Macro Roundup

Good factoid from a trade publication on NYC infrastructure costs, New York taxpayers pay 3x German salaries while projects are overstaffed by 4x“…Although the material and equipment costs are similar (within 10%) for projects in the United States and in Europe, labor costs are substantially higher in the United States as outlined above. For example, in California the average billing labor rates for qualified tunnel workers is about $70/hrand the average New York labor rate of qualified tunnel workers is at over $100/hr, whereas in Germany (one of the high labor rates countries in Europe) the comparable labor rate is about $30/hr.In other European countries such as Spain, Portugal, Italy, Poland, etc., labor rates are even lower. The EU legislation allowing workers from lower paid countries such as Spain and Poland working in other EU countries keeps the labor cost low. Union rules are significantly different in Europe vs the United States, especially as related to overtime and number of workers in a tunnel. For example, in New York, the number of workers at the face of the tunnel can be up to four times the number of workers required in Germany or Austria for similar projects.Overtime in the United States is paid using a factor of up to 2 or 3 of the base rates; while in Germany for example, overtime is compensated by time off instead….”

Nasri Munfah and Paul Nicholas, "Why Tunnels in The US Cost Much More Than Anywhere Else in The World,"Tunnel Business Magazine, August 18, 2020, https://tunnelingonline.com/why-tunnels-in-the-us-cost-much-more-than-anywhere-else-in-the-world/

The writers are not optimistic in terms of a solution, they cite the GAO report we looked at that also was unable to come up with a solution, “…Transit tunnel costs in Europe are about 50% less expensive than those in the United States and even significantly lesser than those in New York.Based on our evaluation, we outline below the main differences that create these cost differentials, it should be noted that European tunnel projects also suffer from some of the same costly issues experienced in the United States but to a lesser overall effect…. Even with the political will and if better controls were applied,the main elements that can be controlled would be the soft costs, the environmental approval process, and the provisions to project stakeholders. It is unlikely that labor cost could be reduced greatly. Understanding the extreme tunnel costs in New York compared with other places in the United States is an enigma that is difficult to comprehend and cannot be controlled without major industry and government practice changes…”

Henrik Kleven, Camille Landais, Johanna Posch, Andreas Steinhauer and Josef Zweimüller, "Do Family Policies Reduce Gender Inequality? Evidence from 60 Years of Policy Experimentation," National Bureau Of Economic Research, November 2020, https://www.nber.org/papers/w28082

Their conclusion, "....We find that parental leave policies have had negative short-term effects on female labor market outcomes, but no long-term effects.... Our main conclusion is simple and striking: The enormous expansions of parental leave and child care subsidies have had virtually no impact on gender convergence..... The short-term effects are relatively small and largely inconsequential for the evolution of aggregate gender inequality. More surprisingly, we also find that publicly provided and heavily subsidized child care has had no effect on the secular decline in gender inequality. This stands in contrast to the strong cross-country correlation between child care subsidization and gender gaps, while within-country quasi-experimental studies of specific reforms have led to mixed results. Broadly speaking, our evidence is consistent with the ideas exposed in Goldin (2014), arguing that gender convergence relies less on government intervention than on equilibrium features of the labor market. Our work is also consistent with the notion that gender convergence reflects the evolution of gendered preferences and norms.....This underlines the need for furthering our understanding of the formation of preferences and social norms regarding the family-career choices of men and women, and to account for their potential interaction with public policies. Endogenous preferences may create multiple equilibria and tipping points, whereby small changes in policies can have large effects on gender inequality. Conversely, as seems to be the case in Austria, gendered preferences can be sufficiently strong that gender gaps do not respond to even very large expansions of policies..."

Those programs have had the following impact on the wage gap, "... we rely on exceptional administrative data covering the labor market and birth histories of Austrian workers from 1953 to 2017. During this era, the Austrian gender gap in earnings fell by about 30 percentage points, while public policies supporting families with children were introduced and greatly expanded...."

Though their Figure 9 was strongly illustrative of the null effect they found (here in terms of childcare expansion)“…We start in Figure 9 by presenting the results for nursery care expansions. In panel (a), we focus on women who are one year before birth (t = −1), and report their estimated earnings in control municipalities vs treated municipalities, from five years before, to five years after the expansion shock. The graph first shows no evidence of a differential trend in earnings before expansion. This helps alleviate concerns that the supply shock was an endogenous response to the evolution of female labor market outcomes in treated municipalities. Secondly, the graph reveals that the expansion had no effect on the outcomes of women prior to giving birth. In other words, the increased access to child care did not lead to anticipatory effects among women about to have children…”

