Phil Gramm and Mike Solon argue that even if the House GOP’s budget proposal was enacted in whole, inflation-adjusted discretionary spending would still be 2.4% greater than the CBO’s 2020 projection.
Since 1967, average inflation-adjusted transfer payments to low-income households—the bottom 20%—have grown from $9,677 to $45,389. During that same period, the percentage of prime working-age adults in the bottom 20% of income earners who actually worked collapsed from 68% to 36%. Before the pandemic, the Congressional Budget Office in January 2020 projected that total discretionary outlays in fiscal 2024 would grow to $1.549 trillion—which, adjusted for higher inflation, amounted to $1.694 trillion. The most recent CBO estimate projects that fiscal 2024 discretionary spending will clock in at $1.864 trillion—a 10% real increase from the pre-pandemic estimate. Nondefense outlays have risen 18.8% over the same period, while defense outlays have fallen 0.28% in after-inflation dollars. This growth in nondefense discretionary spending is the post-pandemic bow wave that Mr. McCarthy’s debt-limit plan seeks to mitigate. Even if the House GOP’s proposed reductions in discretionary-spending growth took effect, total discretionary spending would still be 2.4% more in inflation-adjusted dollars than the CBO’s 2020 projection for fiscal 2024.
Pew reports that 25-year-old Americans are lagging previous generations in terms of full-time work, financial independence, and marriage. @r_fry1
Young adults in the United States are reaching key life milestones later than they did 40 years ago, according to a new Pew Research Center analysis of Census Bureau data. Adults who are 21 are less likely than their predecessors four decades ago to have reached five frequently cited milestones of adulthood: having a full-time job, being financially independent, living on their own, getting married and having a child. By the time they are 25, however, today’s young adults are somewhat closer to their predecessors in 1980 on two of these milestones: having a full-time job and financial independence. In 2021, the most recent year with available data, 39% of 21-year-olds were working full time, compared with 64% in 1980. And only a quarter of people this age in 2021 were financially independent of their parents – meaning that their income was at least 150% of the poverty line – compared with 42% in 1980.
In an analysis of the 2022 midterms using voter file data, @Catalist_US finds younger voters exceeded their 2018 turnout by 6% with 65% of voters 18-29 supporting Democrats.
Gen Z and Millennial voters had exceptional levels of turnout, with young voters in heavily contested states exceeding their 2018 turnout by 6% among those who were eligible in both elections. Further, 65% of voters between the ages of 18 and 29 supported Democrats, cementing their role as a key part of a winning coalition for the party. While young voters were historically evenly split between the parties, they are increasingly voting for Democrats. Many young voters who showed up in 2018 and 2020 to elect Democrats continued to do the same in 2022. Extreme “MAGA” Republicans underperformed. Across heavily contested Senate, Gubernatorial, and Congressional races, voters penalized “MAGA” Republicans. Women voters pushed Democrats over the top in heavily contested races, where abortion rights were often their top issue.
New @federalreserve research shows the majority of unemployment in 1980-2021 was concentrated in a Secondary segment of 14% of the population that experiences high labor churn, vs. a Primary segment that is almost always employed.
Workers in the primary sector, who make up around 55% of the population, are almost always employed and rarely experience unemployment. The secondary sector, which constitutes 14% of the population, absorbs most of the short-run fluctuations, both at seasonal and business cycle frequencies. Workers in this segment experience six times higher turnover rates than those in the primary tier and are ten times more likely to be unemployed than their primary counterparts. The tertiary segment consists of workers who infrequently participate in the labor market but nevertheless experience unemployment when they try to enter the labor force.
As the baby boomers start to die their children are poised to inherit $16T over the next decade.
Of the 73 million baby boomers, the youngest are turning 60. The oldest boomers are nearing 80. In 1989, total family wealth in the United States was about $38 trillion, adjusted for inflation. By 2022, that wealth had more than tripled, reaching $140 trillion. Of the $84 trillion projected to be passed down from older Americans to millennial and Gen X heirs through 2045, $16 trillion will be transferred within the next decade. Individuals with at least $5 million and $20 million in cash or easily cashable assets make up 1.5 percent of all households. Together, they constitute 42 percent of the volume of expected transfers through 2045, according to the financial research firm Cerulli Associates. That’s about $36 trillion as of 2020—numbers that have most likely increased since.
