Edward Conard

Top Ten New York Times Bestselling Author

  • “…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 fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, October 29, 2019

AI Summary. A 1% increase in high-quality entrepreneurship in the US is associated with a 0.08 percentage point rise in the top 1%'s income share, with gains concentrated in the top 10% of the income distribution. The authors find little evidence of income growth for the bottom half or spillovers to low-skilled workers.

John Voorheis U.S. Census Bureau
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New evidence indicates that high-quality entrepreneurship in the U.S. benefits the top 10% of the income distribution, with limited spillover effects for low-skilled workers.

Do the gains from high-quality entrepreneurship flow mainly to top earners?

Core argument: A 1% increase in high-quality entrepreneurship in the U.S. correlates with a 0.08 percentage point rise in the top 1%'s income share, with gains concentrated in the top 10% of the income distribution.

New evidence indicates that the benefits of high-quality entrepreneurship in the U.S. are predominantly captured by the top 10% of the income distribution, with limited spillover effects for low-skilled workers. An increase of 1% in entrepreneurship correlates with a 0.08 percentage point rise in the top 1%'s income share, highlighting a significant economic gain for high-income individuals. Conversely, there is little evidence of income growth for those in the bottom half of the distribution. This suggests that entrepreneurship may exacerbate income inequality, as gains are concentrated among the wealthiest, while low-skilled productivity and wages remain stagnant. The study underscores the need for further research into how entrepreneurship impacts different economic groups, particularly through firm and establishment-level data.

Takeaways by Macro Roundup® AI

  1. A 1% increase in high-quality entrepreneurship in the U.S. correlates with a 0.08 percentage point rise in the top 1%'s income share, with gains concentrated in the top 10% of the income distribution.
  2. The study finds little evidence of income growth for the bottom half of the U.S. income distribution, with limited spillovers to low-skilled workers, whose productivity and wages remain stagnant.
  3. The study suggests entrepreneurship may exacerbate income inequality and calls for further research, using firm- and establishment-level data, on how entrepreneurship affects different economic groups.

This was released yesterday. Might be worth your time as it provides support (in my reading) to supervision being a limiting constraint to low skilled productivity growth. "... more productive uses for high-skilled labor than supervising low-skilled labor, have slowed the growth of low-skilled productivity, the marginal product of low-skilled labor, and low-skilled wages..." paper finds that gains from "high quality entrepreneurship" (using Guzman's index) are limited to the top 10% of the income distribution; limited spillover effects for low skilled workers

Steve

"..Using new aggregate measures of income inequality and income mobility produced from the universe of tax returns linked with survey data, we have surfaced new evidence on an old question - who benefit from creative destruction, which we capture by new measures of high-quality entrepreneurship?In CZ-by-year fixed effects regressions, and in regressions instrumenting for entrepreneurship using a Bartik-style instrument, we find that, overwhelmingly, the benefits of entrepreneurship accrue to high-income individuals, with no evidence of offsetting growth or mobility effects accruing to the bottom of the distribution. Put starkly, our evidence suggests that if anything, entrepreneurship makes the rich richer and the poor poorer....In particular, an increase of 1 percent in entrepreneurship corresponds to an increase of the top 1 percent's share of income of 0.08 percentage points. Although the increase in the top 1 percent share could be consistent with broadly rising incomes, we fi nd little evidence of an economically relevant increase of incomes for people in the bottom half of the distribution. This stands in contrast to the top of the distribution (top decile and top 1 percent) where the increase is positive and statistically and economically significant. It is worth also noting that the gain experienced by the top decile appears somewhat negligible when compared to the one experienced by the top 1 percent.....Although the use of high-quality administrative data allows us to produce highly detailed aggregates of local income distributions, we are not able to fully tease out the mechanisms by which entrepreneurship affects different groups of individuals - for instance investors, the entrepreneurs themselves, and employees of innovative firms. While we attempt to shed some light on this issue, it is difficult to clearly identify these categories using the tax data available in the Census Bureau's linkage infrastructure. Specifically, many of the high-quality start-ups which are captured in the RECPI measure might be incorporated as C-Corporations. These entrepreneurs are particularly difficult to pinpoint using the available administrative data. Future work to understand the mechanisms by which entrepreneurship increases inequality should focus on incorporating rm and establishment level data (such as the Census Bureau's Longitudinal Business Database) to examine how employees of different types of firms are affected...."

Astrid Marinoni and John Voorheis, "Who Gains from Creative Destruction? Evidence from High-Quality Entrepreneurship in the United States," U.S. Census Bureau, October 2019, https://www2.census.gov/ces/wp/2019/CES-WP-19-29.pdf

AI Summary. The authors estimate that children of immigrants in the US raised at the 25th income percentile reach adult income ranks 5–8 percentiles higher than children of US-born parents, a pattern that persists across origin countries, initial income levels, and immigration policies. Accounting for childhood region and state narrows this gap by 70%.