Bottom line more generous family policy extension over 50 years has had no impact on gender convergence “…Our main conclusion is simple and striking: The enormous expansions of parental leave and child care subsidies have had virtually no impact on gender convergence…”That implies the gap is a revealed preference, “…Broadly speaking, our evidence is consistent with the ideas exposed in Goldin (2014), arguing thatgender convergence relies less on government intervention than on equilibrium features of the labor market. Our work is also consistent with the notion that gender convergence reflects the evolution of gendered preferences and norms…”

The NBER study mentioned in WSJ uses several natural experiment resulting from family policy reforms (childcare and parental leave expansions) in Austria. For context this is what Austria looks like today, "...The raw gender gap in earnings is roughly 40% and the female labor force participation rate is about 55% (in 2018)..."

Daniel Newman and Jimmy O’Donnell, “The Dynamism Divide: Examining the 2020 Election Through the Lenses of Population Growth, Jobs, and Business Formation,” Economic Innovation Group, November 19, 2020, https://eig.org/news/the-dynamism-divide

(3) DFA by education. Finally for now, let’s have a look at the impact of education on the ownership of corporate equities and mutual fund shares. The DFA data show that households headed by college-educated persons held 82.9% of corporate equities and mutual fund shares during Q2-2020 (Fig. 15 and Fig. 16). That percentage has been trending higher since Q1-1995, when it fell to a series low of 60.2%. Households with heads who had some college, high school, and no high school owned only 9.9%, 6.3%, and 0.8%. Education is clearly a vitally important determinant of financial well-being.

Here are the values of corporate equities and mutual funds held by the four generations and their percentage shares during Q2-2020: Silent ($5.1 trillion, 19.0%), Baby Boomer ($14.8 trillion, 55.3%), GenX ($6.3 trillion, 23.4%), and Millennial ($0.6 trillion, 2.2%) (Fig. 13 and Fig. 14).

The widespread notion that the very rich own a disproportionate share of corporate equities is true, but their collective share is more like 50% of the total held by households than the urban legend of 80%-90%.

(2) DFA by generations. The DFA allows us to compare the amount of an asset or liability held and the percentage shares by four generations: Silent (born before 1946), Baby Boomer (1946-1964), GenX (1965-1980), and Millennial (1981-96).

III. Which households own equities, according to DFA? The link between the household sector in the FA and in the DFA is Table B.101.h titled “Balance Sheet of Households,” which unlike Table L.223 excludes nonprofit organizations from the household sector. On the other hand, this balance sheet shows the household sector’s combined holdings of corporate equities and mutual fund shares, which include bond funds but not money market mutual funds or ETFs. The assets and liabilities in this version of the household balance sheet are the ones for which the DFA provides all the data needed for analyzing the distribution of household net worth. (See “Household Balance Sheet” from our forthcoming study on income and wealth in America.)

Now, let’s analyze the distribution of the DFA’s various series for corporate equites and mutual fund shares held by households, sliced and diced by wealth percentile, generation, and education:

(1) DFA by wealth percentiles. We repeat: The DFA is based on the FA’s Table B.101.h, which is the “Balance Sheet of Households” excluding the assets and liabilities of nonprofit organizations. It shows only annual data and reveals that corporate equities and mutual funds held by households at the end of 2019 totaled $29.1 trillion (Fig. 9). In the DFA, this series is shown on a quarterly basis. By the way, we can derive a similar quarterly series as the sum of corporate equities held by households and nonprofits plus mutual fund shares held by them, as reported in FA Table L.224, which excludes money market funds and ETFs (Fig. 10).

(2) Ownership by sectors. During Q2-2020, of the $52.0 trillion in equities, the major sectors directly held the following amounts and percentage shares: household sector ($19.5 trillion, 37.6%), mutual funds and exchange-traded funds (ETFs) ($14.5 trillion, 27.8%), rest of the world ($8.2 trillion, 15.8%), and institutional investors ($7.0 trillion, 13.4%) (Fig. 5 and Fig. 6).

Edward Yardeni, "INCOME & WEALTH IN AMERICA: Who Owns Equities?," Yardeni Research, November 14, 2020, http://blog.yardeni.com/2020/11/income-wealth-in-america-who-owns.html

INCOME & WEALTH IN AMERICA: Who Owns Equities?

A large team of the Fed’s researchers have been busy constructing a new database containing quarterly estimates of the distribution of US household wealth since 1989. They launched it with the release of a March 2019 working paper titled “Introducing the Distributional Financial Accounts of the United States.” The Distributional Financial Accounts (DFA) is an impressive accomplishment combining quarterly aggregate measures of household wealth from the Financial Accounts of the United States (FA) and triennial wealth distribution measures from the Survey of Consumer Finances (SCF).

