Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, March 4, 2021

AI Summary. The Congressional Budget Office projects the Affordable Care Act will reduce full-time-equivalent employment by about 2.5m, cutting total hours worked by 1.5% to 2.0% and aggregate labor compensation by about 1%, with larger effects among lower-wage workers. The projected decline reflects workers choosing to supply less labor in response to new taxes and benefits, not higher unemployment.

CBO Staff Congressional Budget Office
Date Posted:
Is Database:
Database

The Congressional Budget Office (CBO) projects that the Affordable Care Act (ACA) will lead to a reduction in full-time-equivalent employment by approximately 2.5m by 2024, compared to what would have occurred without the ACA.

Does health insurance reform reduce how much workers choose to work?

Core argument: CBO projects the Affordable Care Act will reduce full-time-equivalent employment by roughly 2.5m by 2024 relative to what would have occurred without the law, primarily through lower labor supply as workers choose fewer hours or none.

The Congressional Budget Office (CBO) projects that the Affordable Care Act (ACA) will lead to a reduction in full-time-equivalent employment by approximately 2.5m by 2024, compared to what would have occurred without the ACA. This decline is primarily due to a decrease in labor supply, as workers opt to work fewer hours or not at all, influenced by new taxes, incentives, and financial benefits. The CBO estimates a 1.5% to 2.0% reduction in total hours worked from 2017 to 2024, with a corresponding 1% decrease in aggregate labor compensation. The impact is expected to be more pronounced among lower-wage workers, though the overall economic effect will be smaller than the reduction in hours worked. This change reflects a shift in labor force participation rather than an increase in unemployment or underemployment.

Takeaways by Macro Roundup® AI

  1. CBO projects the Affordable Care Act will reduce full-time-equivalent employment by roughly 2.5m by 2024 relative to what would have occurred without the law, primarily through lower labor supply as workers choose fewer hours or none.
  2. CBO estimates the ACA will cut total hours worked by 1.5% to 2.0% from 2017 to 2024, with aggregate labor compensation falling about 1%, a smaller effect than the reduction in hours.
  3. CBO attributes the labor-supply decline to new taxes, incentives, and financial benefits, with effects more pronounced among lower-wage workers and reflecting reduced labor force participation rather than higher unemployment or underemployment.

CBO 2014 Budget and Economic Outlook has a section (Appendix C) on the Labor Market Effects of the Affordable Care Act. Suspect this is the report you are recalling as it was published in February 2014. However I’m not seeing specific estimates on the employment impact by skill level, going though the footnotes now.

“…CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor—given the new taxes and other incentives they will face and the financial benefits some will receive. Because the largest declines in labor supply will probably occur among lower-wage workers, the reduction in aggregate compensation (wages, salaries, and fringe benefits) and the impact on the overall economy will be proportionally smaller than the reduction in hours worked. Specifically, CBO estimates that the ACA will cause a reduction of roughly 1 percent in aggregate labor compensation over the 2017-2024 period, compared with what it would have been otherwise. Although such effects are likely to continue after 2024 (the end of the current 10-year budget window), CBO has not estimated their magnitude or duration over a longer period. The reduction in CBO’s projections of hours worked represents a decline in the number of full-time-equivalent workers of about 2.0 million in 2017, rising to about 2.5 million in 2024. Although CBO projects that total employment (and compensation) will increase over the coming decade, that increase will be smaller than it would have been in the absence of the ACA.The decline in fulltime-equivalent employment stemming from the ACA will consist of some people not being employed at all and other people working fewer hours; however, CBO has not tried to quantify those two components of the overall effect.The estimated reduction stems almost entirely from a net decline in the amount of labor that workers choose to supply, rather than from a net drop in businesses’ demand for labor, so it will appear almost entirely as a reduction in labor force participation and in hours worked relative to what would have occurred otherwise rather than as an increase in unemployment (that is, more workers seeking but not finding jobs) or underemployment (such as part-time workers who would prefer to work more hours per week)….”