A new @BLS_gov analysis finds the number of employees of new firms was 2.7 in 2021, down from 6.4 in 1996. Firms that make it to 1, 3, and 5 year survival marks also employ fewer workers than their 1990s counterparts.
The increasing number of establishment births in combination with the decreasing number of jobs generated by those births suggests that the average size of new businesses has been shrinking in recent decades. This theory can be examined through a measure informally nicknamed “birth weight,” that is calculated as the level of gross job gains from establishment births divided by the level of establishment births. While the number of new business establishments tends to rise and fall with the business cycle of the overall economy, the decline in jobs created by establishment births raises questions regarding the changing nature of startups. The average “birth weight” has been steadily declining over the last 20 years from a high of 6.4 employees per establishment birth in 1996 to a low of 2.7 employees per establishment birth in 2021.
Prime age (here 21-64) college educated workers are now moving out of the 12 most expensive metropolitan areas in the US.
It appears in domestic migration data that, years after lower-wage residents have been priced out of expensive coastal metros, higher-paid workers are now turning away from them, too. For most of this century, large metros with a million residents or more have received all of the net gains from college-educated workers migrating around the country, at the expense of smaller places. But among those large urban areas, the dozen metros with the highest living costs — nearly all of them coastal — have had a uniquely bifurcated migration pattern: As they saw net gains from college graduates, they lost large numbers of workers without degrees. At least, that was true until recently. Now, large, expensive metros are shedding both kinds of workers.
The American labor force grew by 32.8M workers between 1995-2022, and 70% of that growth consisted of immigrants or children of immigrants. Immigrants and their children are 29% of the total American workforce.
From 1995 to 2022, the U.S. labor force increased from nearly 131.6 million workers to over 164.3 million—an increase of nearly 32.8 million workers: 16.1 million of that increase came from immigrant workers (49%) and 6.7 million were children of immigrants (21%), according to data from the Current Population Survey’s Annual Social and Economic Supplement. Just 9.9 million were U.S.-born citizens without a foreign‐born parent. The actual effect of cutting off all immigration would have been even greater since the working immigrant population would have declined without more immigration by about 4.5 million. Immigrants have increased from about 10% of the U.S. labor force in 1995 to 18% in 2022, and immigrants and their children have gone from 18% to 29%.
James Montier @GMOInsights notes that American firms’ profit margins have been supported by persistent fiscal deficits and argues that the current historically-high PE multiple “dooms investors to low returns in the long run.”
Between 1950 and 2011, the fiscal deficit averaged just less than 3% of GNP each year. In the period from 2012 to 2022, the fiscal deficit was more than double the previous average, at 6.6%. This isn’t just the impact of the pandemic: the same basic pattern holds even when I exclude the Covid years! The main sources of the increased deficit have been health spending and social security expenditure (again true even with Covid data excluded). Is this era of what Minsky would have called “Big Government” here to stay? Even if I take a very bullish view, that this is indeed a new era of permanent deficits and thus profit margins will remain elevated relative to history, I still cannot find any valuation attraction in U.S. equities in aggregate. The Shiller P/E naturally embodies the decade of higher-than-normal profit margins and yet still stands at 30x. Even without any valuation or margin mean reversion, this dooms investors to low returns in the long run.
John Williams announces @NewYorkFed research that finds “there is no evidence that the era of very low natural rates of interest has ended.”
