been fully offset by the jump in new jobs paying just over it. Autor called it “the most important work on minimum wage effects since Card and Krueger’s work” and said that it should win over some skeptics and “shift the weight of consensus.” University of California San Diego economist Jeffrey Clemens, whose work to disentangle the effects of the Great Recession from the effects of raising the minimum wage was published in the Journal of Public Economics and cited by the CBO, cautioned against giving any one study too much weight. “For the papers that are just getting published now,” Clemens said, “the profession and the policymaking community will likely take several years before people feel like they are congealing on a final consensus.” As that consensus congeals, researchers are exploring broader ways in which a higher minimum wage can transform society. We’ve collected their most notable findings, many of which were cited by the CBO. Suicides fall. As we first reported in April, raising the minimum wage by 10 percent could reduce suicides by 3.6 percent among adults with a high school degree or less, according to a team which included both Godoey and Reich. Criminals break the cycle. A 50-cent rise in the minimum-wage reduces the likelihood someone will return to prison within a year by 2.8 percent, according to an analysis of records for almost 6 million offenders released between 2000 and 2014. It was circulated in September 2018 by the National Bureau of Economic Research. The finding should help allay fears that a higher minimum wage will make entry-level employers less willing to hire the recently incarcerated. Consumer spending rises. All else being equal, raising the minimum wage leads consumers to spend a bit more, especially in areas where the minimum wage affects the most workers, according to an analysis from Boston Fed and MIT economists to be published in the Journal of Money, Credit and Banking. In its report, the CBO writes that it expects such effects to dissipate within about five years. Workers are more productive. In another working paper, researchers tracked 10,000 workers at about 200 department stores and found a $1 increase in the minimum wage led a typical employee to sell about 4.5 percent more per hour. For a worker earning the minimum wage, the increase could be almost 20 percent. “These productivity gains arise mostly during periods of high unemployment where workers are afraid of losing their jobs,” said author Decio Coviello, an economist at HEC Montreal. Wage increases ripple upward. The landmark Quarterly Journal of Economics analysis mentioned above also confirmed findings that a rising minimum wage ripples through the organizational chart, helping workers who earn as much as $3 an hour more than the new minimum wage. About 40 percent of its wage benefits go to workers who aren’t directly affected. Employers do not cut benefits. In a previous working paper, UMass Amherst’s Cengiz used artificial intelligence to identify workers most likely to be hit by wage increases and showed that — contrary to popular belief — employers did not reduce benefits such as employer-sponsored health insurance to free up money to cover higher wages. Poverty rates fall. CBO projects that a $15 minimum wage would lift incomes of Americans living below the poverty line by 5.3 percent or $600 a year (adjusted for inflation) in 2025. As a result, 1.3 million of those people are projected to climb above the poverty line. Godoey and Reich’s analysis shows this effect would be consistent with historical patterns. Job-hopping falls. The CBO reports “a higher minimum wage typically reduces employee turnover.” In a 2016 analysis in the Journal of Labor Economics, Dube and Reich, along with T. William Lester of the University of North Carolina, analyzed federal job-switching data to show low-wage workers switch jobs less often after a minimum-wage increase is passed. Older folks work longer. In an analysis to be published in the journal Industrial and Labor Relations Review, researchers found a higher wage floor was associated with a modest rise in employment of older workers.

Ed Comment: Lots of misleading stuff here. Politicians often allow min wage to rise when market wages rise (more) and employment is low, so any simple correlation between min wages and employment is misleading. And raising the min wage when it's below the market, should have little if any effect--on wages or employment. Further, market wages have risen over time. What matters is whether you can raise min wages above the market and have it increase wages. If it could, why not raise the wage to $100,000 per year? Let's raise it all over the world and eliminate poverty. You/we know the truth. More importantly, a portion of the essential truth about minimum wages is revealed in the article. Productivity rises when min wages rise. Why? When employers are forced to pay higher wages, they substitute more productivity workers--part time students and mothers, older workers, etc. All workers are paid the wage required to get one more worker of a given skill level to join the workforce, if/when the value that worker can add to a customer is greater than the wage required to get another worker to work (economics calls this the marginal product of labor). In addition, the market pays a very low-skilled worker who requires a lot of supervision the wage of a low-skilled worker who requires less supervision less the cost of the extra supervision to make the very low-skilled worker as productive as the low-skilled worker. So if you raise the wage of a very low skilled worker by fiat (i.e. by raising the min wage), more workers at (all) higher skill levels will join the workforce. Employment won't necessarily go down, and wages of workers will go up (because more higher skilled workers will join the force), so will productivity (because more productive workers join), but so will the unemployment of the least skilled workers, which has been increasingly documented as data has become more avaible.