CBO Staff, “The Budget And Economic Outlook: 2014 to 2024,” Congressional Budget Office, February 7, 2014, https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/45010-outlook2014feb0.pdf

“….CBO’s updated estimate of the decrease in hours worked translates to a reduction in full-time-equivalent employment of about 2.0 million in 2017,rising to about 2.5 million in 2024, compared with what would have occurred in the absence of the ACA.Previously, the agency estimated that if the ACA did not affect the average number of hours worked per employed person, it would reduce household employment in 2021 by about 800,000.25 By way of comparison, CBO’s current estimate for 2021 is a reduction in full-time-equivalent employment of about 2.3 million…”

AI Summary. The Congressional Budget Office estimates that a $15 minimum wage would leave 1.3m workers jobless who would otherwise be employed — 0.8% of all workers and 7% of those directly affected — with teenagers and part-time workers most affected. Marginal workers' employment opportunities fall at three times the rate for adults generally.

CBO Staff Congressional Budget Office
Date Posted:
Is Database:
Database

CBO report highlights that increasing the minimum wage disproportionately impacts marginal workers, reducing their employment opportunities at a rate 3x higher than for adults generally.

Does a higher minimum wage reduce employment most for marginal workers?

Core argument: Under a $15 minimum wage, CBO estimates 1.3m workers who would otherwise be employed would become jobless, equal to 0.8% of all workers and 7% of those directly affected, with teenagers and part-time workers most affected.

The CBO report highlights that increasing the minimum wage disproportionately impacts marginal workers, reducing their employment opportunities at a rate three times higher than for adults generally. This is particularly concerning for groups like African-American workers aged 20-24, where unemployment already stands at 23%. Raising the minimum wage to $10.10 per hour exacerbates the challenge for low-skilled workers who struggle to produce the value required by employers, making it harder for them to secure entry-level jobs that are crucial for long-term employment. Additionally, under a $15 minimum wage scenario, 1.3m workers who would otherwise be employed could become jobless, with teenagers and part-time workers being most affected. This represents 0.8% of all workers and 7% of those directly affected, indicating significant employment shifts within vulnerable demographics.

Takeaways by Macro Roundup® AI

  1. Under a $15 minimum wage, CBO estimates 1.3m workers who would otherwise be employed would become jobless, equal to 0.8% of all workers and 7% of those directly affected, with teenagers and part-time workers most affected.
  2. The CBO report finds minimum wage increases reduce employment opportunities for marginal workers at three times the rate for adults generally, a concern for groups such as African-American workers aged 20–24, whose unemployment stands at 23%.
  3. Raising the minimum wage to $10.10 per hour makes it harder for low-skilled workers who struggle to produce the value employers require to secure entry-level jobs that matter for long-term employment.

CBO Staff, “The Effects Of A Minimum Wage Increase On Employment And Family Income,” Congressional Budget Office, February 2014, https://www.cbo.gov/sites/default/files/cbofiles/attachments/44995-MinimumWage.pdf

You did write twoblogpostson it at the time reporting on their estimates of employment impacts (this language is from the second one) on marginal workers, “…The most damning aspect is the report’s implicit acknowledgment that raising the minimum wage hurts marginal workers by reducing their chances for employment. The report estimates that raising the minimum wage will imposed three times as many job losses on marginal workers as adults generally. Nevertheless, the report concludes that overall job losses suffered by marginal workers are likely to be low because few marginal workers currently have jobs. Twenty-three percent of African-American workers between the ages of 20 and 24 years old, for example, are unemployed. For the least skilled among those workers, the unemployment rate is even higher. Those workers are unable to produce $7.25 of value in an hour of work—the amount of the minimum wage—that customers are willing to buy, and so remain unemployed. Raising the minimum wage to $10.10 per hour will make it that much harder for those workers to find economically viable work. So in addition to the 500,000 workers who can produce $7.25 of value in an hour but not $10.10—individuals who the CBO expects will lose their jobs outright—there are many currently unemployed workers who will find it even harder to find work, especially low-skilled entry-level work that serves as a gateway to a lifetime of employment….”

So I looked at the2014 CBOreport on “The Effects of A Minimum-Wage Increase On Employment And Family Income” we had read.

Ed Comment, “This seems like it. seems I have somewhat misremembered it. this raises an interesting point about worker who don’t have jobs so wont lose their job but they wont get a job in the future. Does the new cbo report speak to this issue? My guess is lots of them don’t have jobs now too.”