I. A much more comprehensive database. We believe that the new database can be used to resolve lots of controversial issues about wealth distribution in the US. The DFA’s balance sheet of the household sector is much more comprehensive and timely than previously existing sources. The Fed’s researchers observe that their “approach produces rich and reliable measures of the distribution of the Financial Accounts’ household-sector assets and liabilities for each quarter from 1989 to the present.” The data can be used to study the distribution of wealth in America by wealth and income percentiles, education, age, generation, and race. Melissa and I intend to do just that in coming months with the goal of assembling a comprehensive study tentatively titled “Income & Wealth in America: Myths & Realities.”

II. Who owns equities in America, according to FA? Aggregate data are available in Table L.223 in the FA for corporate equities held by each of the major sectors in the accounts. Unlike the DFA, the household sector in the FA includes nonprofit organizations, and this sector’s data are calculated residually from the other accounts. Let’s review our findings:

(1) The supply side of equities. The total market value of equities held in the US during Q2-2020 was $52.0 trillion, with domestic issues totaling $43.5 trillion and foreign issues totaling $8.5 trillion (Fig. 1). Domestic issues included $33.5 trillion of nonfinancial issues and $10.0 trillion of financial issues and consisted of $37.2 trillion of publicly traded and $6.3 trillion of closely held equities (Fig. 2 and Fig. 3). The $6.3 trillion of closely held equity consisted of $4.7 trillion in S corporations and $1.6 trillion in C corporations (Fig. 4).

Ownership“….Directly and indirectly held by households. The FA includes a Table B.101e titled “Balance Sheet of Households and Nonprofit Organizations with Debt and Equity Holdings Detail.” It provides extraordinary insight into the indirect equity holdings of households through life insurance companies, private and public pension funds, and mutual funds. During Q2-2020, households and nonprofits directly held $19.5 trillion (37.6% of all equities) and indirectly held $12.4 trillion (23.8% of the total) (Fig. 7). In other words, their direct and indirect holdings of equities totaled $31.9 trillion, or 61.4% of all equities (Fig. 8). Interestingly, this percentage has been remarkably stable around 65% since the early 1980s…..”

Ed Yardeni on who owns them American equity and how much there is, “…. The total market value of equities held in the US during Q2-2020 was $52.0 trillion, with domestic issues totaling $43.5 trillion and foreign issues totaling $8.5 trillion (Fig. 1).Domestic issues included $33.5 trillion of nonfinancial issues and $10.0 trillion of financial issues and consisted of $37.2 trillion of publicly traded and $6.3 trillion of closely held equities (Fig. 2 and Fig. 3). The $6.3 trillion of closely held equity consisted of $4.7 trillion in S corporations and $1.6 trillion in C corporations (Fig. 4)….”

Factoids we have used to illustrate America’s outperformance versus Europe,

CEA’s version of Sanandaji’s Scandinavian American outperforming their native comps“…. Figure 7’s red bars show the per capita income of people with Nordic ancestry living in the U.S., and therefore not subject to Nordic tax rates and regulations. They have incomes of about 30 percent more than the average American and, based also on the red bars, about 50 percent more income than the average in their home country. This suggests that the incomes of Nordic people are not lower because, apart from public policy, low incomes are somehow part of Nordic culture. However, the difference between the incomes of Nordic people in the U.S. and Nordic people living in the Nordic countries is too large to be entirely due to policy differences between the two sets of countries. One contributing factor may be that ancestry is self-reported and that, holding actual ancestry constant, the propensity to identify with Nordic ancestry may be correlated with income. Another factor may be that there was positive self-selection bias among Nordic emigrants to the United States. That is, those who emigrated from the Nordic countries to the United States would be earning more than the home country average if they and their families had not emigrated….”

The White House, "The Opportunity Costs of Socialism," Council Of Economic Advisers, October 2018, https://www.whitehouse.gov/wp-content/uploads/2018/10/The-Opportunity-Costs-of-Socialism.pdf

Cancer survival rates“…Figure 9’s disease-specific evidence is more informative of the benefits of health care than often-discussed cross-country comparisons of nationally aggregated outcomes, such as overall population longevity and aggregate health care spending. There are many determinants of overall population health other than healthcare—such as diet, exercise, genes, and violence—that differ across countries. These factors may be more prone to lead to lower U.S. longevity even while U.S. healthcare is of higher quality. The fact that U.S. exports specialized care to many foreigners that can afford to come to the U.S. to receive it is perhaps the strongest indication of its superior quality. The general pattern of medical tourism is that the United States exports high-quality care while importing low-cost care(Woodman 2015)….”