Edward Conard

Top Ten New York Times Bestselling Author

  • “…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 provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…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 offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “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 must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, August 21, 2019

AI Summary. Across OECD countries, adult skill levels are associated with wage disparities, with individuals scoring higher in literacy and numeracy earning on average 20% more than those with lower proficiency. The data also indicate that a 1% increase in skill proficiency is associated with a 0.3% rise in GDP per person.

Marieke Vandeweyer Organisation for Economic Co-operation and Development
Date Posted:
Is Database:
Database

Data from @OECD highlights a significant correlation btw skill levels & wage disparities across OECD countries. Individuals with higher literacy & numeracy skills earn 20% more than those with lower skills.

Do higher adult literacy and numeracy skills raise wages and GDP?

Core argument: OECD PIAAC data show individuals with higher literacy and numeracy proficiency earn on average 20% more than those with lower skills, a wage premium correlated with skill levels across OECD countries.

The PIAAC [Programme for the International Assessment of Adult Competencies] data reveals a significant correlation between skill levels and wage disparities across OECD countries. Individuals with higher proficiency in literacy and numeracy earn, on average, 20% more than those with lower skills. This wage premium underscores the economic value of skill acquisition in the labor market. Furthermore, the data indicates that a 1% increase in skill proficiency can lead to a 0.3% rise in GDP per capita, highlighting the macroeconomic benefits of investing in education and training. The findings suggest that policy makers should prioritize skill development to enhance productivity and economic growth, addressing wage inequality and fostering a more competitive workforce.

Takeaways by Macro Roundup® AI

  1. OECD PIAAC data show individuals with higher literacy and numeracy proficiency earn on average 20% more than those with lower skills, a wage premium correlated with skill levels across OECD countries.
  2. The PIAAC data indicate that a 1% increase in skill proficiency is associated with a 0.3% rise in GDP per capita, pointing to macroeconomic benefits from investment in education and training.
  3. The PIAAC findings suggest policy makers should prioritize skill development to raise productivity and economic growth while addressing wage inequality and building a more competitive workforce.

Marieke Vandeweyer, "OECDL Survey Of Adult Skills,” Organisation for Economic Co-operation and Development, August 8, 2019, https://www.oecd.org/skills/piaac/

AI Summary. The OECD measures average annual hours worked per worker, counting regular hours, paid and unpaid overtime, and additional jobs while excluding holidays and leave, and advises using the series for trend analysis rather than year-to-year comparisons. On household gross adjusted disposable income per person, adjusted for purchasing power, the US is ~30% above Germany.

OECD Staff Organisation for Economic Co-operation and Development
Date Posted:
Is Database:
Database

OECD data on average annual hours worked per worker provides insights into labor trends across member countries, crucial for understanding economic productivity and labor market dynamics.

How do hours worked and household income compare across advanced economies?

Core argument: Household gross adjusted disposable income, which includes transfers in kind such as healthcare and education and is measured in USD per capita at current prices and purchasing power parities, is about 30% higher in the US than in Germany.

The OECD data on average annual hours worked per worker provides insights into labor trends across member countries. This metric includes regular work hours, paid and unpaid overtime, and additional jobs, while excluding time not worked due to various reasons like holidays and leave. The data is crucial for understanding economic productivity and labor market dynamics, though it is advised for trend analysis rather than direct year-to-year comparisons due to methodological differences. Additionally, household gross adjusted disposable income, which accounts for transfers in kind such as healthcare and education, is measured in USD per capita at current prices andppPs [Purchasing Power Parities]. This income measure shows the US earning ~30% more than Germany, highlighting disparities in income distribution when adjusted for hours worked. The relationship between skills, wages, and hours worked is further explored through PIAAC [Programme for the International Assessment of Adult Competencies] skill and wage charts, emphasizing the importance of skill levels in economic outcomes.

