Macro Roundup

Economist who pays the minimum wage, “..In theory a higher cost base could be passed on to consumers through higher prices, or absorbed by employers through lower profit margins. In reality the answer varies by market. In competitive sectors, such as fast food, research has found that a 10% increase in the wage floor pushes up burger prices by just 0.9%. In 2019 a study of supermarkets in Seattle found no impact on grocery prices from big increases…”

On the overall state of play of the research, "...Economists no longer think higher minimum wages are always bad. But that is not the same as saying they are always good. In 2018 a paper by Isaac Sorkin and others cautioned policymakers to take a longer-term view, rather than worry about short-term unemployment. Its authors found that if firms perceived a higher wage floor to be permanent and unlikely to be eroded by inflation, it could encourage them to automate more and decrease employment growth in the future. The idea that a minimum wage can sometimes lead to higher rather than lower employment does not mean it always will.When pushing up the floor, policymakers need to ensure they do not hit the ceiling...."

Economist Staff, "What harm do minimum wages do?,"The Economist, August 13, 2020, https://www.economist.com/schools-brief/2020/08/13/what-harm-do-minimum-wages-do

As requested reviewed Stiglitz’s claims from his NYT op-ed. Here they are with context.

Steve

“…So far, states and localities have responded by slashing spending and jobs, with 1.5 million public-sector workers laid off by the end of June….”

According to BLS this checks for the end of June (-1.444mm)worth noting there has been a rebound however to -1.127mm from February

Kitty Richards and Joseph Stigliz, "Doesn't Feel LIke A Recession? You Should Be Paying More In Taxes,"New York Times, September 3, 2020, https://www.nytimes.com/2020/09/03/opinion/sunday/progressive-policies-taxes.html

Enrico Motetti Daniel Wilson, “Taxing Billionaires: Estate Taxes and Geographical Location of the Ultra-Wealthy,” National Bureau Of Economic Research, https://eml.berkeley.edu/~moretti/billionaires.pdf

Wesley Tharpe, “Rising State Income Tax Rates at the Top a Sensile Way to Fund Key Investments,” Center On Budget and Policy Priorities, February 7, 2019, https://www.cbpp.org/research/state-budget-and-tax/raising-state-income-tax-rates-at-the-top-a-sensible-way-to-fund-key

"...The bulk of mainstream academic research finds that interstate differences in taxes, including differences in top personal income tax rates, have minimal effects on state economic growth. Fifteen of the 20 major studies published in academic journals since 2000 that examined the broad economic effect of state personal income tax levels found no significant effects and one of the others produced internally inconsistent results. As a pair of university researchers described in a comprehensive literature review in 2018, “The vast majority of the academic studies that examined the relationship between state and local taxes and economic growth found little or no effect.”..."

They cite for proposition

Joshua Rauh and Ryan Shyu, "Behavioral Responses to State Income Taxation of High Earners: Evidence from California," National Bureau of Economic Research, October 2019, https://www.nber.org/papers/w26349

“.. Our estimates imply an intensive margin elasticity of 2013 income with respect to the marginal net-of-tax rate of 2.5 to 3.3. Among top-bracket California taxpayers, outward migration and behavioral responses by stayers together eroded 45.2% of the windfall tax revenues from the reform in 2013, with the extensive margin accounting for 9.5% of this total response…”

NBER from 2019 looking at CA found migration of high earners out of state cost the state half the estimated increase in tax revenue

“…We estimate the revenue costs and benefits for each state of having an estate tax. The benefit is the one-time tax revenue gain when a wealthy resident dies, while the cost is the foregone income tax revenues over the remaining lifetime of those who relocate. Surprisingly, despite the high estimated tax mobility, we find that the benefit exceeds the cost for the vast majority of states. Of the states that currently do not have estate taxes, all but one would experience revenue gains if they adopted estate taxes,with California the only exception….”

