Edward Conard

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Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, July 12, 2019

AI Summary. A study estimates that a 10% minimum wage increase raises employment by about 3.5% in the most concentrated third of labor markets but lowers it by about 2% in the least concentrated third. The authors argue that employer wage-setting power, proxied by labor market concentration, helps explain mixed findings across prior minimum wage studies.

Emiliano Huet-Vaughn Social Science Research Network
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Minimum Wage Employment Effects Vary By Labor Market Concentration. A 10% rise in the minimum wage boosts employment by ~3.5% in highly concentrated markets but reduces it by 2% in less concentrated ones. @EmilianoHuetVaughn

Does employer wage-setting power determine how minimum wages affect employment?

Core argument: A 10% minimum wage increase raises employment by roughly 3.5% in highly concentrated labor markets while reducing it by 2% in less concentrated markets, according to the study.

A recent study reveals that the impact of minimum wage increases on employment varies significantly with labor market concentration. A 10% rise in the minimum wage boosts employment by ~3.5% in highly concentrated markets but reduces it by 2% in less concentrated ones. The employment elasticity of the minimum wage is significantly positive in the most concentrated third of labor markets, with estimates around 0.35, while it is negative at -0.2 in the least concentrated third. These findings suggest that monopsony power, indicated by market concentration, plays a crucial role in modulating minimum wage effects, offering insights into the mixed results seen in previous studies. The study underscores the importance of considering labor market concentration when assessing the employment effects of minimum wage policies, as it can significantly alter outcomes.

Takeaways by Macro Roundup® AI

  1. A 10% minimum wage increase raises employment by roughly 3.5% in highly concentrated labor markets while reducing it by 2% in less concentrated markets, according to the study.
  2. The study estimates the employment elasticity of the minimum wage at about 0.35 in the most concentrated third of labor markets and -0.2 in the least concentrated third.
  3. The study suggests that monopsony power, indicated by labor market concentration, modulates minimum wage effects and offers insight into the mixed employment results of previous studies.

when it rains it pours, released Wednesday new paper finds that increases in minimum wages can increases employment in the most concentrated labor markets. paper found a 10% increase in the minimum wage had no effect on average, but increases employment by ~3.5% in the most concentrated labor markets while decreases employment by 2% in the least concentrated markets

"...Economic theory predicts that the minimum wage reduces employment in a competitive labor market. However, empirical evidence has often failed to find a negative impact. The common explanation: monopsony power by the firm. In this paper, we present the first direct empirical evidence showing labor market concentration - a key determinant of monopsony power - modulates the impact of the minimum wage on employment in the general merchandise sector in the US, a key employer of workers affected by the minimum wage. We find a robust and significant increase in the employment elasticity with respect to the minimum wage in more concentrated occupational labor markets. In the most concentrated third of these, the minimum wage employment elasticity is even estimated to be significantly positive....Our results indicate that, consistent with theory, more concentrated labor markets exhibit more positive employment effects from the minimum wage. This is true for a variety of specifications, and when separatelyusing concentration measures for three different minimum wage heavy occupational labor markets: stock clerks, retail sales, and cashiers. To give a sense of scale, a standard deviation increase in the measure of labor market concentration is associated with a significant 0.2 increase in the employment elasticity of the minimum wage. The results are robust to a number of sensitivity tests. One important concern is omitted variable bias: there may be a variable correlated with concentration that causally modulates the impact of the minimum wage on employment. We note that, even if it were the case, concentration is still a useful proxy for this variable and can allow policy makers to predict the effects of a minimum wage increase. We are nevertheless interested in testing for potential alternative mechanisms that explain the heterogeneity of the minimum wage employment effects and we focus on two key candidates for the omitted variable: population density and productivity, which are both correlated with HHI and could also modulate minimum wage effects. We find that results are robust to allowing for a different effect of the minimum wage by both population density and a productivity proxy (economy-wide earnings in an area conditional on population). This robustness test supports our main findings: concentration has a significant modulating effect on the employment elasticity of the minimum wage even after we allow other key variables to have their own modulating effects.Overall, then, our results indicate the size and sign of the minimum wage’s employment effects vary substantially on the basis of underlying labor market concentration. Employment elasticities of the minimum wage are significantly negative with point estimates of approximately -0.2 for the 33% of least concentrated labor markets, approximately zero for the middle concentration group, and significantly positive with point estimates of approximately 0.35 for the 33% of most concentrated of labor markets (which are very concentrated by typical measures). The related own-wage elasticity of labor demand, which we also derive, spans the range of comparable elasticities estimated in the minimum wage literature (see Figure 6), with the 33% of least concentrated markets on the outer left (i.e. the most negative) of the prior work’s estimate range, the 33% of most concentrated markets forming the outer rightward bound (most positive) of this range, and, the middle third’s estimates being close to zero.This indicates that differences in the degree of monopsony power could play an important role in accounting for the divergent elasticity estimates in prior studies, drawn from a wide range of labor markets that, themselves, have differences in underlying market concentration.....Compared to the existing literature, these results yield related own-wage elasticity of labor demand estimates for the lowest tercile of labor market concentration on par with the lowest estimates from the minimum wage literature, effects close to zero and statistically insignificant for the middle tercile, and, positive estimates that are larger than most in the literature for the highest tercile. The findings, thus, offer an empirically-founded candidate explanation as to why null employment effects from the minimum wage abound in the literature (due to the averaging of real underlying positive and negative effects), as well as insight into why we may see significant variation in the employment effect of the minimum wage across studies (due, in part, to differing underlying levels of labor market concentration in a studies’ settings). In total, these results suggest that labor market concentration, unmeasured and (empirically) overlooked in prior minimum wage research, is a key variable in moderating the cost of minimum wage policy, and, that the employment effects of a minimum wage increase should be assessed with this heterogeneity in mind. Additionally, the results bolster the evidence for monopsony power in the labor market by demonstrating that key policy effects conform to the predictions of the monopsony model...."

José Azar, Emiliano Huet-Vaughn, Ioana Elena Marinescu, Bledi Taska and Till Von Wachter, "Minimum Wage Employment Effects and Labor Market Concentration," Social Science Research Network, July 10, 2019, https://papers.ssrn.com/sol3/papers.cfmabstract_id=3416016

AI Summary. The Congressional Budget Office projects a $15 minimum wage would lift 1.3m workers out of poverty and raise wages for 17m workers. The author argues the US economy can absorb the increase, citing 2.9% annual growth, 3.7% unemployment, and consumer price inflation of 1.6%.

Martin Sandbu Financial Times
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The US economy is well-positioned to absorb a $15 minimum wage due to its robust growth & labor market dynamics. With GDP expanding at 2.9% & unemployment at 3.7%, the economic environment is conducive to wage increases.

Can the US economy absorb a $15 minimum wage?

Core argument: The Congressional Budget Office projects a $15 federal minimum wage would lift 1.3m workers out of poverty and raise wages for 17m workers.

The US economy is well-positioned to absorb a $15 minimum wage due to its robust growth and labor market dynamics. With GDP expanding at an annual rate of 2.9% and unemployment at a historic low of 3.7%, the economic environment is conducive to wage increases. The Congressional Budget Office [CBO] projects that a $15 wage could lift 1.3m workers out of poverty while increasing wages for 17m workers, representing a significant boost in consumer spending power. Although some job losses are anticipated, the net effect on employment is expected to be minimal, with potential job reductions offset by increased demand and productivity gains. Additionally, inflationary pressures remain subdued, with CPI rising at just 1.6%, providing further room for wage adjustments without triggering significant price hikes. Overall, the macroeconomic indicators suggest that the US economy can integrate a $15 wage floor without major disruptions.