Based on the new r-star estimates for Canada, the Euro Area, and the United States, we see no signs of a significant reversal of the decline in r-star estimates evident in prior decades. In fact, in all three economies, the r-star estimates in 2022 are within two-tenths of a percentage point of the corresponding estimate in 2019. The current Holston-Laubach-Williams model estimates of r-star in the United States are shown in Figure 3. For comparison, the figure also shows estimates using a version of the model that is not adjusted to take into account COVID or outliers and holds the parameter values fixed at estimates using data through the end of 2019. The two sets of estimates are very similar through 2019. They differ sharply during the acute period of the pandemic, however, when the estimates from the unmodified model exhibit large swings due to the presence of sizeable outliers. Interestingly, the two estimates are very close to each other at the end of the sample.
.@AswathDamodaran suggests that the “stickiness” of a bank’s deposit base has strong explanatory power for overall resiliency. Banks with the highest deposit growth in the past five years (suggesting low stickiness) have tended to see big declines.
It is banks with the least stick deposits that should have seen the biggest declines in market capitalization. My proxies for deposit stickiness are limited, given the data that I have access to, but I used deposit growth over the last five years (2017-2022) as my measure of stickiness (with higher deposit growth translating into less stickiness): The results are surprisingly decisive, with the biggest market capitalization losses, in percentage terms, in banks that have seen the most growth in deposits in the last five years. To the extent that this is correlated with bank size (smaller banks should be more likely to see deposit growth), it is by no means conclusive evidence, but it is consistent with the argument that the stickiness of deposits is the key to unlocking this crisis.
American public debt as a % of GDP is now higher than Portugal and Spain and on track to be higher than Italy by 2028 and Greece by 2030 @ChrisGiles_
The US federal budget is haemorrhaging money. The non-partisan Congressional Budget Office calculates that in the first seven months of the 2023 fiscal year, underlying government revenues are down 10% with spending up 12%. This leaves the federal budget deficit more than three times larger than in the same months of the 2022 fiscal year. The CBO’s latest forecasts show the level of federal debt held by the public as a share of national income to be 98% in 2023, just 7.6% below its wartime peak in 1946 and on track to exceed it in 2028. For comparison, UK public debt, also at a multi-decade high relative to gross domestic product, is still less than half the level it was at the end of the second world war. To make a comparison with eurozone countries that required support in the 2010s, Portugal, Ireland and Spain already have lower gross debt levels than the US, IMF forecasts show US debt set to exceed that in Italy by 2028 and Greece by the end of the decade.
According to a new analysis from the @sffed there is still $500B of excess personal savings in the economy which could support consumer spending through Q4 of this year.
We estimate that accumulated excess savings, in nominal terms, totaled around $2.1 trillion through August 2021, when it peaked (green area). After August 2021, aggregate personal savings dipped below the pre-pandemic trend, signaling an overall drawdown of pandemic-related excess savings. The drawdown to on household savings was initially slow, averaging $34 billion per month from September to December 2021. It then accelerated, averaging about $100 billion per month throughout 2022, before moderating slightly to $85 billion per month in the first quarter of 2023. Cumulative drawdowns reached $1.6 trillion as of March 2023 (red area), implying there is approximately $500 billion of excess savings remaining in the aggregate economy. Should the recent pace of drawdowns persist—for example, at average rates from the past 3, 6, or 12 months—aggregate excess savings would likely continue to support household spending at least into the fourth quarter of 2023.
A wealth effect from the rise in asset prices during the pandemic period can explain over 80% of the 2.2M “excess retirements” from 2019-21 among US workers aged 55+. @mfariacastro
The U.S. labor force participation rate (LFPR) experienced a record drop during the early pandemic. While it has since recovered to 62.2% as of December 2022, it was still 1.41 pp below its pre-pandemic peak. This gap is explained mostly by a permanent decline in the LFPR for workers older than 55. Table 2 shows that between 45% and 82% of the 2.2 million excess retirements can be explained by wealth effects for those aged 55-70 or 55 and older. For the entire 2019-2022 period, between 20% and 36% of the 3.3 million excess retirements can be explained by wealth effects.
From 2019-2022 students in the mean school district fell half a year behind in math and a third of a year behind in reading. The learning losses were more significant in poorer school districts.