Moretti, rich people are really sensitive to estate taxes (but in estate tax case it’s still net positive in term of revenue outside of CA)

Enrico Motetti and Daniel Wilson, “The Effect Of State Taxes on the Geographical Location of Top Earners: Evidence from Start Scientists,”American Economic Review, 2017, https://eml.berkeley.edu/~moretti/taxes.pdf

We’ll see! Moretti’s cutting edge research begs to differ, “…We quantify how sensitive is migration by star scientists to changes in personal and business tax differentials across states. We uncover large, stable, and precisely estimated effects of personal and corporate taxes on star scientists’ migration patterns.The long-run elasticity of mobility relative to taxes is 1.8 for personal income taxes, 1.9 for state corporate income tax, and −1.7 for the investment tax credit. While there are many other factors that drive when innovative individuals and innovative companies decide to locate, there are enough firms and workerson the margin that state taxes matter….”

“…economic evidence shows that even in boom times progressive state tax increases don’t harm state economies or lead rich people to flee...."

Hayley Brown and Dean Baker, “Cutting State And Local Budgets Is An Attack On The Country’s Black Workers,” Center For Economic And Policy Research, June 16, 2020, https://cepr.net/cutting-state-and-local-budgets-is-an-attack-on-the-countrys-black-workers/

“…One dimension of this fiscal crisis that has not received the attention it deservesis that the state and local government workforce is disproportionately Black.In 2019, 14.0 percent of state and local government workers were Black; that is 2.4 million out of 17.2 million workers. This compares to 11.7 percent of the private sector workforce. All else being equal, the workers who lose their jobs as a result of layoffs in the public sector are 20 percent more likely to be Black than workers who lose their jobs in the private sector….”

“….They have also lost jobs and seen their incomes drop at a higher rate than white Americans, and they are disproportionately affected by public-sector layoffs….”

Richard Oppel, Robert Gebeloff, K.K. Rececca Lai, Will Wright, and Mitch Smith, “The Fullest Look Yet At The Racial Inequity Of Coronavirus,” New York Times, July 5, 2020, https://www.nytimes.com/interactive/2020/07/05/us/coronavirus-latinos-african-americans-cdc-data.html

“..And Black and Latino people have been nearly twice as likely to die from the virus as white people, the data shows…”

Checks

“…Black and Latino Americans have been infected with the coronavirus at three times the rate of whites, and died from the disease twice as often….”

Dylan Grundman and Meg Wiehe, “State Options To Shore Up Revenues And Improve Tax Codes Amid Pandemic,” Institute On Taxation And Economic Policy, April 2020, https://itep.sfo2.digitaloceanspaces.com/041520-State-Options-to-Shore-Up-Revenue-2.pdf

This will vary by state depending on how regressive tax code is. Attributed to“…ITEP’s 2018 Who Pays? report found on average, the lowest income 20 percent of taxpayers face a state and local tax rate more than 50 percent higher than the top 1 percent of households….”

“…The bottom 20 percent of earners pay, on average, a state and local effective tax rate more than 50 percent higher than that paid by the top one percent….”

U.S. Census Bureau, “Household Pulse Survey Data Tables,” Accessed September 9, 2020, https://www.census.gov/programs-surveys/household-pulse-survey/data.html

For household making more than 200k 9.5mm saw no loss out of 13.8mm69%

See employment table 1 135mm household saw no loss of income since march 13, 2020 out of 249mm households,54%

This checks

“…Tens of millions of workers have lost their jobs since the beginning of the Covid-19 crisis, but almost half of Americans report that their household has not lost any employment income at all, according to Census Bureau data. That figure jumps to two-thirds for households bringing home more than $200,000 per year….”

Misty Heggeness and Jason Fields, “Working Moms Bear Brunt Of Home Schooling While Working During COVID-19,” U.S. Census Bureau, August 18, 2020, https://www.census.gov/library/stories/2020/08/parents-juggle-work-and-child-care-during-pandemic.html

True according to Census

“…One in five out-of-work adults has stopped working because of the need to supervise online learning or care for younger children…”

Elise Gould, “Public Education Job Losses In April Are Already Greater Than In All Of The Great Recession,” Center For Budget And Policy Priorities, June 3, 2020, https://www.epi.org/blog/public-education-job-losses-in-april-are-already-greater-than-in-all-of-the-great-recession/

From your old friend Elise Gould also using NCES not BLS numbers

‘…As of mid-May, public-sector layoffs had already surpassed their total for the entire Great Recession. With the school year still going, more than 750,000 K-12 education employees had already lost their jobs….”