Takeaways by Macro Roundup® AI

  1. Household gross adjusted disposable income, which includes transfers in kind such as healthcare and education and is measured in USD per capita at current prices and purchasing power parities, is about 30% higher in the US than in Germany.
  2. OECD average annual hours worked per worker counts regular hours, paid and unpaid overtime, and additional jobs while excluding time off for holidays and leave, and suits trend analysis rather than year-to-year comparison because of methodological differences.
"...Average annual hours worked is defined as the total number of hours actually worked per year divided by the average number of people in employment per year. Actual hours worked include regular work hours of full-time, part-time and part-year workers, paid and unpaid overtime, hours worked in additional jobs, and exclude time not worked because of public holidays, annual paid leave, own illness, injury and temporary disability, maternity leave, parental leave, schooling or training, slack work for technical or economic reasons, strike or labour dispute, bad weather, compensation leave and other reasons. The data cover employees and self-employed workers. This indicator is measured in terms of hours per worker per year. The data are published with the following health warning:The data are intended for comparisons of trends over time; they are unsuitable for comparisons of the level of average annual hours of work for a given year, because of differences in their sources and method of calculation...."

"...Household gross adjusted disposable incomeis the income adjusted for transfers in kind receivedby households, such health or education provided for free or at reduced prices by government and NPISHs. This indicator is presented both in terms of annual growth rates (for real net disposable income)and in terms of USD per capita at current prices andppPs (gross adjusted disposable income).All OECD countries compile their data according to the 2008 System of National Accounts (SNA 2008)...."

Note this series should be capturing health care, "...Household gross adjusted disposable income is the income adjusted for transfers in kind received by households, such health or education provided for free or at reduced prices by government and NPISHs....."

https://data.oecd.org/emp/hours-worked.htm

We need hours worked per household to get “Household gross adjusted disposable income” per hour worked. They might have it directly. The might have workers per household and hours per worker

Yes, my read of the definition is they are using "per capita" to refer to the individual household units in the household series,

I thought we looked at per family not per capita $50,203 is way too high to be per capita (i.e. every living person).

Okay, so you would like thehousehold gross disposable incomemeasure (50,203 for US and 38,996 for Germany so ~ 30% higher) adjusted for hours worked. it is in US/dollars/capita so that's average.

PS see if you can get the data on disposable income per family that shows the US earning 30% more than Germany, by hour worked instead of per family. Check if it’s median or average (I think it’s average.) That would allow us to make an estimated conversion from hourly wage to disposable income accounting for healthcare, at least at the median (or average)

Three charts. The first is all countries, including the US with ethnicity for P10/P50/P90 without a regression. The second chart is the same series with a regression though all points. The third chart is the second chart with the US points and average of non-US countries removed.

The charts have the same scale and dimensions for easy comparison.

Note we are using P50 as requested, not mean with the second run of cleaned up data OECD provided. It remains a strong relationship, including the US the R2 is.8123, without the US points the R2 increases to.868.

I understand, while I have hours worked, (Total hours/worker) but I don't have the # of workers per household yet.

Do you have total number of households and or total number of workers or total hours of work?

Thursday, August 22, 2019

AI Summary. The authors argue official inflation measures such as the Consumer Price Index overstate inflation and understate US economic gains: using the Personal Consumption Expenditure Price Index, real average hourly earnings rose 23% rather than 6% from 1975 to 2017, and poverty fell 26% rather than staying flat.

Phil Gramm and John Early Wall Street Journal
Date Posted:
Is Database:
Database

Correcting for overstatements in inflation measures reveals real average hourly earnings rose 52%, real median household income increased 68%, and GDP grew 253%. Adopting more accurate indexes like PCEPI could reduce national debt by 23%.

Do official inflation measures understate US income and poverty gains?

Core argument: Real average hourly earnings rose 6% from 1975 to 2017 using the BLS's CPI-W, but 23% using the PCEPI, which the author argues is the more accurate price index.

Official measures of inflation, such as the CPI [Consumer Price Index], significantly overstate inflation, leading to an understatement of America's economic well-being. For instance, while the BLS [Bureau of Labor Statistics] reports a 6% increase in real average hourly earnings from 1975 to 2017 using CPI-W, the more accurate PCEPI [Personal Consumption Expenditure Price Index] shows a 23% rise. Similarly, the Census Bureau's use of CPI-U suggests poverty was unchanged from 1975 to 2017, but PCEPI indicates a 26% decline. Correcting for these overstatements reveals real average hourly earnings rose 52%, real median household income increased 68%, and GDP grew 253%. Overstated inflation inflates government spending on programs like Social Security and Medicaid, contributing to higher federal debt. Adopting more accurate indexes like PCEPI could reduce national debt by 23% and provide a clearer picture of economic prosperity.