Takeaways by Macro Roundup® AI

  1. The Congressional Budget Office projects a $15 federal minimum wage would lift 1.3m workers out of poverty and raise wages for 17m workers.
  2. The US economy is positioned to absorb a $15 wage floor, with GDP expanding at a 2.9% annual rate and unemployment at 3.7%.
  3. Consumer price inflation running at 1.6% leaves room for wage increases without significant price rises, and anticipated job losses are expected to be offset by increased demand and productivity gains.

Martin Sandbu, "US economy can take $15 wage floor in its stride,"Financial Times, July 11, 2019, https://www.ft.com/content/294037fc-a24d-11e9-974c-ad1c6ab5efd1

Sandbu on CBO in FT, will have to read the new study he cites as well

Ed Comment:“power of employers to keep wages well below the value of employees’ work — for example, because the local labour market for certain kinds of jobs is so concentrated that workers have no choice where to work” Where is that? It remote counties I would presume. No surprise, “In counties where the employers of such workers are most competitive (least concentrated), wage floor increases reduce their number, whereas in places where few employers offer most of the jobs and hence have a lot of market power, higher wage floors go with more employment.” Where do most people live? In cities by far. Moreover, if you pay higher wages and real estate is tight, in cities for example, the landlords capture the increase, not the employees.

"....The main explanation why minimum wage rises need not harm job opportunities has to do with the power of employers to keep wages well below the value of employees’ work — for example, because the local labour market for certain kinds of jobs is so concentrated that workers have no choice where to work. When a minimum wage mandates employers to pay more than the value a worker produces, it is natural to expect them not to hire such a worker at all. But this motivation disappears when unequal bargaining power has left market wages below workers’ level of productivity. In such a situation, employers will still benefit from employing people, but a bigger part of that benefit will go to the worker instead, depending on how high the legal wage floor is. An implication of this is that minimum wages will have different effects in different places, depending on the local productivity level and balance of power between employers and workers. Economists Ioana Marinescu, Bledi Taska and Till Von Wachter prove precisely this in A study of county-by-county US labour markets for stock clerks, retail salespeople and cashiers. In counties where the employers of such workers are most competitive (least concentrated), wage floor increases reduce their number, whereas in places where few employers offer most of the jobs and hence have a lot of market power, higher wage floors go with more employment. Here is one conclusion for policymakers (from one of the authors’ Twitter thread that usefully summarises the results): “minimum wage effects can vary substantially with employer market power This lends support to a flexible minimum wage policy that adapts to local conditions.”But note that this argument does not justify the claim that minimum wage rises should be less aggressive in places with lower wages. If anything, it is the other way round: if low wages reflect greater employer market power, these areas can take more aggressive minimum wage policy. There may be a point where raising legal wage floors starts to hurt employment. But the US, at least, is far from that point...."

AI Summary. Employment rates for workers without a high school diploma have been growing faster than for college graduates, and inflation-adjusted wages for less-educated workers, which fell more sharply, have recovered all lost ground. Employers raise skill requirements when unemployment is high and relax them when labor demand strengthens.

Grep Ip Wall Street Journal
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Employment rates for workers with less than a high school diploma have been growing faster than those for college graduates, marking a significant shift in labor market dynamics.

Do long expansions benefit less-educated workers more than college graduates?

Core argument: Employment rates for workers with less than a high school diploma have been growing faster than those for college graduates, marking a shift in labor market dynamics.

Employment rates for workers with less than a high school diploma have been growing faster than those for college graduates, marking a significant shift in labor market dynamics. Between 2008 and 2010, the employment rate for college-educated workers dropped 2.5 percentage points but began recovering steadily, nearing prerecession levels by last year. In contrast, the rate for those with a high school diploma or less fell 6 percentage points and only started a sustained recovery in 2014. Inflation-adjusted wages for less-educated workers initially fell more sharply but rebounded more strongly, recovering all lost ground by last year. This trend is partly due to employers adjusting recruitment criteria based on economic cycles, often upskilling during high unemployment periods and relaxing requirements when labor demand increases, as seen in local booms like the shale oil-fracking boom.