According to our calculations, the average student was half a year behind in math and a third of a year behind in reading. In 2019, the typical student in the poorest 10 percent of districts scored one and a half years behind the national average for his or her year – and almost four years behind students in the richest 10 percent of districts – in both math and reading. By 2022, the typical student in the poorest districts had lost three-quarters of a year in math, more than double the decline of students in the richest districts. The declines in reading scores were half as large as in math and were similarly much larger in poor districts than rich districts. The pandemic left students in low-income and predominantly minority communities even further behind their peers in richer, whiter districts than they were.
Gun homicides in the US are being driven not by an increase in gun ownership but a decline in local trust levels. @jburnmurdoch
Levels of trust in the US have been eroding for decades and the share of Americans who say they do not trust other people in their neighbourhood is now roughly double what you would expect based on US socio-economic development. Few appreciate that at country and state level, the statistical relationship between gun availability and gun deaths is driven almost entirely by suicides. The more people who have access to guns, the more who use them to take their own lives. And since the vast majority of all gun deaths are suicides, this dynamic dominates the overall guns-deaths link. Look only at gun homicides instead, and the link with the number of guns is much weaker, whether the unit of analysis is different countries or US states. But add in interpersonal trust as well as gun ownership, and the relationship returns. In other words, it’s the interplay between guns and fear that sends homicide rates climbing.
Physicists have created objects that retain a memory of their past, a step towards “error-tolerant quantum computers.” @QuantaMagazine
Physicists working with the company Quantinuum announced that they had used the company’s newly unveiled, next-generation H2 processor to synthesize and manipulate non-abelian anyons in a novel phase of quantum matter. Their work follows a preprint posted last fall in which researchers with Google celebrated the first clear intertwining of non-abelian objects, a proof of concept that information can be stored and manipulated in their shared memory. Together, the experiments flex the growing muscle of quantum devices while offering a potential glimpse into the future of computing: By maintaining nearly indestructible records of their journeys through space and time, non-abelian anyons could offer the most promising platform for building error-tolerant quantum computers.
Using evidence from two large retailers @RDMetcalfe @ASollaci @ChadSyverson find that individual managers, outside of firm-wide management practices, explain 25-35% of variance in store level productivity.
Overall, managers explain between 25 and 35% of the variance of store-level productivity, which is about 50-70% of the explanatory power of store fixed effects. In the four largest connected sets across both companies, moving a manager from the 10th percentile to the 90th percentile increases overall productivity by between 22% and 82%. On average, this implies an effect on output equivalent to adding a fifth employee to a team of four. We estimate that replacing a manager at the bottom of the distribution by one at the top could increase a store’s productivity by at least 50%, and perhaps as much as doubling it, depending on the company and the relevant connected set.
In an effort to improve India’s growth trajectory, India’s government is making significant investments in railroad and highway infrastructure.
India will spend 1.7% of GDP on transport infrastructure this year, around twice the level in America and most European countries. If such infrastructure were a central-government department, it would have the third-biggest budget after the finance and defence ministries. The stated aim of the splurge is to cut the cost of logistics within India from around 14% of GDP today to 8% by 2030.
Enrico Moretti and @wilson_daniel_j find 35% of billionaires leave states that have an estate tax. However, for the average state the additional revenues from an estate tax exceed the loss of revenues from forgone income taxes by 31 percent.
We find that billionaires responded strongly to geographical differences in estate taxes by increasingly moving to states without estate taxes, especially as they grew older. Our estimated elasticity implies that $80.7 billion of 2001 Forbes 400 wealth escaped estate taxation in the subsequent years due to billionaires moving away from estate tax states. Yet despite the high elasticity of geographical location with respect to the estate tax, we find that for most states the benefit of additional revenue from the estate tax exceeds the cost of forgone income tax revenue by a significant margin. Adoption of an estate tax implies a one-time tax revenue gain for the state when a resident billionaire dies, but it also reduces its billionaire population and thus their flow of income tax revenue over remaining lifetimes. For the average state the benefit of additional revenue from the estate tax exceeds the cost of forgone income tax revenue by 31 percent. While the cost-benefit ratio varies substantially across states, most states that currently do not have estate taxes would experience revenue gains if they adopted estate taxes. California, which has the highest personal income top tax rate, is the main exception In California, the cost-benefit ratio is 1.45, indicating that if California adopted the estate tax on billionaires, the state would lose revenues by a significant margin. (Currently, California does not have an estate tax.)
According to data from Insider Intelligence, Google and Facebook’s share of digital advertising was 48.4% in 2022, and is expected to decline to 44.9% in 2023, as Amazon, TikTok, and digital streamers gain share. @WSJ
For the first time in nearly a decade, the two largest players in online advertising are no longer raking in the majority of U.S. digital-ad dollars, a decline that industry insiders expect to continue in years to come. Alphabet Inc.’s; Google and Facebook parent Meta Platforms Inc. accounted for a combined 48.4% of U.S. digital-ad spending in 2022, according to estimates from research firm Insider Intelligence Inc. Their combined U.S. market share hadn’t been under 50% since 2014, said Insider Intelligence, which expects that number to drop to 44.9% this year.
Americans are drinking at elevated levels in the aftermath of the pandemic with inflation-adjusted spending up 15% in 2022 vs. just before the pandemic. @foxjust
There is clear evidence that more people are drinking too much. Deaths from alcohol-induced causes rose from 39,043 in 2019 to 54,258 in 2021, according to the Centers for Disease Control and Prevention, and the population-adjusted death rate is now more than double what it was in the 2000s. Provisional data also show an encouraging decline in alcohol-induced deaths in the first half of 2022, although that trend could change as final numbers become available. Even after the big increases of the past couple of years, US alcohol consumption likely still lags that of many affluent countries, especially in Europe. And yes, Americans drank lots more back in the 1970s — not to mention the 1830s, when estimated per-capita consumption was nearly three times what it was in 2020.
.@FiveThirtyEight analyst @geoffreyvs finds that Fetterman’s margin of victory was provided by non-college white voters: Fetterman polled 7pp better than Biden in counties dominated by non-college whites.
John Fetterman bettered Biden’s margin across almost the entire state on his way to defeating Republican Mehmet Oz by about 5 percentage points, his largest improvements over Biden tended to be in red-leaning counties with higher shares of white residents without a college degree. In counties with a population that’s at least 60 percent white without a college degree — which together produced about 36 percent of the state’s 2022 vote — Fetterman’s margin was 7 points better than Biden’s, on average, compared with just 3 points better elsewhere.
During Biden’s first two years in office, he has approved at least $4.8T of new borrowing according to @BudgetHawks.
Since January 2021, the Biden Administration has enacted policies through legislation and executive actions that will add more than $4.8 trillion to budget deficits between 2021 and 2031. The $4.8 trillion is the net result of roughly $4.6 trillion of new spending, about $500 billion of tax cuts and tax breaks, and $700 billion of additional interest costs that are partially offset by $400 billion of spending cuts and $600 billion of revenue increases.
.@JohnHCochrane reviews Phil Gramm, Robert Ekelund and John Early book and highlights their big finding, “The effective marginal tax rate in the lowest three quintiles is effectively 100%. Earn a dollar and lose a dollar of benefits. Why work?”
Why has work collapsed in the bottom decile? Here we might have a big debate. $11.76 per hour (2017) isn't a lot. But the previous graphs certainly contain a suggestion worth pursuing: The effective marginal tax rate in the lowest three quintiles is effectively 100%. Earn a dollar and lose a dollar of benefits. Why work? Gramm Ekelund and Early are careful, and don't make any causal assertions here. They don't really even stress the fact popping from the table as much as I have. But the fact is a fact, a nearly 100% tax rate + an income effect isn't a positive for labor supply, and the amount of work in lower quintiles has plummeted. This is a book about facing facts and this one is undeniable.
A new BLS data series “New Tenant Repeat Rent Index” suggests that the highest housing inflation is behind us, and other indexes should see price deceleration soon, according to @JosephPolitano.