Steve Comment, “So they don’t carve out a specific estimate of non-workers who would otherwise be working but for the higher wage specifically. “…Under the first option ($15 an hour), according to CBO’s median estimate, about 1.3 million workerswho would otherwise be employed would be joblessin an average week in 2025. That decrease would account for 0.8 percent of all workers and 7 percent of directly affected workers who would otherwise earn less than $15 per hour…The $15 option would alter employment more for some groups than for others. Almost 50 percent of the newly jobless workers in a given week—600,000 of 1.3 million—would be teenagers (some of whom would live in families with income well above the poverty threshold). Employment would also fall disproportionately among part-time workers and adults without a high school diploma….”In the appendix they define affected workers, this definition doesn’t seem to capture those who don’t gain entry into the labor force in the first place, though perhaps the “newly jobless workers” # above given teenagers are new labor market entries might be a proxy?“…For each option, CBO estimated the number of workers whocould be affected. Directly affected workers are those whose hourly wage, in the absence of the change in the minimum wage, would range from just below the old minimum to the new, higher minimum and who therefore would either receive a higher wage or become jobless if the new federal minimum were adopted. Potentially affected workers are those whose wages would otherwise be slightly above the new federal minimum in 2025; their wages would also be affected by a higher minimum.CBO projects that such workers’ employment would not be affected by their newly higher wages, though it might be affected by changes in overall demand induced by the options….”

AI Summary. The authors estimate that a German reform adding a ninth grade raised numeracy skills for basic-track students by 0.2 standard deviations, equivalent to an 8–9 percentage point gain in rank within the numeracy skill distribution. Estimated effects on literacy were not statistically precise.

Franziska Hampf Working Paper
Date Posted:
Is Database:
Database

Germany’s compulsory schooling reform added a 9th grade, increasing numeracy skills by 0.2 standard deviations for basic-track students, but had no impact on literacy skills.

Does an extra year of compulsory schooling raise numeracy skills?

Core argument: Germany's compulsory schooling reform, which added a ninth grade, raised numeracy skills of basic-track students by 0.2 standard deviations, equivalent to an 8–9 percentage point gain in rank within the numeracy skill distribution.

The German compulsory schooling reform, which added an additional ninth grade, resulted in a 0.2 standard deviation increase in numeracy skills for basic-track students, equating to a rise of 8-9 percentage points in their rank within the numeracy skill distribution. This reform, analyzed through a natural experiment using PIAAC data, highlights the long-term benefits of extended schooling on labor-market relevant cognitive skills. However, the reform had no significant impact on literacy skills, as the estimated effects were not statistically precise. The findings suggest that while increased schooling can enhance numeracy, literacy skills may require different educational strategies. The study underscores the importance of resource allocation and curriculum design in maximizing the effectiveness of educational reforms.

Takeaways by Macro Roundup® AI

  1. Germany's compulsory schooling reform, which added a ninth grade, raised numeracy skills of basic-track students by 0.2 standard deviations, equivalent to an 8–9 percentage point gain in rank within the numeracy skill distribution.
  2. The reform showed no significant effect on literacy skills, with estimated effects not statistically precise, in a natural-experiment analysis using PIAAC data.
  3. The study argues that extended schooling yields long-term gains in labor-market relevant cognitive skills and that resource allocation and curriculum design shape the effectiveness of educational reforms.

Franziska Hampf, "The Effect of Compulsory Schooling on Skills: Evidence from a Reform in Germany," ifo Working Paper, 2019, https://www.ifo.de/en/publikationen/2019/working-paper/effect-compulsory-schooling-skills-evidence-reform-germany

Hampf study that Hanushek cited. Using PIAAC data Hampf used a natural experiment of a German effort to harmonize the start of the school year across state to look at the impact of length in school on numeracy and literacy scores, interesting he found the former more impacted,"... I exploit the staggered introduction of a compulsory ninth grade in basic track schools across German states, as well as a simultaneous reform that introduced short school years to harmonize the start of the school year nation-wide. Instrumental-variable results suggest that the additional year of compulsory schooling increased numeracy skills of basic-track students by about 0.2 standard deviations…Results show that the German compulsory schooling reform increased schooling for basic track students by almost one year, while the concurrent introduction of the two short school years decreased the total length of education by 0.76 years. Difference-indifferences analyses suggest a significant and strong positive long-run reform effect on numeracy skills. Effects on literacy skills cannot be estimated precisely. Two-stage least squares estimates exploiting variation in length of schooling due to the reform verify reduced-form results. One more year of schooling increases numeracy skills of basic track students by 20 percent of a standard deviation (SD) and raises the person’s rank position in the distribution of numeracy skills by 8 to 9 percentage points, which is substantially larger than corresponding OLS estimates. Since skills in PIAAC are assessed many years after the end of compulsory schooling, I provide evidence that individuals affected by the reform benefit from extended schooling throughout their entire working life…"

