Macro Roundup

Counterintuitive Ernie analysis suggests that the impact of state and local minimum wage hikes might be skewing our sense of how hot the labor market is. He segments minimum wage workers by those impacted by federal/state/local minimum wages and then looks at relative wage pressure using AHE and finds that absent the hikes wage growth for bottom third would be slower than overall wage growth as opposed to higher. His work suggests that wage growth for Americans in bottom 1/3 of wage earners would have been closer to 3.3% as opposed to 4.1% net the impact of minimum wages. Note he mentions this does not take into account people laid off due to the minimum wage increases.

"...To get a sense of this impact, I have used data in the Current Population Survey to look at minimum wage workers as a group and calculate the pressure their wage gains have put on aggregate wage growth over time, controlling for compositional changes in the share of minimum wage work. Note that this approach doesn’t settle whether minimum-wage increases are a net benefit to Americans, since among other things wage data will by definition capture only those who stayed employed after an increase. If people were laid off because of a minimum-wage increase, their loss of wages wouldn’t factor into the average.This analysis shows that growth in average wages has been running about 3.9 percent per year in the Current Population Survey over the past two years, a bit firmer than the pace right before the Great Recession but below the near 5 percent reached in 2000. But increases to minimum wages at the state and local level have put 0.4 percentage points of upward pressure on this recent growth. Absent that pressure, wage growth in the Current Population Survey over the last two years would have been 3.5 percent.That’s still a fine result, but it’s a bit cooler than the unadjusted data suggest. Wage pressure from minimum wage workers is magnified when you look at only the lowest wages. That’s because while minimum wage work makes up about 6 percent of all usual hours worked, it’s around 13 percent of hours worked by Americans in the bottom third of wages. As the analysis has shown us, wage growth at the bottom is doing well. It has been around 4.1 percent over the last two years — above the 3.6 percent at the top end, and above the overall average of 3.9 percent. But absent the pressure from minimum wage workers, growth at the bottom would have been closer to 3.3 percent...."
Basically overall Ernie finds that AHE growth it’s running 4.1% per year on average in the CPS, and changes in wages for minimum wage workers boosted that by 0.8 percentage points. So ex-hikes, growth at the bottom third looks closer to 3.3%. And when you look at everyone, minimum wage hikes are still registering, though obviously far less, adding 0.4 percentage points to wage growth. He noted in an email, “….A few conclusions from this: first, among workers who stay employed, minimum wages are clearly helping, though as I said earlier this approach can’t weight this benefit against possible costs. In fact, for workers at the bottom, minimum wage hikes have meant the difference between exceeding or falling short of the overall average growth and the growth at the top. Second, minimum wage wages aren’t the biggest reason wages have grown, even at the bottom. The tightening labor market is very likely responsible for the lion’s share of growth. In the bottom third, minimum wage hikes can explain around 1/5 of the wage growth over the last 2 yrs….”

New NBER study using a natural experiment suggests talent is limiting constraint. Paper looks at 1,900 startups, majority of which are in high technology fields who applied for the H-1B lottery in 2008, 2009, 2014, and 2015, when H-1B visas were allocated to employers by lottery as demand exceeded the federal cap. Prior to lottery, all the firms had completed at least one round of external financing and none had gone public. They found winning lottery and significant effects out outcomes. Note they do assume that"...The key identification assumption for our results is that a company’s H-1B lottery win rate is exogenous to the quality of the firm and its prospects..."(lottery is computer generated) so talent is not correlated but causative of success.

"....In the U.S., firms can apply for H-1B visas that allow high-skill foreign workers to enter the U.S. There is a fixed quota of H-1B visas available to for-profit firms, and when the number of applications exceeds the quota the U.S. government holds a lottery that assigns H-1B visas based on computer-generated pseudo-random numbers. The outcome of these H-1B visa lotteries provides exogenous, random variation in firms’ access to skilled foreign workers. In this paper, we examine a sample of start-up firms that applied for H-1B visas, and compare outcomes based on the firms’ win rate in the H-1B lotteries.... We find that a firm’s win rate in the H-1B visa lottery is strongly related to the firm’s outcomes over the following three years.Relative to ex ante similar firms that also applied for H-1B visas, firms with higher win rates in the lottery are more likely to receive additional external funding and have an IPO or be acquired. Firms with higher win rates also become more likely to secure funding from a highly reputable VC, receive more patents, and more patent citations. Overall, the results show that access to skilled foreign workers has a strong positive effect on firm-level measures of success...... For example, a one standard deviation increase in the win rate is associated with a 4.3 percentage point increase in the likelihood that the firm receives subsequent external funding (a 10% increase relative to the baseline funding rate). Strikingly, the magnitude of this effect is little changed by the inclusion of controls or various fixed effects, indicating that the outcome of H-1B visa lotteries is indeed random and uncorrelated with observable firm characteristics.... For example, a one standard deviation increase in the win rate is associated with a 2.9 percentage point increase in the probability of a successful exit over a five-year period following the lottery, representing a 19% increase relative to the baseline exit rate..... For example, a one standard deviation increase in the win rate is associated with a 1.5 percentage point increase in the probability of an IPO, representing a 23% increase relative to the baseline IPO rate over a five-year window following the lottery.... For example, a one standard deviation increase in the win rate is associated with a 4.8% increase in the number of patents and a 3.8% in the number of adjusted patent citations. These results suggest that highly skilled foreign workers contribute to the innovation success of start-up firms.....The results show that access to skilled foreign workers leads to improved funding and patenting outcomes for start-up firms, suggesting that improved visa access for such firms could generate significant economic benefits....."