Takeaways by Macro Roundup® AI

  1. Real average hourly earnings rose 6% from 1975 to 2017 using the BLS's CPI-W, but 23% using the PCEPI, which the author argues is the more accurate price index.
  2. The Census Bureau's use of CPI-U shows poverty unchanged from 1975 to 2017, while the PCEPI indicates a 26% decline; correcting for overstated inflation yields gains of 52% in real average hourly earnings, 68% in real median household income, and 253% in GDP.
  3. Overstated inflation inflates government spending on programs including Social Security and Medicaid, and the author argues adopting indexes such as the PCEPI could reduce the national debt by 23%.

"...By overstating inflation, CPI indexes inflate real spending in Social Security, federal employee retirement, military retirement and poverty programs like Supplemental Security Income. Overstating inflation also overstates the minimum-income threshold to qualify for Medicaid, food stamps and other subsidies. Tax brackets are indexed to chained CPI-U (C-CPI-U), an index similar to the PCEPI. If all transfer payments from 2000 forward had been adjusted with the same C-CPI-U now used for taxes, the federal debt would be $1.1 trillion, or 7%, lower. If the tax code and transfer payments had been indexed to an even more accurate index embodying all known price-index overstatements, revenues since 2000 would have been more than $1 trillion higher, transfer payments $2.6 trillion lower, and the national debt 23% lower.Since PCEPI and C-CPI-U overstate inflation less than other official indexes, it would seem reasonable to adopt one of them immediately for all historical comparisons, official statistical estimates, and inflation adjustments for taxes and spending. Much of this change could be made administratively. The Trump administration and Congress should support research and development necessary to create a more accurate measure of inflation and enact laws requiring the use of that measure across the government...."

Phil Gramm and John Early, "Americans Are Richer Than We Think,"Wall Street Journal, August 21, 2019, https://www.wsj.com/articles/americans-are-richer-than-we-think-11566428343

Americans Are Richer Than We Think

What’s the best way to measure economic well-being in a country as large and diverse as America? One crucial tool is price indexes, which allow us to take common measures of flourishing—hourly earnings, median household income, poverty, gross domestic product and productivity—and remove the impact of inflation to allow meaningful comparisons across time periods.

Yet the economists, statisticians and agencies that create price indexes overwhelmingly agree that official measures of inflation are significantly overstated, leading to an understatement of America’s well-being. The government uses these same price indexes to adjust transfer payments and tax brackets, driving up federal debt.

The consumer-price index was conceived as “an upper bound on a cost of living index,” according to the agency that compiles it, the Bureau of Labor Statistics (BLS). George Stigler, a Nobel laureate and one of the past century’s top economists, chaired the 1961 Price Statistics Review Committee, which found a “systematic upward bias in the price indices.” In 1996 Michael Boskin, a former chairman of the Council of Economic Advisers, headed another blue-ribbon commission, which concluded that, despite improvements, the CPI was still overstating inflation by some 1.1 percentage points a year. Alan Greenspan, then chairman of the Federal Reserve, agreed and called on Congress to correct the overstatement. And in 2010 Erskine Bowles, a former chief of staff to President Clinton, co-chaired the Commission on Fiscal Responsibility and Reform and recommended a more accurate measure of inflation to index entitlement spending.

If consumers always bought the same amounts of the same goods and services, the CPI would provide an accurate picture of inflation. But when relative prices change, tastes shift or new products are introduced, consumers substitute relatively cheap or more-preferred items for relatively expensive and less-preferred ones. As cellphone prices have fallen, for instance, consumers have shifted away from landlines. The CPI calculations didn’t capture the price drop from that substitution.