Core of the numeracy findings, “…Given the strong evidence on the effect of the German compulsory schooling reform on schooling, I exploit exogenous variation in length of schooling due to the reforms to estimate the effect of education on the development of labor-market relevant cognitive skills. Table 4 reports reduced-form effects of the reform on numeracy skills. Again, all specifications control for gender differences in skills and include dummies for each birth cohort and federal state of school attendance. Furthermore, indicators for each test regime account for level differences between test instruments and survey waves.35The introduction of an additional ninth grade led to an increase in numeracy skills of affected basic track students by 0.20 SD, which amounts to approximately 9 PIAAC points (Panel A, Column 1)....Test scores are limited informative if point differences cannot be interpreted economically. Thus, focusing on an individual’s test performance relative to other individuals - e.g., via the position in the overall distribution of skills - provides additional insights of the reform effect from an economic perspective. Column 3 and 4 of Table 4 show that the compulsory schooling reform also increased the percentile rank in the numeracy skill distribution. Being affected by the additional ninth grade raises the position in the numeracy skill distribution by 8.5 percentage points. Being affected by the short school years decreases the rank. When accounting for state-specific linear trends, the positive rank effect of the compulsory schooling reform is entirely offset by the negative effect of short school years for students in the new schooling regime who were exposed to the short school years….”

The Effect of Compulsory Schooling on Skills: Evidence from a Reform in Germany: Extended Excerpt Image 1


On literacy, “…Table 5 shows reduced-form results for literacy skills. Neither the compulsory schooling reform nor the introduction of short school years significantly affected literacy skills. Although the coefficient size of estimated reform effects on literacy skills are positive and large, standard errors exceed the point estimates throughout all specifications….”

Ed Comment, “I agree the effects are often largest on the most capable students, something many of these researchers seem to relegate to the footnotes.”

Note in his conclusions he does mentioned the composition of the student population as an important factor in considering the results“….In the context of ongoing technological change and the associated increase in labor markets’ demand for high-skilled workers, this study implies that schooling expansions may be an efficient way to equip new generations of workers with marketable skills, which are essential for long-run labor market success. Nevertheless, the effect of such reforms is always dependent on the student population affected by the reform.Thus, effects on skills may vary when length of schooling is increased for students attending higher school tracks. Furthermore, the better the schools and teachers are prepared for the reform, the more effective is the reform. Scarcity of resources (e.g., insufficient number of teachers) and poorly designed curricula may prevent positive reform effects….”

AI Summary. Eurozone output per hour worked grew an average 1.2% a year from 2000 to 2020, versus 1.8% in the US. The gap is attributed to labor market rigidity, lower technology investment, an aging population, and lower labor force participation — conditions that could foreshadow similar challenges for the US.

John Cochrane The Grumpy Economist
Date Posted:
Is Database:
Database

European growth rates have lagged behind the US, with GDP per hour worked in the Eurozone growing at 1.2% annually from 2000 to 2020, compared to 1.8% in the US.

Why does eurozone productivity growth lag behind the US?

Core argument: Eurozone GDP per hour worked grew at an average 1.2% annually from 2000 to 2020, compared with 1.8% in the US.

European growth rates have lagged behind the US, with GDP per hour worked in the Eurozone growing at an average of 1.2% annually from 2000 to 2020, compared to 1.8% in the US. This disparity raises concerns about potential underlying structural issues that could affect other economies, including the US. Factors such as labor market rigidity, lower investment in technology, and demographic challenges contribute to this slower growth. The Eurozone's aging population and lower labor force participation (LFP) rates exacerbate these issues, potentially mirroring trends that could emerge in the US. Policymakers must consider these dynamics as they could signal similar challenges ahead for the US economy, emphasizing the need for strategic reforms to enhance productivity and competitiveness.