Nicholas Johnson, “The Great Recession Badly Hurt Kids’ Schooling; Today’s Recession Could Do Much Worse,” Center For Budget And Policy Priorities, May 27, 2020, https://www.cbpp.org/blog/the-great-recession-badly-hurt-kids-schooling-todays-recession-could-do-much-worse

Bureau Of Labor Statistics, “Employed full time: Wage and salary workers: Preschool and kindergarten teachers occupations: 16 years and over, Employed full time: Wage and salary workers: Elementary and middle school teachers occupations: 16 years and over, Employed full time: Wage and salary workers: Secondary school teachers occupations: 16 years and over,“ Federal Reserve Bank Of St. Louis, Accessed September 9, 2020, https://fred.stlouisfed.org/graph/

According toBLS teachers series(so this is the sum of three series employed fulltime, preschool/kindergarten, elementary/middle school, and secondary school teachers) there were 4.54mm teachers in 2019, versus 4.111mm in 2007so +.429mmneed to spend some time squaring the numbers given this isn’t capturing non-facility employees (note he is using NCES data and I used BLS).

Note this isall employeesso it’s capturing maintenance staff and administrators

This is from CBPP,“…The last time that states faced a budget crisis, in the wake of the Great Recession of a decade ago, emergency federal aid closed only about one-quarter of state budget shortfalls. Once the aid was gone, states started cutting funding to K-12 schools to help comply with their balanced budget requirements. By 2011, 17 states hadcutper-student funding by more than 10 percent. Local school districts responded by cutting teachers, librarians, and other staff; scaling back counseling and other services; and even reducing the number of school days. Even by 2014 — five years after the Great Recession ended — state support for K-12 schools in most states remained below pre-recession levels. School districts have never recovered from the layoffs they imposed back then. When COVID-19 hit, K-12 schools employed 77,000 fewer teachers and other workers even though they were teaching 2 million more children, andoverall funding in many states was still below pre-Great Recession levels….”

“….Just before the pandemic, public school systems had two million more students in kindergarten through 12th grade than before the Great Recession, and 77,000 fewer employees to teach them and run their schools….”

Josh Bivens, “A Prolonged Depression Is Guaranteed Without Significant Federal Aid To State And Local Governments,” Economic Policy Institute, May 19, 2020, https://www.epi.org/blog/a-prolonged-depression-is-guaranteed-without-significant-federal-aid-to-state-and-local-governments/

The counterfactual comes from Josh Biven’s logic here:“…If one takes the trajectory of spending that characterized the 1980s and assumes this had been replicated after the 2009 recovery began, state and local spending would have been$800 billion higher by the first quarter of 2013.At that point in the recovery, unemployment was still at 8%and the Federal Reserve was years away fromthinking about raising interest rates. This means that this extra spending, if financed by federal aid, would have translated directly into extra economic output and jobs. $800 billion in spending, even with modest multipliers,would have supported roughly 8 million more jobsin that year, enough to restore the economy to pre-crisis unemployment rates (4.4%) even with higher labor force participation than prevailed in 2013. In short, state and local spending austerityby itselfdelayed the recovery to pre-Great Recession unemployment rates by probably about4 years….”

“…Had federal assistance enabled state and local spending to recover fully, the unemployment rate would have dropped to 4.4 percent in 2013, but instead we didn’t hit that level until 2017….”

They don’t attribute either of these two calculation to anything, and I can’t find numbers from CBO report that line up with their arithmetic.

“….Tax increases, especially on high-income people who aren’t living paycheck to paycheck, are much less economically damaging, costing the economy only around 35 cents for every dollar raised….”

“…States and localities that raise taxes on the rich to increase spending will create at least $1.15 of economic activity for every dollar raised, and most likely closer to $2.15 or more….”

Elizabeth McNichol and Michael Leachman, “States Continue To Face Large Shortfalls Due To COVID-19 Effects,” Center On Budget And Policy Priorities, July 7, 2020, https://www.cbpp.org/sites/default/files/atoms/files/6-15-20sfp.pdf

They attribute this to a CBPP report which finds a $555 billion shortfall over FY 2020-2022, with -$290 for this FY (FY 2021 started in July for most states)So I think what this is $-290b in cuts *1.5 (CBO multiplier) =-$435b impact on GDP.

“…With state budget shortfalls forecast to approach $300 billion this fiscal year, a spending-cut-only approach to balancing state budgets will cause at least a $450 billion reduction in G.D.P.— more than 2 percent….”