Santiago Pérez National Bureau of Economic Research
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Immigrant children in the US have consistently demonstrated higher upward intergenerational mobility compared to children of US-born parents, moving 5-8 percentiles higher in income rank from the 25th percentile.

Do children of immigrants achieve greater upward income mobility?

Core argument: Children of immigrants in the US move 5–8 percentiles higher in adult income rank than children of US-born parents starting from the 25th percentile, a pattern holding across two centuries.

Children of immigrants in the US have consistently demonstrated higher upward intergenerational mobility compared to children of US-born parents, moving 5-8 percentiles higher in income rank from the 25th percentile. This trend persists despite changes in immigrants' countries of origin, initial income levels, and US immigration policies. Immigrant families often relocate to areas with better prospects, contributing significantly to this mobility advantage. The gap in mobility diminishes by 70% when accounting for childhood region and state fixed effects, indicating location choices as a key factor. Second-generation immigrants often surpass their US-born counterparts, reflecting a more optimistic view of immigrant assimilation and aligning with the "American Dream" narrative. This suggests that immigrant children have substantial opportunities for economic advancement, challenging short-term perspectives on immigrant assimilation.

Takeaways by Macro Roundup® AI

  1. Children of immigrants in the US move 5–8 percentiles higher in adult income rank than children of US-born parents starting from the 25th percentile, a pattern holding across two centuries.
  2. The immigrant mobility advantage shrinks by 70% once childhood region and state fixed effects are included, pointing to immigrant families' relocation to areas with better prospects as a key factor.
  3. Higher second-generation mobility persists despite shifts in immigrants' countries of origin, initial income levels, and US immigration policies, supporting a more optimistic view of immigrant assimilation than short-term perspectives suggest.

worth noting their US born series doesn't carve out by ethnic origin, so they aren't comparing Italian immigrants to native's of Italian stock.

also note that when they compare children growing up in the same county, the gap btw immigrants and natives is reduced by 70%. IE immigrants don't earn more then others who grow up in the same area, the immigrants move to the high mobility areas. Note NYT writeup of paper is attached.

"....We use newly-constructed father-son linked datasets to study whether the children of immigrants achieve earnings parity with the children of the US-born, and how the intergenerational mobility of immigrants has changed over the last two centuries. We find that, both in the past and today, children of immigrants had greater chances of moving up in the income distribution relative to the children of US-born parents with comparable family income or occupation score. Second generation immigrants growing up in the 25th percentile end up 5-8 percentiles higher in the income rank than the children of the US born.The children of immigrants achieve similar rates of upward mobility despite large changes in country of origin (immigrants hailed from Europe in the past, and from Latin America and Asia today), initial income levels (immigrants today starting from lower levels), and US immigration policy over the last century (the ending of open borders for European immigrants and the imposition of additional regulations for immigrant entry). Our finding that children of immigrants have on average higher upward mobility is not driven by immigrants from any particular ethnic origin. Rather, when estimating rates of intergenerational mobility separately for each country of origin, we find that children of immigrants from nearly every sending country have higher rates of upward mobility than the children of the US-born. Using the historical data to dig deeper into why children of immigrants were more upwardly mobile,we find that immigrant families were more likely than the US born to move to areas that offered better prospects for their children....including childhood region fixed effects diminishes the intergenerational gaps by roughly 70% in both historical cohorts. The intergenerational gaps are further reduced when adding childhood state fixed effects (third bar of each graph). Finally, when we further include either childhood state-by-urban status fixed effects (fourth bar) or childhood county fixed effects (fifth bar) the gap between the children of immigrants and the US-born fully closes. Hence, these results suggest that location choices are an important source of difference in upward mobility for the children of immigrants versus children of the US-born....Furthermore, immigrant parents were “under-placed” in the income distribution, thus allowing their children who were native English speakers and educated in the US more scope for upward mobility. The success of second-generation immigrants gives a more optimistic view of immigrant assimilation than previous studies that have focused only on the first generation. Indeed, we find that second generation immigrants overtake, rather than just catch up with the children of the USborn with comparable family incomes. Although some politicians have a short-term perspective on immigrant assimilation, our findings suggest that this view might underestimate the long-run success of immigrants. Our findings are more consistent with the idea of the “American Dream,” by which even immigrants who come to the United States with few resources and little skills have a real chance at improving their children’s prospects...."

Ran Abramitzky, Leah Platt Boustan, Elisa Jácome and Santiago Pérez, "Intergenerational Mobility of Immigrants In The US Over Two Centuries," National Bureau of Economic Research, October 2019, https://scholar.princeton.edu/sites/default/files/lboustan/files/w26408.pdf

Thursday, October 31, 2019

AI Summary. The authors estimate that rising incomes among the wealthy have driven gentrification and higher downtown housing prices, widening the welfare gap between the 90th and 10th income percentiles by 2.3 percentage points. Residents at the 10th percentile lost about 2.5% in well-being from higher rents and less valued amenities, while wealthier households' welfare was little changed.