Researchers at the BLS and Cleveland Fed released a data series today that might be the single most important new inflation indicator. The New Tenant Repeat Rent Index uses the same microdata that goes into the official Consumer Price Index to select only samples with rental turnover and to assign price shifts to when they happened, not when the units were surveyed. The New Tenant Repeat Rent Index, therefore, leads official inflation data in the CPI by 1 year. The good news is that the New Tenant Repeat Rent Index suggests that the worst of housing inflation is likely behind us, and price decelerations should pass through to official inflation data soon. Critically, New Tenant Repeat Rent index also shows lower overall price growth than private data.
First generation immigrants make up 16% of American inventors, but are responsible for 23% of total innovation output. Including the spillover effects on native born collaborators, they drive 36% of aggregate innovation. @bibipousada @shaibrn @rebeccardiamond
We link patent records to a database containing the first five digits of more than 230mm of Social Security Numbers (SSN). By combining this part of the SSN together with year of birth, we identify whether individuals are immigrants based on the age at which their Social Security Number is assigned. We find immigrants represent 16% of all US inventors, but produced 23% of total innovation output, as measured by number of patents, patent citations, and the economic value of these patents. Immigrant inventors are more likely to rely on foreign technologies, to collaborate with foreign inventors, and to be cited in foreign markets, thus contributing to the importation and diffusion of ideas across borders. A simple decomposition illustrates that immigrants are responsible for 36% of aggregate innovation, two-thirds of which is due to their innovation externalities on their native-born collaborators.
.@mjmauboussin shows capital expenditures net of depreciation as a percentage of sales peaked in 1988 at 6.9%. Over the past decade it has averaged 1.8% and fell to 0.5% in 2020 during the pandemic.
Exhibit 25 shows capital expenditures minus depreciation for the population we studied. Using this measure, investment as a percentage of sales peaked in 1988 at 6.9% and bottomed in 2020 at 0.5 percent of sales. The average of the past decade was 1.8%. The two substantial limitations to using depreciation as a proxy for maintenance capital expenditures include inflation and the risk of technological obsolescence. In periods of rising prices (such as 2022), the capital expenditures required to replace new equipment will exceed depreciation because new expenditures reflect inflation whereas depreciation is based on historical costs. Technological obsolescence introduces the likelihood that depreciation overestimates an asset’s useful life.
Citing CBO data, @MichaelRStrain finds that market income for the median household grew by 26% from 1990 through 2019 after adjusting for inflation. Including transfer payments and federal taxes, real median household income grew 55%. @AEIecon
Median household income from market activities – labor, business, and capital income, as well as retirement income from past services – was not stagnant from 1990 to 2019. Instead, after adjusting for inflation, it grew by 26%. This is in line with wage growth. By my calculations using Bureau of Labor Statistics (BLS) data, inflation-adjusted average wages for nonsupervisory workers grew by around one-third over this period. After factoring in social insurance benefits (from Social Security and unemployment insurance, for example), government safety-net benefits (such as food stamps), and federal taxes, the CBO finds that median household income increased by 55% from 1990 to 2019, which is significantly faster than wage growth and certainly not stagnate. The bottom 20% of households enjoyed even greater gains, with market income growth of 51% and after-tax-and-transfer income growth of 74%.
.@swinshi notes that @JacobBastian25’s latest research underestimates the disemployment effects of an enhanced Child Tax Credit. Scott view of the disemployment effects support Bruce Myers and @kefincorinth CTC estimates @UChicago. @aei
In his reconciliation of his own results with those of the Chicago team, Bastian misattributes something on the order of 200,000 of the one-million-parent difference in predicted disemployment to married parents rather than to low-income single mothers. Relative to the Chicago team, he underestimates the disemployment of low-income single mothers by a similar amount. The evidence remains consistent with the Chicago team’s claims: a permanent expansion of the CTC that resembles the temporary child allowance created in 2021 could reduce employment among single mothers by about one million, an effect that would go a long way toward reversing the employment gains among single mothers since the policy reforms of the mid-1990s.
.@johnauthers reports that we may have seen a trough in global liquidity, according to data from Crossborder Capital.