Takeaways by Macro Roundup® AI

  1. Employment rates for workers with less than a high school diploma have been growing faster than those for college graduates, marking a shift in labor market dynamics.
  2. The employment rate for workers with a high school diploma or less fell 6 percentage points between 2008 and 2010 and began a sustained recovery only in 2014, versus a 2.5-point drop and steady recovery for college graduates, who neared prerecession levels.
  3. Inflation-adjusted wages for less-educated workers fell more sharply but rebounded more strongly, recovering all lost ground, partly because employers relax recruitment requirements when labor demand rises, as in the shale oil-fracking boom.

"....The Fed’s semiannual monetary policy report released last week noted that the share of people aged 25 to 54 years with at least a college degree who were employed dropped 2.5 percentage points between 2008 and 2010. It then began a steady recovery, and by last year was close to its prerecession peak. For workers with just a high-school diploma or less, the ratio plunged 6 percentage points and didn’t begin a sustained recovery until 2014. Wage data paint a similar picture. Adjusted for inflation, wages of workers with just high school or less initially fell much more sharply than for college-educated workers and then bounced back more strongly, and by last year had recovered all the lost ground. Fed researchers found this has happened in all business cycles since at least 1980. This might be partly due to a long-term shift in demand from less- to more-skilled labor. Yet in individual states where local booms and busts are probably less influenced by those national trends, they found an even starker hit to lower-educated workers in recessions. It takes on average eight years for them to fully recover. The traditional explanation for why some workers are fired first and hired last is that employers hoard their most valued and difficult-to-replace workers. New data offer a more nuanced explanation: employers and workers change their recruitment behavior over the course of the cycle. In a 2016 study, Alicia Sasser Modestino of Northeastern University and two co-authors observed that as unemployment soared between 2007 and 2010, the percentage of job postings requiring a bachelor’s degree on Burning Glass, a website that aggregates job postings, rose more than 10 percentage points. That share then fell over the next four years. The same thing happened with postings requiring at least five years’ experience. This wasn’t because high-skilled occupations or industries had become more important; the authors found that even within the same company posting the same job, hiring criteria became tighter as unemployment rose and easier as it fell. In counties that benefited most from the shale oil-fracking boom, local demand for labor shot up. As a result, manufacturing, agriculture and timber companies, which weren’t benefiting from the fracking boom, still relaxed their education and experience requirements. This suggests that when unemployment is high and labor is plentiful, employers opportunistically “upskill”—they raise the requirements of jobs, for example demanding a bachelor’s degree when an associate’s degree or experience used to be sufficient...."

Grep Ip, "A Record Expansion’s Surprise Winners: The Low-Skilled,"Wall Street Journal, July 10, 2019, https://www.wsj.com/articles/a-record-expansions-surprise-winners-the-low-skilled-11562763602

AI Summary. The U.S. budget gap widened 23% to $747bn over the first nine months of a fiscal year, as federal spending rose 7% to $3.3tn while tax receipts rose 3% to $2.6tn. The spending increase was attributed primarily to higher military outlays and rising interest payments on the national debt.

Kate Davidson Wall Street Journal
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The U.S. budget gap expanded by 23% in the first nine months of the fiscal year, reaching $747bn, driven by increased federal spending and modest revenue growth.

Is spending growth outpacing tax receipts and widening the budget deficit?

Core argument: The U.S. budget gap widened 23% to $747bn in the first nine months of the fiscal year, as a 7% rise in federal outlays outpaced 3% growth in tax receipts.

The U.S. budget gap expanded by 23% in the first nine months of the fiscal year, reaching $747bn, driven by a combination of increased federal spending and modest revenue growth. Government tax receipts rose 3% to $2.6tn, bolstered by a notable rise in corporate tax revenue, yet this was insufficient to counterbalance the 7% increase in federal outlays, which totaled $3.3tn. The surge in spending was primarily attributed to higher military expenditures and rising interest payments on national debt. Both revenues and expenditures set records for this period, underscoring the fiscal challenges faced by policymakers as they navigate the implications of sustained budget deficits.

Takeaways by Macro Roundup® AI

  1. The U.S. budget gap widened 23% to $747bn in the first nine months of the fiscal year, as a 7% rise in federal outlays outpaced 3% growth in tax receipts.
  2. Federal spending reached $3.3tn over the period, with the increase attributed primarily to higher military expenditures and rising interest payments on the national debt.
  3. Government tax receipts rose to $2.6tn, helped by a rise in corporate tax revenue, with both revenues and outlays setting records for this nine-month period.

deficit ~ back to July '13 level. what's the Nixon quip, "We are all Keynesians now"

U.S. Budget Gap Widened 23 in First Nine Months of Fiscal Year: Extended Excerpt Image 1


"...Government tax receipts rose again in June but not enough to offset higher federal spending, which pushed the U.S. budget gap to $747 billion for the first nine months of the fiscal year. The Treasury Department said Thursday the deficit grew 23% from October through June, compared with the same period a year earlier. The government collected $2.6 trillion in receipts, a 3% increase, reflecting a substantial increase last month in corporate tax revenue, which had been running below Congressional Budget Office projections so far this year. Higher spending on the military and interest on the debt drove federal outlays up 7%, to $3.3 trillion since the start of the fiscal year, the Treasury said. Both revenues and outlays set a record for this point in the fiscal year...." Kate Davidson, "U.S. Budget Gap Widened 23% in First Nine Months of Fiscal Year,"Wall Street Journal, July 11, 2019, https://www.wsj.com/articles/u-s-budget-gap-widened-23-in-first-nine-months-of-fiscal-year-11562868054

Sunday, July 14, 2019

AI Summary. US electricity generation shifted from coal, which supplied over 40% of power until 2011, to natural gas, which overtook coal and reached 35.5% in 2018 following advances in hydraulic fracturing and horizontal drilling. Coal, natural gas, nuclear, and hydroelectric together still supply over 88% of US electricity.

Mark Perry American Enterprise Institute
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US electricity generation has shifted significantly since 1949, with coal dominating until 2011, natural gas surging past coal in 2016, and renewables increasing gradually.

How has the US electricity generation fuel mix shifted over decades?

Core argument: US natural gas-fired generation reached 35.5% of electricity in 2018, surpassing coal by 2016 after falling below 10% in 1988, a shift attributed to advances in hydraulic fracturing and horizontal drilling.

From 1949 to 2019, US electricity generation underwent significant shifts in fuel sources, with coal historically dominating, providing over 40% of power until 2011 and over 50% in 43 of those years. Natural gas, after a decline to less than 10% in 1988, surged past coal by 2016, reaching 35.5% in 2018 due to advances in hydraulic fracturing and horizontal drilling. Nuclear power, contributing since 1957, stabilized between 19% and 21.5% over the last 30 years. Hydroelectric power's share fell from over 30% in 1949 to between 6% and 8% in recent years. Solar and other renewables, including wind, have seen gradual increases, with wind reaching over 10% by early 2019. Despite these changes, coal, natural gas, nuclear, and hydroelectric still supply over 88% of US electricity. The CPI for electricity has risen only about 1% annually since 2010, indicating a decrease in real costs, but a shift to renewables could increase electricity costs and taxes, impacting low and middle-income households.

Takeaways by Macro Roundup® AI

  1. US natural gas-fired generation reached 35.5% of electricity in 2018, surpassing coal by 2016 after falling below 10% in 1988, a shift attributed to advances in hydraulic fracturing and horizontal drilling.
  2. Coal supplied over 50% of US electricity in 43 of the years from 1949 to 2019 and over 40% until 2011, while hydroelectric power's share fell from over 30% in 1949 to between 6% and 8%.
  3. Coal, natural gas, nuclear, and hydroelectric together still supply over 88% of US electricity, with nuclear holding between 19% and 21.5% over the last 30 years and wind exceeding 10% by early 2019.