Takeaways by Macro Roundup® AI

  1. Eurozone GDP per hour worked grew at an average 1.2% annually from 2000 to 2020, compared with 1.8% in the US.
  2. Labor market rigidity, lower investment in technology, and demographic challenges contribute to the Eurozone's slower growth, with an aging population and lower labor force participation rates compounding the gap.
  3. The European experience raises concerns that similar structural issues could emerge in the US, pointing policymakers toward reforms to strengthen productivity and competitiveness.

John Cochrane, "The Puzzle Of Europe,"The Grumpy Economist, March 3, 2021, https://johnhcochrane.blogspot.com/2021/03/the-puzzle-of-europe.html

“GDP Per Hour Worked,” OECD, Accessed March 4, 2021, https://data.oecd.org/lprdty/gdp-per-hour-worked.htm

Ed Comment:“GDP per a hour worked is better measure since hours worked per capita are different. And Germany is conspicuously missing although it has also declined since 2000 relative to the US. The US workforce has substantially lower academic test scores and test scores have a big impact on productivity. Europe also benefits from free-riding on our outsized contributions of innovation, military expenditures, and healthcare profits. I think a deeper analysis would show that European workers 55 to 65 have increased their workforce participation relative to the US. They may have more women and parttime workers in their workforces. Last time I looked, I was surprised by the differences. What I find disingenuous is liberals never acknowledging the substantial risks of implementing their proposals to redistribute income. The effects are more gradual than conservatives admit. And liberals take full advantage of the overly optimistic conservative sales pitch by ignoring the long term effects. We can always mortgage the future to increase prosperity in the present. At Bain we called that “selling market share,” which was never allowed because most of the value of a future cash flow is in its terminal value.”

Cochrane makes one of the same comparisons we have and contrast Europe's decline relative to the United States and asks, "... France got almost to the US level in 1980. And then slowly slipped behind.The UK seems to be doing ok, but in fact has lost 5 percentage points since the early 2000s peak. And Italy... Once noticeably better off than the UK, and contending with France, Italy's GDP per capita is now lower than it was in 2000. What the heck happened? It could happen here too. Maybe it already has, just not as bad. This should be profoundly unsettling for economists….”

The Puzzle Of Europe: Comments Image 1

Ed Comment:“Yes. Not a pretty picture since they finally caught up in the mid 1990s. Since then, Gordon shows that, unlike the US, they weren’t able to capitalize on IT. They restrict hours, which increases productivity, have an older and higher-scoring workforce, and benefit from free-riding. I also think we continued to improve relatively since 2016.”

Steve Comment: “German ~ looks like France using OECD’s GDP Per Hour Worked series (made everything relative to the US) they were both on a downwards trend going into the pandemic. OECD’s indicator is in $, constant prices 2010 andppP. Added UK as Cochrane used it.”

Friday, March 5, 2021

AI Summary. The American Rescue Plan is estimated at $1.9tn over a decade, but making its one-year child-related tax provisions permanent — expansions of the child tax credit, earned income tax credit, and child and dependent care credit — could raise the cost 75% to $3.3tn. Permanent extension could add nearly $200bn annually to the federal deficit by the decade's end.

Alex Brill American Enterprise Institute
Date Posted:
Is Database:
Database

@AlexBrill American Rescue Plan’s child-related tax provisions could increase costs by 75% to $3.3tn over next decade, adding $200bn to federal deficit annually by decade’s end.

How much would extending temporary tax provisions raise the relief bill's cost?

Core argument: The House-passed American Rescue Plan is estimated at $1.9tn over the next decade, and making its child-related tax provisions permanent could raise the cost by 75% to $3.3tn.

The House-passed American Rescue Plan (ARP) is estimated at $1.9tn over the next decade, but making its child-related tax provisions permanent could increase costs by 75% to $3.3tn. This includes expansions of the child tax credit (CTC), earned income tax credit (EITC), and child and dependent care credit, initially intended for one year to support economic security during the pandemic. If these provisions are extended permanently, the federal deficit could rise by nearly $200bn annually by the decade's end. Additionally, other temporary measures, like increased premium assistance for certain health insurance buyers, are also on the agenda for permanent extension, potentially adding hundreds of billions more to the total cost. This reflects a strategic use of budget reconciliation tactics, similar to those employed in past legislative efforts.