Stephen Dimmock, Jiekun Huang and Scott Weisbenner, "Give Me Your Tired, Your Poor, Your High-Skilled Labor: H-1B Lottery Outcomes and Entrepreneurial Success," National Bureau of Economic Research, October 2019, https://www.nber.org/papers/w26392

Kotlikoff and Auerbach push back at Saez/Zucman"...Economists Emmanuel Saez and Gabriel Zucman……wrong, and three huge mistakes underlie their analysis. The biggest mistake is to focus on gross, not net, taxes. They ignore transfer payments, like Social Security, which are disproportionately paid to the poor...Messrs. Saez and Zucman’ssecond mistake is measuring progressivity on a one-year rather than a remaining-lifetime basis. That ignores the fiscal system’s double taxation: Income earned, taxed and saved this year will be subject to future taxation on interest, dividends and capital gains. This omission disproportionately understates taxes for the rich, who save at a higher rate. The current-year focus also understates benefits paid to the poor, since future benefits are a bigger share of their resources. Theirthird mistake is failing to adjust for age.The old have paid most of their lifetime taxes, which makes them now look like tax cheats, particularly those who saved out of previously highly taxed labor income. With changing demographics, this problem will deeply confuse tax progressivity comparisons over time... the net tax rate facing middle age Americans rises rapidly with their resources—from negative 46.4% for the bottom 20% to positive 34.5% for the top 1%...."

Laurence Kotlikoff, "Tax Myths of Warrenomics,"Wall Street Journal, October 17, 2019, https://www.wsj.com/articles/tax-myths-of-warrenomics-11571351806

Summer's on Saez (to his face)

"Would a “Wealth Tax” Help Combat Inequality? A Debate with Saez, Summers, and Mankiw," Peterson Institute for International Economics, October 18, 2019, https://www.youtube.com/watch

"...I have made a very close study of the twitter wars of the last week surrounding the work of Saez and Zucman and I have to say I find myself about 98.5% persuaded by the critics that the data are substantially inaccurate and substantially misleading..."

Counterintuitive Ernie analysis suggests that the impact of state and local minimum wage hikes might be skewing our sense of how hot the labor market is. He segments minimum wage workers by those impacted by federal/state/local minimum wages and then looks at relative wage pressure using AHE and finds that absent the hikes wage growth for bottom third would be slower than overall wage growth as opposed to higher. His work suggests that wage growth for Americans in bottom 1/3 of wage earners would have been closer to 3.3% as opposed to 4.1% net the impact of minimum wages. Note he mentions this does not take into account people laid off due to the minimum wage increases.

"...To get a sense of this impact, I have used data in the Current Population Survey to look at minimum wage workers as a group and calculate the pressure their wage gains have put on aggregate wage growth over time, controlling for compositional changes in the share of minimum wage work. Note that this approach doesn’t settle whether minimum-wage increases are a net benefit to Americans, since among other things wage data will by definition capture only those who stayed employed after an increase. If people were laid off because of a minimum-wage increase, their loss of wages wouldn’t factor into the average.This analysis shows that growth in average wages has been running about 3.9 percent per year in the Current Population Survey over the past two years, a bit firmer than the pace right before the Great Recession but below the near 5 percent reached in 2000. But increases to minimum wages at the state and local level have put 0.4 percentage points of upward pressure on this recent growth. Absent that pressure, wage growth in the Current Population Survey over the last two years would have been 3.5 percent.That’s still a fine result, but it’s a bit cooler than the unadjusted data suggest. Wage pressure from minimum wage workers is magnified when you look at only the lowest wages. That’s because while minimum wage work makes up about 6 percent of all usual hours worked, it’s around 13 percent of hours worked by Americans in the bottom third of wages. As the analysis has shown us, wage growth at the bottom is doing well. It has been around 4.1 percent over the last two years — above the 3.6 percent at the top end, and above the overall average of 3.9 percent. But absent the pressure from minimum wage workers, growth at the bottom would have been closer to 3.3 percent...."
Basically overall Ernie finds that AHE growth it’s running 4.1% per year on average in the CPS, and changes in wages for minimum wage workers boosted that by 0.8 percentage points. So ex-hikes, growth at the bottom third looks closer to 3.3%. And when you look at everyone, minimum wage hikes are still registering, though obviously far less, adding 0.4 percentage points to wage growth. He noted in an email, “….A few conclusions from this: first, among workers who stay employed, minimum wages are clearly helping, though as I said earlier this approach can’t weight this benefit against possible costs. In fact, for workers at the bottom, minimum wage hikes have meant the difference between exceeding or falling short of the overall average growth and the growth at the top. Second, minimum wage wages aren’t the biggest reason wages have grown, even at the bottom. The tightening labor market is very likely responsible for the lion’s share of growth. In the bottom third, minimum wage hikes can explain around 1/5 of the wage growth over the last 2 yrs….”