The above chart by Michael Howell of Crossborder Capital shows estimates of global new liquidity. The lines indicate the three-month annualized % growth in the monetary base. Globally [red line], growth in liquidity has ticked up very slightly after dropping to its lowest level since the global financial crisis. In the major G10 economies [grey and yellow], there is a pickup from outright negative growth that has been helped by the startling fall in the US dollar in recent weeks. As many countries use dollar financing, this has the effect of easing conditions everywhere. Last week’s balance sheet data from major central banks show policy liquidity shrinking at 5.3% in local currency terms [yellow] but rising by 2.7% in US dollar terms [grey.] Thus, it is possible that a pivot away from tighter money is already under way.
According to research published by @NBER, higher productivity growth in 1989-2017 “is more than sufficient to explain the greater wage growth that more educated workers enjoyed as compared with less educated workers.”
U.S. regression results show that there is a high implicit correlation between the rise over time of wages by skill level and the rise of productivity by skill level. Productivity in the high-education industries [orange] grew by over .34 log points between 1989 and 2017, while productivity in the low-education industries [blue] grew only .20 log points during that same 30-year period. Wages in high-education industries grew by .26 log points while those in the low-education industries half grew by .24 log points during the 1989-2017 period. It’s clear that the difference in productivity growth between the two skill groups is more pronounced than the difference in wages. This simple comparison suggests that differences in productivity growth rates between skill groups is more than sufficient to explain the greater wage growth that more educated workers enjoyed as compared with less educated workers.
Over the past 12 months, only 20% of American workers have experienced real hourly earnings growth. Outside the leisure and hospitality, information and transportation, and warehousing sectors, wage gains fell short of 5.9% PCE price index inflation. @KarenDynan
Because of high inflation, most workers are experiencing declines in their real wages. Wages are growing most rapidly in the leisure and hospitality, information, and transportation and warehousing sectors, where gains over the past 12 months have been between 6.5 and 9% (figure 6). The wage gains for these industries—representing about 20% of employment—are above the 12-month change in consumer prices. In other sectors, wage increases have fallen short of consumer price increases (except for construction and utilities, where average wage growth has roughly kept up with inflation).
In October 2022, the retired share of the American population was 1½ percentage points above its pre-pandemic trend. These 3.5 million workers account for essentially all of the shortfall in labor force participation rates. @federalreserve
Despite some improvement in the labor force participation rate for the working-age population since the early stages of the pandemic, the LFPR in October 2022 remained nearly 1½ percentage points below its pre-pandemic, February 2020 level (after making adjustments for changes in population weights introduced from the 2020 Census). The importance of retirements in accounting for this shortfall is illustrated in Figure 1, which shows the percentage of the working-age population that is not in the labor force for different reasons (black line) relative to February 2020, based on responses to the Current Population Survey. While earlier in the pandemic, factors other than retirements were an important contributor to elevated non-participation (such as non-participation while caregiving, the orange line), the percent of the population that was not in the labor force and retired (the[MRH1] “retired share”) has steadily increased and in October 2022 was almost 1½ percentage points above its pre-pandemic level, representing an increase of more than 3½ million retirees and accounting for essentially all of the total shortfall in the LFPR.
.@EthanYWu at @ft shares Blackrock analysis forecasting declining American labor force participation rates driven by aging. This implies that economic activity “will need to run at a lower level to avoid persistent wage and price inflation,”
The participation rate, or the share of people aged 16 and over that have or are looking for work, nosedived when the pandemic hit [orange line above]. Some of that sharp decline has been made up as people return. But we don’t see it recovering further because the effects of an aging population account for most of the remaining shortfall. More people have hit 64 years old, the age at which most retire. That’s taken 1.3M out of the workforce as of October, we find. Another 630,000 left as the pandemic caused fewer people to work past retirement age and hastened retirement for people coming up to 64. That implies the workforce will keep shrinking relative to the population. Economic activity will need to run at a lower level to avoid persistent wage and price inflation, especially in the labor-heavy services sector.