Takeaways by Macro Roundup® AI

  1. The House-passed American Rescue Plan is estimated at $1.9tn over the next decade, and making its child-related tax provisions permanent could raise the cost by 75% to $3.3tn.
  2. Permanently extending the American Rescue Plan's child tax credit, earned income tax credit, and child and dependent care credit expansions, initially set for one year, could raise the annual federal deficit by nearly $200bn by the decade's end.
  3. Other temporary American Rescue Plan measures proposed for permanent extension, including increased premium assistance for certain health insurance buyers, could add hundreds of billions more to the total cost.

Alex Brill estimates cost of making several recent, and prospective ARP provisions permanent, “…Therefore, a better estimate of the cost of the House-passed American Rescue Plan is a permanent extension of the increased tax benefits. The benefits related to children would alone raise the total cost by roughly 75 percent from $1.9 trillion to $3.3 trillion over 10 years….”

Alex Brill, "The American Rescue Plan’s likely cost is way more than $1.9 trillion," American Enterprise Institute, March 4, 2021, https://www.aei.org/economics/the-american-rescue-plans-likely-cost-is-way-more-than-1-9-trillion/

The American Rescue Plan’s likely cost is way more than $1.9 trillion

The Senate is poised to consider President Biden’s American Rescue Plan, an elaborate bill recently passed by the House of Representatives through the budget reconciliation process at an estimated cost of $1.9 trillion over the coming decade.

However, as lawmakers know well, there is a deep well of budget tactics that can “leverage” any budget reconciliation instructions into a much larger set of tax and/or spending policies. For example, Democrats cried foul in 2017 when Republican-led tax reform, also enacted through the budget reconciliation process, included temporary changes (through 2025) to fit within the requirements of that year’s governing budget resolution.

The current Democrat-led effort leverages these tactics tenfold. Expansions of the child tax credit (CTC), earned income tax credit (EITC), and the child and dependent care credit would be enacted for just a single year under the guise of promoting economic security during the pandemic. However, the Wall Street Journal recently reported on Democrats’ desire to make permanent the CTC expansion. In addition, the House passed a permanent version of their expansion of the child and dependent care credit last year, and it is unfathomable to imagine Congress letting the one-year EITC expansion lapse post-2021.

Therefore, a better estimate of the cost of the House-passed American Rescue Plan is a permanent extension of the increased tax benefits. The benefits related to children would alone raise the total cost by roughly 75 percent from $1.9 trillion to $3.3 trillion over 10 years.

Some of the other temporary provisions will likely (hopefully!) lapse after 2021, including the $1400-per-person rebate check. Others, such as increased premium assistance for individuals with incomes between 100 and 400 percent of the federal poverty level who purchase qualified health insurance, are on Democrats’ wish list for a permanent extension. Extending these provisions would further boost the total cost of this bill by hundreds of billions.

The table below presents an estimate of the 10-year cost of the child-related tax provisions if they were made permanent compared to the one-year cost of the temporary policy.

The American Rescue Plans likely cost is way more than 1.9 trillion: Extended Excerpt Image 1


* I consider only the temporary EITC provisions not including the proposal to allow taxpayers to rely on 2019 income instead of 2020 income for tax year 2021.

** Author’s calculations based on estimates derived from AEI’s OSPC Tax-Calculator 3.0.0. Baseline is the law currently in place as of March 3, 2021 and provisions are assumed effective 01/01/2021.

The merits of these policies can all be fairly debated (see here for one in-depth review of the tax benefits of parenthood and here for an important explanation of the CDCTC), but the likely fiscal impact needs to be rightly recognized. While many policy experts and politicians debate if $1.9 trillion is too much or just right, the reality is enacting this legislation will lead to an annual increase in the federal deficit of near $200 billion annually by the end of the decade. It should not surprise us that Democrats are leveraging the gamesmanship opportunities of budget reconciliation, and we should remember that they learned some of these strategies from Republicans!

AI Summary. Child allowances are estimated to reduce employment among single mothers by 3-4 percentage points through income effects that make not working easier; applying an estimated income elasticity of -0.18, a $6,000 annual allowance would cut hours worked 2.7%, affecting 167,000 families. The author argues welfare reform offers better options for reducing child poverty without risking employment.

Scott Winship American Enterprise Institute
Date Posted:
Is Database:
Database

Child allowances could reduce employment rates among single mothers by 3-4% points, driven by income effects that make it easier for parents not to work. @SWinshi, American Enterprise Institute.

Do child allowances reduce employment among single mothers?

Core argument: Child allowances could reduce employment rates among single mothers by 3–4 percentage points through income effects that make it easier for parents not to work.

The introduction of child allowances could reduce employment rates among single mothers by 3-4 percentage points, driven by income effects that make it easier for parents not to work. Burtless estimated an income elasticity of -0.18, suggesting a 10% income increase from benefits leads to a 1.8% decline in hours worked among female heads of households with children. Applying this to current figures, a $6,000 annual allowance could reduce hours worked by 2.7%, equivalent to a 2-point drop in employment for single mothers, affecting 167,000 families. This reduction is significant compared to the potential poverty alleviation, as it represents 17% of the employment increase among single mothers from 1989-2019. Welfare reforms have shown better options for reducing child poverty without risking employment rates, as seen with the rise in single-mother employment from 58% in 1992 to 71% in 2000 post-reform.

Takeaways by Macro Roundup® AI

  1. Child allowances could reduce employment rates among single mothers by 3–4 percentage points through income effects that make it easier for parents not to work.
  2. Burtless estimated an income elasticity of -0.18, implying that a 10% income gain from benefits reduces hours worked by 1.8% among female heads of households with children.
  3. Applying Burtless's elasticity, a $6,000 annual allowance could cut hours worked by 2.7%, equivalent to a 2-point employment drop for single mothers affecting 167,000 families and 17% of their 1989–2019 employment increase.

Winship makes the case against child allowance. This is largely a lit review, he basically finds that the evidence is neither overwhelmingly in favor or against the view that child allowances will reduce work and increase single parenthood. But there are plenty of reasons for concern, "....But the concerns of conservative antipoverty researchers are primarily about income effects. We worry that safety-net policy might make it easier for parents to not work or to be single......analysis is oblivious to income effects because he assumes away the complicated preferences and messy lives of real-life parents...In short, even the relatively short-term studies reviewed here provide reason to think that the introduction of child allowances could reduce employment rates among single mothers by 3 or 4 percentage points, and they are not well designed to assess longerterm effects.The research that has been cited to dismiss concerns about disemployment hardly should be reassuring. The correct interpretation of the evidence available is that it is ambiguous; different people with different priors can point to this or that study if they are intent on asserting a claim about the impacts of a novel program, but strong statements are not justifiable based on a comprehensive assessment of the literature…”

Core of his analysis using Brookings analysis of the negative income tax experiments, his conclusion here is worth quoting to describe the underlying dynamic of his concerns"...Burtless estimated the income elasticity at -0.18, indicating (roughly) that a 10 percent increase in income from the NIT benefits led to a 1.8 percent decline in hours worked among female heads of households with children. We can apply this estimate to contemporary figures for single-mother families to get a rough estimate of the potential impact of child allowances on their employment. Data from the Current Population Survey indicate that single mothers have an average of roughly 1.8 children under age 18 in their home. I estimate the average single-mother family would receive $500 per month from the child allowances, or $6,000 per year, given the mix of younger and older children they have and the more generous benefit for younger children. That ends up being about 16 percent of the median family income of female-headed families with children. The Burtless elasticity estimate suggests that this 16 percent increase in income would lead to a 2.7 percent reduction in hours worked. A 2.7 percent decline in hours worked is equivalent to a reduction among single mothers in the Current Population Survey of just one hour per week per worker. But rather than thinking of all single mothers working an hour less, we might worry instead that work would not decline among those who stay employed but that the employment rate of single mothers would fall by 2 percentage points, which would also produce that 2.7 percent drop in hours. This magnitude may still seem small to many readers, but the number of single mothers contained in those 2 percentage points is sizable relative to the changes in poverty the child allowance proposals would supposedly produce. If it reduced the share of single-mother families under the official poverty line by one-third, that would be 892,000 families; a two-point drop in employment would involve 167,000 single-mother families, about one-fifth as large. It would also be equivalent to 17 percent of the increase in employment among single mothers over the 30 years from 1989 to 2019...."