Felix Reichling, “Estimated Impact Of The American Recovery And Reinvestment Act On Employment And Economic Output In 2014,” Congressional Budget Office, February 2015, https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/49958-ARRA.pdf

At one point the report says, “…Similarly,if a dollar in aid to a state government leads that government to spend 50 cents more on employees’ salaries (but causes no other changes in state spending or revenues, with the other 50 cents used to reduce borrowing or build up rainy-day funds), the direct impact on output is 50 cents…”so perhaps that implies a $1 cut leads to $1.5 impact on GDP.

Not quite sure about this one, they are citing a CBO analysis of the stimulus bill. However CBO estimated transfers to state budget’s had a high multiplier of 1.8 not 2.5, now maybe cuts as opposed to transfers (presumably offsetting cuts) have a more pronounced impact.

“…Using conservative estimates, these ripple effects mean that each dollar of spending the state cuts leads to a drop of at least $1.50 in the gross domestic product, and there are reasons to believe that the drop is as much as $2.50…”

U.S. Bureau Of Labor Statistics, “All Employees Lobal Government, All Employees State Government,” Federal Reserve Bank Of St. Louis, Accessed September 9, 2020, https://fred.stlouisfed.org/graph/

Brad Setser, “The Return Of Big Chinese Surpluses (Are Large U.S. Deficits), Council On Foreign Relations, September 7, 2020, https://www.cfr.org/blog/return-big-chinese-surpluses-and-large-us-deficits

Would think this new pattern open’s a window to work with the EU to combat Chinese trading practices.

On the surplus side it's basically China, and on the deficit side it's basically the United States, “…But at the end of the day, a high frequency plot of global goods trade imbalances now is essentially dominated by China on one side, and the United States on the other…”

Perhaps this will change but Brad's post-pandemic trade data is showing a new story of imbalances; Europe's surplus has fallen as a result of the pandemic, and lower oil prices have eliminated surplus among the oil exporting economies (some now run significant deficits), “…What’s striking though is thatthe pandemic has led to a compression of most other trade imbalances, so almost all that is left now is the big Chinese surplus (from q2 on) and the equally big U.S. deficit (from q2 on)…”

Meghana Ayyagari, Asli Demirguc-Kunt, and Vojislav Maksimovic, “The Rise of Star Firms: Intangible Capital and Competition,” Social Science Research Network, June 8, 2020, https://papers.ssrn.com/sol3/papers.cfm

Note their return on invested capital is pre-tax

Figure 3 shows adjusting for intangibles lowers ROIC as the increase in invested capital is > uptick in earnings.

Paper goes on to adjust the markups:“…. Furthermore, once we adjust markups based on operating expenses for investment in intangible capital, we only find a modest increase in market power especially in high skilled industries. Star firms tend to be larger, younger, and have higher markups. While they may have more pricing power than other firms, at each level of markup star firms tend to produce more than other firms. We also find no evidence that star firms are differentially affected by import competition compared to other firms in the economy. Overall, we see little evidence that these star firms are using their market power to reduce output and raise prices to achieve super normal returns more than other firms.However, there may be reason for concern regarding a smaller subset of elite publicly-listed firms. The usual suspects for membership in such an elite group are Apple, Facebook, Google, Amazon, and Microsoft. When we examine these firms individually, the ROIC and markups of most of these elite firms do not seem extraordinary initially and then explode but again only for a couple of firms that have built up a large enough market. Even for these firms, the critical policy concern may not only be the regulation of their use of market power today, but also the need to maintain contestable markets that allow the creation of independent technologies in the future….”

“…Figure 1 shows that there is a large rise in capital returns over the past three decades where the ratio of the 90th percentile ROIC firm to the median ROIC firm has increased by over 69%. We also see that the divergence of the top decile of firms from the rest of the economy really takes off in the 1990s…conventional financial statements do not capitalize R&D expenditures or organizational capital. Once we adjust firms’ returns to capital to address these shortcomings, there is little evidence that the most profitable 10% of firms are pulling away from the rest of the economy, and the differences in firm returns in highly skilled and other industries shrink dramatically…”

More pushback at market power hypothesis. Paper finds that the divergence btw “star” firms and the rest of the economy is largely explained by mismeasurement of intangible capital. The leading firms produce and invest more per dollar of invested capital: