Macro Roundup

“…We use a massive, matched employer-employee database for the United States to analyze the contribution of firms to the rise in earnings inequality from 1978 to 2013. We find that one-third of the rise in the variance of (log) earnings occurred within firms, whereas two-thirds of the rise occurred due to a rise in the dispersion of average earnings between firms. However, this rising between-firm variance is not accounted for by the firms themselves but by a widening gap between firms in the composition of their workers. This compositional change can be split into two roughly equal parts: high-wage workers became increasingly likely to work in highwage firms (i.e., sorting increased), and high-wage workers became increasingly likely to work with each other (i.e., segregation rose). In contrast, we do not find a rise in the variance of firm-specific pay once we control for the worker composition in firms. Finally, we find that two-thirds of the rise in the within-firm variance of earnings occurred within mega (10,000+ employee) firms, which saw a particularly large increase in the variance of earnings compared with smaller firms….”

Song, Jae, David Price, Fatih Guvenen, Nicholas Bloom, and Till von Wachter, “Firming Up Inequality,” The Quarterly Journal of Economics, October 25, 2018, https://academic.oup.com/qje/article-abstract/134/1/1/5144785

Atila Abdulkadiroglu, Joshua Angrist and Parag Pathak, “The Elite Illusion: Achievement Effects At Boston And New York Exam Schools,” Econometrica, January 2014, https://economics.mit.edu/files/9518

“…The results reported here suggest that an exam school education produces only scattered gains for applicants, even among students with baseline scores close to or above the mean in the target school. Because the exam school experience is associated with sharp increases in peer achievement, these results weigh against the importance of peer effects in the education production function. Our results also fail to uncover systematic evidence of racial composition effects. The outcome most strengthened by exam school attendance appears to be the 10th grade English score, a result driven partly by gains for minorities.Given the history of racial preferences (and their more recent elimination) in Boston’s exam schools, this finding seems worth further exploration. Overall, however,while the exam school students in our samples typically have good outcomes, most of these students would likely have done well without the benefit of an exam school education. Of course, test scores and peer effects are only part of the exam school story. It may be that preparation for exam school entrance is itself worthwhile.The RD design captures the impact of peer composition and possibly other changes at admissions cutoffs, while ignoring effects common to applicants on both sides. Likewise, unique features of an exam school education may boost achievement in specific subject areas. Students who attend Boston Latin School almost certainly learn more Latin than they would have otherwise. The many clubs and activities found at some exam schools may expose students to ideas and concepts not easily captured by achievement tests or our post-secondary outcomes. It is also possible that exam school graduates earn higher wages…Still, the estimates reported here suggest that any labor market gains are likely to come through channels other than peer composition and increased cognitive achievement. Can these results be reconciled with those of other studies reporting a strong association between group averages and individual outcomes? Every context is different, and the absence of peer effects in one setting does not prove that such effects are unimportant elsewhere.At the same time, it is worth emphasizing the high risk of specification error in peer analysis….the relationship between an individual-level variable and any group average of this variable is essentially mechanical. Likewise, any regression of one outcome variable on the group average of another outcome variable is biased toward a finding of peer effects due to the presence of common shocks. Random assignment to groups fails to solve either of these problems. Finally, any regression of an individual outcome on a combination of observationally varying individual- and group-level treatments is almost sure to produce something that looks like a peer effect for reasons related to the information content of the average (see, e.g., Acemoglu and Angrist (2000) and Moffitt (2001)). It is perhaps unsurprising, therefore, that experimental or quasi-experimental manipulation of predetermined peercharacteristics is less likely to uncover a peer effect than are other study designs. Estimates from the Moving to Opportunity demonstration, for example, which manipulated peer composition by randomly assigning housing vouchers, are consistent with the results reported here in offering little evidence of causal peer effects…”

Not surprising to me that school doesn’t change cognitive outcomes (remember all these kids were motivated enough to take the entrance exam in the first place) but hard to believe it doesn’t have an impact.

Good observation and shocking chart from Gavyn Davies, the slump in US consumer spending has been driven by a surge in savings, not a decline in personal income. “…much of the slump in US consumer spending has been accompanied not by declining personal incomes but by a surge in savings, which suggests consumers may remain cautious during the recovery… Despite this income support, consumer spending has collapsed, especially in service sectors and on discretionary goods such as autos. As a result, the savings ratio could well rise to about 20 per cent of household income. The key question for the economic recovery is how much of this increase will be reversed as the lockdowns are eased. Part of the decline in spending has been involuntary and will be restored as restaurants and stores re­open and work patterns return to normal. But the decline in discretionary spending on big-ticket and other items may last longer, especially if the emergency rise in unemployment benefits ends after the end of July, as planned….”

"...LHS: Let’s take the global dimension first. We have done too much management of globalization for the benefit of those in Davos, and too little for the benefit of those in Detroit or Dusseldorf. Over the last two decades, better intellectual property protection for Mickey Mouse and Hollywood movies has been an A level economic issue. Better global tax cooperation, so that tech companies’ profits do not locate themselves in cyberspace and entirely escape taxation, has been a B-level issue….. More broadly, we need a reconsideration of what economists would call the role of high-powered incentives. The profit motive is a very positive thing. It drives businesses to be more efficient. It drives businesses to create new product. It drives economies forward. But profit can also be an incentive to the exploitation of workers. It can be an incentive to the exploitation of consumers. In a world where firms compete too ruthlessly for market share, if somebody cuts a corner, there can be overwhelming pressure for everyone to cut that corner in order to survive—whether it is maintaining insufficient capital in a financial institution, using a deceptive marketing practice that addicts customers, or producing in a way that is invisibly unsafe. So the case for regulation is not to be anti-business. Regulation needs to be supported because it enables the vast majority of businesses who want to do right by society to do so and still be able to compete. That’s how the case for regulation needs to be framed. We should not be waging jihad against business. We should be waging jihad against those who put profit ahead of every other value in the society. And that’s where in the emphasis on profit, we have gone a bit awry...."
Lawrence Summers, "How to Fix Globalization—for Detroit, Not Davos,"The American Interest, May 22, 2020, https://www.the-american-interest.com/2020/05/22/how-to-fix-globalization-for-detroit-not-davos/

Summers interview, he continues to bash the wealth tax but this is the most interesting bit

Adrien Auclert, Hannes Malmberg, Frederic Martenet and Matthew Rognlie, “Demographics, Wealth, and Global Imbalances in the Twenty-First Century,” Virtual Macro Seminar, May 2020, https://www.youtube.com/watch

Video of paper’s seminar:

new Rognlie on the relationship btw demographic change and the interest rates, implies a decline in the real interest rate of 63bps for US. Also imply the global savings glut is going to grow

"....We use a sufficient statistic approach to quantify the effects of population aging on wealth accumulation and equilibrium interest rates.... The model predicts a fall in the real interest rate, a rise in the world W/Y, and an expansion of global imbalances.... A simple calculation that rolls forward projected population distributions over fixed age profiles of assets and income constitutes a sufficient statistic for the transition dynamics of the wealth-to-GDP ratio in a special case of our model, and remains a very useful input into the calculation of equilibrium wealth and interest rates away from this special case. Our sufficient statistic approach shows that the macroeconomic effect of aging on aggregate wealth accumulation is large, but equilibrium interest rate adjustment, disciplined by external evidence on asset supply and demand sensitivities to the interest rate, makes the ultimate effect on interest rates and wealth more modest. Our baseline projections for the United States imply a long-run rise in W/Y of 35 percentage points, and a decline in real interest rates of 63 basis points..... Combining population projections with household survey data from the US and 24 other countries, we project the evolution of wealth-to-GDP ratios by changing the age distribution, holding life-cycle asset and income profiles constant. We find that this compositional effect of aging is large and heterogeneous across countries, ranging from 85 percentage points in Japan to 310 percentage points in India over the rest of the twenty-first century. In a general equilibrium overlapping generations model, our shift-share provides a very good approximation to the evolution of the wealth-to-GDP ratio due to demographic change when interest rates remain constant. In an integrated world economy, aging generates large global imbalances in the twenty-first century, pushing net foreign asset positions to levels several times larger than those observed until today....Figure 11 shows the relationship between historical compositional effects and historical changes in net foreign asset positions. The 45 degree line shows the demeaned compositional effect. Historically, most countries have had similar compositional effects. However, for Japan and Ireland that have substantial deviations, the net foreign asset positions change in the predicted direction, with Japan accumulating a large positive position, and Ireland a large negative position.26 Overall, there is a positive correlation between compositional effects and the change in net foreign asset positions.…"