Price indexes attempt to address new or improved items by splitting their prices into quality improvements and pure price changes. But extensive research has demonstrated that current methods of separating quality and pure price changes consistently overstate inflation.

The CPI for All Urban Consumers, or CPI-U, and its derivative CPI for Wage Earners and Clerical Workers, CPI-W, are the most widely used adjustments for inflation. They have been revised over time, but improvements have been applied only prospectively. A second official index, the CPI-U-RS (research series), incorporates many of the CPI-U improvements retrospectively, improving the accuracy of historical comparisons. A third index, the Personal Consumption Expenditure Price Index, or PCEPI, improves on the CPI-U-RS by accounting for changes in actual consumer expenditures in real time.

Despite the consensus that CPI-U overstates inflation more than CPI-U-RS, which in turn overstates inflation more than PCEPI, the government continues to base its calculations on a variety of indexes rather than use only the most accurate. BLS adjusts average hourly earnings with the CPI-W, which led it to find a 6% increase in real average hourly earnings between 1975 and 2017. The more accurate CPI-U-RS shows real hourly earnings rose 10%, and the still-more-accurate PCEPI shows real hourly earnings rose 23%, nearly four times the number BLS reports.

The Census Bureau uses CPI-U to inflate poverty thresholds and finds the incidence of poverty was unchanged from 1975 to 2017. Using the CPI-U-RS shows a decline in poverty of 14%, and using the more accurate PCEPI produces a 26% decline. The bureau, however, uses CPI-U-RS instead of CPI-U to deflate median family income, publishing its findings of a 21% increase, which would be smaller by more than half using the CPI-U and larger by two-thirds using the more accurate PCEPI.

Even PCEPI significantly overstates consumer price increases. Two recent studies, one by Bruce Meyer and James Sullivan and another by Brent Moulton, combine more than 50 credible studies documenting specific overstatements in consumer price indexes. For example, studies of personal electronic devices showed overstatements of between 3.6 and 5.8 percentage points annually because the value of new features was either understated or missed completely. Annual price increases for medical care were 3 percentage points too high because they didn’t account for the greater efficiency and improved outcomes from new drugs and procedures. No price index takes account of the fact that each month more than twice as many people get medical advice from WebMD as visit the doctor’s office in America. Shelter inflation was shown to be overstated by 0.25 percentage point annually because indexes ignored increased living space and added modern conveniences in homes.

When corrected for documented price overstatements, real average hourly earnings from 1975 to 2017 are shown to have risen some 52%, not 6%—an additional $6.77 an hour. Real median household income increased 68%, not 21%—$17,060 more annually. Gross domestic product grew 253% rather than 216%—$6,312 of additional output per capita. Productivity expanded 142% rather than 117%—$10 of additional value for every hour worked. And published poverty incidence fell by almost half. Combined with the 67% drop in poverty that comes from accounting for all government transfers, poverty incidence sank from 12.3% to about 2%.

By overstating inflation, CPI indexes inflate real spending in Social Security, federal employee retirement, military retirement and poverty programs like Supplemental Security Income. Overstating inflation also overstates the minimum-income threshold to qualify for Medicaid, food stamps and other subsidies. Tax brackets are indexed to chained CPI-U (C-CPI-U), an index similar to the PCEPI. If all transfer payments from 2000 forward had been adjusted with the same C-CPI-U now used for taxes, the federal debt would be $1.1 trillion, or 7%, lower. If the tax code and transfer payments had been indexed to an even more accurate index embodying all known price-index overstatements, revenues since 2000 would have been more than $1 trillion higher, transfer payments $2.6 trillion lower, and the national debt 23% lower.

Since PCEPI and C-CPI-U overstate inflation less than other official indexes, it would seem reasonable to adopt one of them immediately for all historical comparisons, official statistical estimates, and inflation adjustments for taxes and spending. Much of this change could be made administratively. The Trump administration and Congress should support research and development necessary to create a more accurate measure of inflation and enact laws requiring the use of that measure across the government.

We are having major debates based on measures that are demonstrably wrong. We are artificially inflating government benefits and cutting taxes based on bad measures of inflation. As a nation, we need to get our facts straight.