Victor Couture, Cecile Gaubert, Jessie Handbury and Erik Hurst National Bureau of Economic Research
Date Posted:
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Urban income study: Downtown housing costs driven by top earner influx; welfare gap btw 90th/10th percentiles widened 18% points (1990-2013). Higher-income residents’ spatial preferences amplify inequality

Does gentrification driven by rising top incomes reduce poorer residents' welfare?

Core argument: Urban spatial sorting widened the welfare gap between the 90th and 10th income percentiles by 2.3 percentage points from 1990 to 2013, a period when the income gap between those percentiles grew by 18 percentage points.

Rising incomes among the wealthy have significantly contributed to urban gentrification, leading to increased housing prices in downtown areas. This spatial sorting has resulted in a 2.3 percentage point increase in welfare differences between the 90th and 10th income percentiles from 1990 to 2013. The income gap between these percentiles grew by 18 percentage points during this period. Poorer residents, particularly those at the 10th percentile, experienced a 2.5% reduction in well-being due to higher rents and less valued amenities. Meanwhile, the welfare of wealthier households remained largely unchanged, as increased amenities offset the impact of rising house prices. This dynamic underscores the understated welfare impacts of income inequality when spatial sorting is overlooked, highlighting the need for targeted policy interventions to address these disparities.

Takeaways by Macro Roundup® AI

  1. Urban spatial sorting widened the welfare gap between the 90th and 10th income percentiles by 2.3 percentage points from 1990 to 2013, a period when the income gap between those percentiles grew by 18 percentage points.
  2. Households at the 10th income percentile experienced a 2.5% reduction in well-being from higher rents and less valued amenities, while welfare of wealthier households remained largely unchanged as added amenities offset rising house prices.
  3. Rising incomes among the wealthy contributed to gentrification and higher downtown housing prices, and ignoring spatial sorting understates the welfare effects of income inequality.

new Hurst's NBER, low skilled workers are unable to pass though to employers an uptick in housing prices and are thus worse off after rents

"....In order to explore the link between rising incomes at the top of the income distribution and urban gentrification, we write down a spatial model of a city with heterogeneous agents and nonhomothetic preferences. We quantify the model using detailed location and income data, at the tract level, on the the top 100 CBSA's in the US. We then use the quantified model to tease out how much of the change in spatial sorting over time can be plausibly traced back to changes in the income distribution, tilted towards higher incomes. In the model, as the rich get richer, their increased demand for urban amenities drives up housing prices in downtown areas, where the development of these amenities is fueled by economies of density.The poor are either displaced or end up paying higher rents, making them worse off.Our preliminary estimates suggest that increases in the incomes of high income individuals was a substantive contributor to increased urban neighborhood change during the last 25 years within the U.S. and that the neighborhood change resulting from the increased incomes of the rich did, in fact, make poorer residents worse off. We explore possible policy responses to the rise in gentrification,and find that policies that contain gentrification seem to only lead to a very modest mitigation of the increase in well-being inequality, which could arguably be targeted more efficiently by direct redistribution....One of the paper's main findings is that, because of externalities imposed by the in-migration of the rich, welfare estimates of increased income inequality are understated when spatial sorting responses are ignored. Preliminary estimates suggest that welfare differences between those at the 90th percentile of the income distribution and those at the 10th percentile of the income distribution increased by an additional 2.3 percentage points once accounting for the changing nature of spatial sorting of the rich into downtown urban areas during the 1990 to 2013 period. As way of comparison, in our sample of large cities, the measured income gap between the 10th and 90th percentiles of the income distribution increased by about 18 percentage points during this time period. Moreover, we are finding that the resulting neighborhood change within downtown areas in response to the rising incomes of the rich reduced the well-being of those at the 10th percentile of the income distribution by about 2.5 percent, in consumption equivalent terms....In particular, as the rich got richer, they moved into downtown urban areas making the poor worse off.The welfare for households at the 90th percentile of the income distribution is essentially unchanged from the associated spatial sorting response. In particular, their welfare only fell by -0.25 percentage points. As they move into downtown areas, amenities which they value endogenously respond making them better off. House prices increase making them slightly worse. These two effects roughly cancel out for higher income households. Households at the 10th percentile of the income distribution, however, are made worse off in absolute terms. Specifically, households at the 10th percentile have 2.6 percentage points lower utility from the movement of higher income individuals into urban areas as a response to their rising incomes. Their rents are increasing downtown and while amenities are increasing, they do not value those amenities as much..."
Victor Couture, Cecile Gaubert, Jessie Handbury and Erik Hurst, "Income Growth and the Distributional Effects of Urban Spatial Sorting," October 19, 20919, National Bureau of Economic Research, August 2019, https://www.nber.org/papers/w26142