His basic takeaway, we have better options for reducing child poverty as welfare reform showed without the risk“…If a child allowance were the only way to reduce child poverty, then perhaps it would be worth rolling the dice. But we have many other options that would reduce poverty while encouraging opportunity and reinforcing values held by Americans at all income levels. We can do better than child allowances…In March 1979, 58 percent of single mothers were employed, and about half received AFDC at some point during the year. In 1992, the employment rate was still 58 percent, and half of single mothers still received AFDC. However, by 2000, after the 1996 welfare reforms took effect, 71 percent of single mothers were employed, and less than one-quarter received benefits under AFDC’s successor program, Temporary Assistance for Needy Families (TANF). Only 4.5 million children were in families receiving TANF in a typical month. By 2019, just 2.2 million were, or one in 33 children. And poverty among the children of single mothers was at an all-time low—lower by four or five million than if poverty had remained at its 1993 level, when welfare reforms were already in full swing in some states….”

Scott Winship, "The conservative case against child allowances," American Enterprise Institute, March 5, 2021, https://www.aei.org/research-products/report/the-conservative-case-against-child-allowances/

AI Summary. Spain and Italy have recorded negative total factor productivity growth over the past two decades, meaning output has not improved even as labor productivity remains high. Germany and France, by contrast, appear to use modern technology effectively, though their workers put in fewer hours than US workers.

John Cochrane The Grumpy Economist
Date Posted:
Is Database:
Database

Chad Jones “It Is Stunning To Me That Spain And Italy Have Had Negative TFP Growth For 20 Years”.

Are some European economies seeing negative total factor productivity growth?

Core argument: Spain and Italy have recorded negative Total Factor Productivity growth over the past two decades, an outcome Chad Jones describes as astonishing.

Over the past two decades, Spain and Italy have experienced negative Total Factor Productivity (TFP) growth, a phenomenon that Chad Jones finds astonishing. This stagnation suggests that while labor productivity may remain high, the productivity of other inputs is severely lacking. In contrast, countries like Germany and France appear to utilize modern technology effectively, yet their workers tend to work fewer hours than their US counterparts. The persistent negative TFP growth in Spain and Italy raises concerns about their ability to leverage technological advancements and optimize resource use, potentially hindering economic growth and competitiveness in the global market. This situation underscores the importance of addressing structural inefficiencies to enhance overall productivity.

Takeaways by Macro Roundup® AI

  1. Spain and Italy have recorded negative Total Factor Productivity growth over the past two decades, an outcome Chad Jones describes as astonishing.
  2. Negative TFP growth in Spain and Italy suggests that labor productivity may remain high while the productivity of other inputs lags badly, raising concerns about those countries' ability to leverage technological advances.
  3. Germany and France appear to use modern technology effectively, though their workers put in fewer hours than their US counterparts.

Did you email Cochrane? He updated his post with productivity per hour worked. Chad Jones seems to have emailed him re: his post we looked at yesterday

He updated his post with a Productivity per hour worked series and contrasts that with TFP growth, “…In the top graph you get the impression that German and French workers are using up to date technology, including both machines, firm organization, opportunities to trade in a wide market, etc. but that they simply choose to, are incented to, or forced to work fewer hours than US workers. Italy and UK are still plodding along 20% or so inside the frontier.The bottom graph points a bleaker picture. I'm not an expert, but if labor productivity is high and total productivity is low, that means that the productivity of other inputs must be atrocious. Chad (amazing expert on all things growth) "It is stunning to me that Spain and Italy have had negative TFP growth for 20 years." I remember when real business cycles came out, and many were incredulous at the idea of negative productivity shocks. How can you forget how to do things?Well, maybe not for business cycles, but a society clearly can forget, and retrench. For centuries, remember, Italians looked up in wonder at the cupola of the Pantheon, the arches of the dry aqueducts, and wondered how they had been built….”

John Cochrane, "Europe productivity -- and US too," The Grumpy Economist, March 4, 2021, https://johnhcochrane.blogspot.com/2021/03/europe-productivity.html

(the guy who Chad got the TFP data via Jesus Fernandez-Villaverde is the “that’s just your opinion man” guy you had the back and forth with)