Mark Perry, "Animated chart of the day: US electricity generation by fuel source, 1949-2019," American Enterprise Institute, July 9, 2019, https://www.aei.org/carpe-diem/animated-chart-of-the-day-us-electricity-generation-by-fuel-source-1949-2019/

Animated chart of the day: US electricity generation by fuel source

Animated chart of the day: US electricity generation by fuel source, 1949-2019: Extended Excerpt Image 1


Here’s a new animated “bar chart race” visualization using the online Flourish software, this one showing US electricity generation by energy source shares from 1949 to 2019 (through April) based on data from the Energy Information Administration (EIA). Here are few observations:

1. Coal has historically been the largest energy source for America’s electricity generation, and provided more than 40% of the nation’s electric power in every year between 1949 and 2011, and more than 50% in 43 of those 59 years.

2. Although natural gas provided more than 20% of US electric power from 1959 to 1972 it provided less than 20% from 1973 to 2008, less than 15% of US electricity from 1982 and 2005 and a record low of less than 10% in 1988. In 2011, natural gas provided more than 25% of US electric power for the first time when oceans of shale gas were accessed for the first time in shale rock formations with revolutionary drilling and extraction technologies (hydraulic fracturing and horizontal drilling) and its share quickly surpassed coal for the first time in 2016. During the last full year (2018) natural gas provided 35.5% of electric power versus 27.7% for coal, its lowest share in the history of these EIA data.

3. Nuclear started provided a small share of US electric power in 1957, but its share never rose above 1% until 1968. By 1977, nuclear’s share of electricity rose above 10% for the first time and rose above 20% in 1990 for the first time and hit an all-time peak of 21.8% in 2001. Over the last 30 years, nuclear’s share of US electric power has been fairly stable in a range between about 19% and 21.5%.

4. Solar never contributed to US electricity generation until 1984, but its share never exceeded 1% until 2017 and its share in 2018 was 1.6%.

5. Conventional hydroelectric power provided nearly one-third (more than 30%) of the nation’s electricity in 1949, and its share was above 20% from 1950-1958 before steadily after that. By 1987, hydroelectric power was supplying less than 10% of US electricity and during this century the share has ranged between 6% and 8%.

6. The category “Other Renewables” includes “wood, black liquor, other wood waste, biogenic municipal solid waste, landfill gas, sludge waste, agriculture byproducts, other biomass, geothermal, solar thermal, photovoltaic energy, and wind” according to the EIA. I assume that category today mostly includes windmills, and it never supplied more than 1% of America’s electricity until 1989, and never more than 2% until 2006. During the last full year (2018), it provided 8.6% of the country’s electric power and its share increased to slightly above 10% for the first time during the first four months of this year.

MP: The environmentalists and Green New Deal supporters apparently want to eliminate all fossil fuels, nuclear power and even hydroelectric power, and replace those energy sources with millions of acres of solar panels and windmills. The chart above demonstrates what a massive change that would be, since coal, natural gas, nuclear and hydroelectric power currently supply more than 88% of America’s electric power.

Further, the CPI for electricity has increased on average only about 1% per year since 2010 compared to the average 1.8% increase in the overall CPI during that period, meaning that the real cost of electric power for Americans has been falling for the last decade. Replacing affordable and dependable fuels to generate electricity with costly and undependable renewables (solar and windmills) would have to result in significant increases in the cost of electricity and would also likely involve increases in taxes to continue to subsidize energy sources that aren’t scientifically and economically viable without taxpayer life support.

Higher energy costs and higher taxes from converting to renewables would burden Americans, especially low and middle-income households, and would significantly lower the standard of living in the US. The GND is what is an existential threat, a threat to affordable energy, a threat to our standard of living and a threat to the economy that supports our way of life.

Ed Comment:Kinda cool although I don’t see why animation is better than a graph, which allows you see all the data more clearly.