Atif Mian, Ludwig Straub and Amir Sufi, "The Saving Glut of the Rich and the Rise in Household Debt," Harvard University, November 2019, https://scholar.harvard.edu/files/straub/files/mss_richsavingglut.pdf

"....Rising income inequality since 1980 in the United States has generated a large increase in saving by the top of the income distribution, which we call the saving glut of the rich. The saving glut of the rich has been on the same order of magnitude as the global saving glut, and it has not been associated with an increase in investment.An examination of thedistribution of income and wealth reveals that a large fraction of the rise in household borrowing by non-rich households has been financed by rich households through this saving glut...From a national accounting perspective, the saving glut of the rich must have been absorbed by some other part of the economy...investment actually declined from 1980 to 2014, and government deficits were stable until the Great Recession....the net foreign account moves in the opposite direction. The United States as a whole borrowed more from the rest of the world during this time period... This leaves only one remaining margin: the rest of the U.S. household sector must have reduced saving substantially. This is what the analysis finds. Saving by the bottom 90% of the income distribution fell significantly over this time frame. The rise in saving of the top 1% was associated with a substantial dis-saving by the bottom 90%.... The results show that the rise in household debt owed as a liability was driven by the bottom 90% of the income distribution, where as the rise in house hold debt held as a financial asset was driven by the top of the wealth distribution. This suggests that a better measure of house hold debt claims across the wealth distribution is net household debt owed, which is defined as gross household debt owed minus household debt held as a financial asset. Net household debt positions clarify that the post 1980 period was one in which rich Americans increasingly financed the borrowing of non-rich Americans. The net household debt position of the top 1% fell by 20 percentage points of national income since 1980 which reflected their accumulation of house hold debt held as a financial asset. In contrast, the net house hold debt position of the bottom 90%increased by 40 percentage points.... Analysis using variation across states in the rise in top income shares shows that income growth at the top of the income distribution can explain 75%of the accumulation of household debt held as a financial asset by households in the United States. After the Great Recession, evidence suggests that the saving glut of the rich has been financing government deficits to a greater degree…”

new Mian/Sufi on the "savings glut of the rich" which they argue domestic rich savers (with a qualifier "may be") linked to the "dis-saving" of the bottom 90%.

"... The nation’s population growth from 2018 to 2019 grew by a mere 0.48%, according to newly released Census Bureau estimates. This is the lowest annual growth rate since 1918, and caps off a decade that should show the slowest 10-year population growth since the first census was taken in 1790....The decade’s patterns reveal a nation with unprecedented growth stagnation, an absolute decline in its under-18 youth population, higher growth for states in the Mountain West and Southeast, low growth in the Midwest and Northeast, and population loss in four states. Moreover, declining growth in California could lead to its first-ever loss of a congressional seat... The 2010s was a decade of fewer births, more deaths, and uneven immigration. (download Table A) The 2018-19 period had an exceptionally low growth rate of 0.48%, with immigration declining to 595,000 people—the lowest level since the 1980s—and a drop in natural increase to below 1,000,000. (download Table B) While immigration may have been unusually low due to recent federal restrictions which led to a decline in the noncitizen foreign-born, relatively low natural increase levels are likely to persist due to the aging of the population. One symptom of the aging population is the decade-wide loss in young people under age 18. Between 2010 and 2019, the nation sustained an absolute decline of 1.14 million youth. Some of this change can be attributed to lower fertility rates and the aging into adulthood of the last of the millennial population, though census projections show older populations—especially those over age 65—will display far higher rates of growth than youth.."