.@fuxianyi at @ProSyn argues that political transformations tend to occur during a “youth boom” when the share of the population aged 15-29 exceeds 28%. The proportion of youth aged 15-29 in China stood at just 17% last year, and the median age was 42.
A country can be said to be having a “youth boom” when the proportion of people aged 15-29 exceeds 28%. When a country is experiencing a youth boom, it may also find itself on the path to political change – including, potentially, democratization. That was the case in Taiwan and South Korea. As the share of young people increased – from 25% in each country in 1966 to a peak of 31% in the early 1980s – so did economic growth and pro-democratic fervor. Both economies became democracies in 1987 when their populations’ median age was 26. In April 1989 – when the proportion of youth was at its peak of 31%, and the median age was 25 – student-led demonstrators occupied Tiananmen Square in Beijing. It took a bloody crackdown that June to crush the movement. The proportion of youth aged 15-29 in China stood at just 17% last year when the median age was 42.
.@Noahpinion reviews the shift of American innovation from corporate labs to university research and startups but notes that Google’s AI divisions have been an important driver of research in the frontier of machine learning innovation.
The successes of Bell Labs and other big corporate labs in the mid 20th century has many people thinking that maybe this is an important missing piece of our modern innovation ecosystem. Google’s AI divisions have been an important driver of research in the machine learning space — an extremely important frontier. All told, the research output of Google AI, Google Brain, DeepMind, etc. has been truly staggering: Big private companies (especially IBM) are also very active in quantum computing research. And some “startups” like SpaceX are big enough to do research in-house that pushes the boundaries of general-purpose technology instead of just making a quick buck.
In a survey of 1,200 millennials aged 26-41, one in four are currently living with their parent, and half of these moved in with family within the past year. @bloomberg
About one in four millennials are living with their parents, according to the survey of 1,200 people by Pollfish for the website PropertyManagement.com. That’s equivalent to about 18 million people between the ages of 26 and 41. More than half said they moved back in with family in the past year. Among the latter group, the surge in rental costs was the main reason given for the move. About 15% of millennial renters say that they’re spending more than half their after-tax income on rent. In September of 2020, a survey by Pew found that for the first time since the Great Depression, a majority of Americans aged between 18 and 29 were living with their parents.
.@GoldmanSachs forecasts that by 2075 both India and China will have slightly larger GDP than the US, but US real per capita GDP will rise from $69k in 2021 to $132k, vs. 2075 forecasts of $55k for China and $31k for India.
Exhibit 17 sets out our 2075 GDP level projections, broken down by population and GDP per capita levels. Two points are notable: First, there is a large gap between the largest three economies (China, India, and then the US) and all other economies (although the Euro area represents a fourth economic superpower, if it is treated as a single economy). Second, while China and India are projected to be larger than the US by 2075, our projections imply that the US will remain more than twice as rich as both (and five times as rich as countries such as Nigeria and Pakistan).
Change in their relative earnings accounted for 44% of the growth in labor force exits among non-college men between 1980-2019, suggesting a decline in social status is a likely factor driving the decline in prime-age labor force participation. @BostonFed
This paper investigates whether prime-age non-college men are more inclined to leave the labor force when their expected earnings fall relative to the earnings of other workers in their labor market. The empirical model takes into account that a job not only provides economic security but also affirms a worker’s social status, which is tied to their position relative to their age range peers. According to [a regression analysis] estimate, a 10% growth in expected earnings has an associated 0.12 percentage point decrease in the exit rate. Contrarily, a 10% growth in reference earnings has an associated 0.13 percentage point increase in the exit rate, fully discounting the earnings effect. These coefficients offer suggestive evidence that non-college men’s labor market exit behavior is tied to the relative values of their earnings. Over the course of the study period, non-college men’s relative earnings declined 30% on average. Based on the estimates, this decline in relative earnings had an associated 49 percentage point increase in the exit rate, accounting for 44% of the total growth in the exit rate among non-college men over this period. In contrast, changes in real earnings alone account for only 18% of the total growth in exit rate.