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….”

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.."

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Editorial Board, "Where You Want to Get Cancer,"Wall Street Journal, January 9, 2020, https://www.wsj.com/articles/where-you-want-to-get-cancer-11578615274

Where You Want to Get Cancer

Cheer up, folks. For all the political grousing about health-care costs, the good news out this week is that cancer survival rates have improved enormously over the last three decades. The chances of beating most types of cancer are increasing, and that’s especially true if you live in the United States.

The American Cancer Society reported this week that the cancer mortality rate in the U.S. has plunged nearly 30% since its peak in 1991, with the biggest annual decline occurring in 2017. Fewer Americans are smoking, which has reduced the incidence of lung cancer in particular. More Americans are also being diagnosed with cancer at earlier stages thanks to better tests and screening, increasing the odds of survival.

The five-year survival rate is now 98% for prostate cancer, 92% for melanoma and 90% for breast cancer. Between 2013 and 2017, the death rate for men with melanoma declined by a stunning 7.6% annually. Screening and treatment improvements also helped reduce the death rate for breast cancer by an average of 1.5% annually from 2008 to 2017.

Scientific understanding of cancer and its genetic determinants has advanced by leaps over the past decade. Personal DNA testing companies like 23andMe arm people with more information about their risk factors. Most women now know, for example, that mutations in the BRCA1 and BRCA2 genes increase the risk for breast and ovarian cancers.

Breakthrough therapies that harness a victim’s immune system have also increased survival rates by multiples over traditional treatments such as chemotherapy. That’s especially true for cancers with low survival rates such as metastatic melanoma and lung cancer.

Such government rationing and price controls on drugs are one major reason that countries with socialized medicine like the United Kingdom have lower cancer survival rates than the U.S. The age-adjusted cancer mortality rate is about 20% higher in the U.K and 10% higher in Canada and France than in the U.S. Survival rates for hard-to-treat cancers are also higher in the U.S. than in most countries with nationalized health systems.

According to a study in the journal Lancet last year, an individual diagnosed with pancreatic cancer between 2010 and 2014 had nearly twice the likelihood of surviving five years in the U.S. than in the U.K. The five-year survival rate for brain cancer in the U.S. is 36.5% compared to 27.2% in France and 26.3% in the U.K. For stomach cancer the five-year survival rate is 33.1% in the U.S. compared to 26.7% in France and 20.7% in the U.K.

Diagnostic and treatment advances in the U.S. are also accelerating. Google’s artificial intelligence can now detect breast and lung cancers with better accuracy—meaning fewer false positives and negatives—than radiologists. AI systems are also enabling researchers to identify more genetic links and to personalize treatments.

Even the report’s gloomiest news has a silver lining. Death rates for liver cancer are rising faster than for other forms of the disease, but Hepatitis C drugs could greatly reduce the incidence and have come down 80% in price since 2014. It’s also worth highlighting that the disparity in cancer death rates between blacks and whites declined to 13% in 2017 from a peak of 33% in 1993.

Almost everyone knows someone who has been struck with cancer, and many have had bouts of their own. The good news is that the prognosis has never been better, and innovative drug therapies are a major reason.

Factoid from WSJ “…Among the smallest 80% of companies, there has been a long-term increase in persistent loss makers—those losing money for three years.…”that seems in line withAutor/Dorn/Katz/Patterson/Van Reenenconclusion that,".... While the prediction that rising market toughness could generate an increase in concentration and the profit share may seem counterintuitive, the ambiguous relationship between concentration, profit shares, and the stringency of competition often arises in industrial organization...".

"...Thecombination of forces has pushed the percentage of listed companies in the U.S. losing money over 12 months to close to 40%, its highest level since the late 1990s outside of postrecession periods....What type of companies are losing money? In the U.S., 42% are health-care companies, reflecting the popularity of small, often loss-making biotech stocks. Another 17% are tech stocks, many of them fashionable new ventures.... Here we come to the third trend: Smaller companies being squeezed.The shares of three-quarters of the 100 biggest companies that reported losses rose over the past 12 months, because big loss-making companies tend to be growth stories where investors don’t much mind the losses. That’s far above the 41% of all loss-making U.S. companies whose shares rose, because smaller lossmakers really suffered, according to data from S&P Global Market Intelligence. Among the smallest 80% of companies, there has been a long-term increase in persistent loss makers—those losing money for three years. The proportion of these loss-making companies rose after each of the last two recessions and didn’t come down again afterward. The story should be familiar by now: Many small companies are being dominated by the biggest corporates, squeezing them out of markets and crushing their ability to invest for growth...."

"... Using long-run annual panel data for the advanced economieswe show that credit booms are a negative predictor for real GDP growth looking forward, as has been noted (Mian, Sufi, and Verner 2017);but they are also a negative predictor for future returns to the major asset classes, equities and bonds. Higher credit growth predicts lower returns to equities in absolute terms, and for equities relative to bonds. In short, when a credit boom is maturing, the investor exposed to equities would face a more likely drawdown, while the investor exposed to bonds would not.....

New Alan Taylor finds that rapid growth in credit (measured by the lagged three-year change in the ratio of total bank loans to GDP) is a predictor of less than average equity returns. Taylor finds that market leverage has historically predicted one year ahead stock returns better than measures of stock market momentum, and almost as well as measures of value. He find (Post World War Two, Table 1)the average return to stocks in sample of countries was 8.9 percent. When lagged growth in the credit-to-GDP ratio was < median the return averaged 11.6 percent. But when the credit growth ratio was high, returns the following year averaged only 6.8 percent.When testing his result he found that theSharpe ratio for the leverage factor alone was 0.78, better than the analogous measure of 0.70 for momentum but not quite as high as 0.82 for value. They found that a portfolio adjustment using all three variables, credit booms, momentum, and value generates a Sharpe ratio of 0.94.

(Philippon pushback)

"...In the graph below,the black line indicates expected 4G availability, conditional on price. On average, a 100 percent increase in the price of 1GB of data is associated with a 3.9 percent increase in 4G availability. Note that the US falls above the line, meaning that American consumers get more access to 4G than would be expected given the price they pay. France and Germany fall below the line. Great Britain falls just above it...."