“Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
“Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
“Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
“A full-throated defense of economic dynamism.” - The Wall Street Journal
“…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
“…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
“…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
“There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
“…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
“…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
“…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 very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University

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How Many Big Macs Does Your Salary Buy?

Economist Staff The Economist

Date Posted:: September 2, 2026
Is Database:: Database
Is Important:: Important

The Economist’s venerable Big Mac Index is indicative of significantly higher after-tax, PPP-adjusted wages for American workers than for their French and German counterparts.

On an annual basis, America continues to top our McWages rankings. The average American worker earns enough to buy 10,215 Big Macs a year; Switzerland and Australia are in second and third place, respectively. But American working hours are supersized, too. On an hourly basis, Switzerland comes out on top: the average worker there earns the equivalent of seven Big Macs an hour, compared with America’s six. Australia ranks third, at five burgers for every hour worked.

Takeaways by Macro Roundup^® AI

American workers earn the equivalent of 10,215 Big Macs annually, topping global McWage rankings, but longer working hours reduce U.S. hourly purchasing power to six Big Macs per hour, behind Switzerland’s seven.
Switzerland leads all nations in hourly McWage purchasing power at seven Big Macs per hour, with Australia third at five, demonstrating that top annual earnings and top hourly compensation do not always coincide.

Sticky Wage Norms and the Real Wage Cost of Unexpected Inflation

Erik Hurst, Christina Patterson, Nela Richardson, and Ye Liv Wang University of Chicago

Date Posted:: September 10, 2026
Is Database:: Database

ADP microdata from 2016–25 suggest firms set wages according to “wage norms” ~ invariant to inflation. The 2020–21 inflation surge mechanically reduced real wages. By the end of 2025, 34% of incumbent workers’ real wages were lower than in 2020.

Roughly 42% of all nominal wage increases below 6% were within 0.01 percentage points of a whole or half number [Figure 6]. Figure 9 plots the employment-weighted average modal wage change across firms (solid line) alongside inflation rate (dashed line) from 2016 through 2025. In the pre-pandemic period, firm-level wage rules were relatively stable at a median of 2.7%, modestly above the rate of inflation. Beginning in 2021, inflation rose sharply, peaking at approximately seven percent in 2022. The average modal wage change also rose, reaching a peak of 3.5% in 2022 and 2023. By 2025, the median firm had a wage rule granting increases of three percent, roughly in line with inflation. The stickiness of firms’ wage rules in the face of inflationary pressure contributed to the systematic fall in real wages for job stayers. Evidence from Belgium [which has strong wage indexation], suggests that declining real wages, rather than inflation itself, helps explain the persistence of depressed consumer sentiment during the 2021–2024 period.

Takeaways by Macro Roundup^® AI

Firm-level modal wage rules peaked at 3.5% in 2022–2023 against roughly 7% inflation, meaning nominal rigidity systematically eroded real wages for job stayers throughout the inflationary episode.
The median firm’s modal wage increase converged to 3% by 2025—matching inflation rather than exceeding it—marking a reversal from the pre-pandemic norm of 2.7% modestly above price growth.

US Focus: The Effect Of Soaring Profits

Abiel Reinhart J.P. Morgan

Date Posted:: September 1, 2026
Is Database:: Database

US corporate profit margins rose ~250bp y/y in Q2 and are approaching an all-time high. Reinhart notes that tech and communications services drove ~58% of recent S&P 500 profit growth, even as the sectors have been “steadily losing employment since late 2022.”

Nominal pre-tax corporate profits in the national income and product accounts (NIPA) were very robust in both 2Q (41% [annual rate]) and over the last year (23%). Excluding post-recession spikes, we haven’t seen a year this strong since the mid-2000s. Higher margins [were] the key driver [of profit growth], as 23% y/y domestic profit growth was far in excess of the 8% increase in corporate value added. Profit margins (pre-tax profits divided by value added) increased close to 250bp over the last year, and are approaching all-time highs, whereas the labor share is hitting new lows.

Takeaways by Macro Roundup^® AI

Corporate profit margins expanded nearly 250 bps over the past year and are approaching all-time highs, as domestic profit growth of 23% dwarfed the 8% rise in corporate value added, compressing labor’s share of income to record lows.

Consumer Checkpoint: The Great Convergence

David Michael Tinsley, Joe Wadford, Liz Everett Krisberg, Vanessa Cook, et al. Bank of America

Date Posted:: August 11, 2026
Is Database:: Database

Over the last two years, after-tax wage growth for the top 5% has outpaced the rest of the distribution. BofA internal data show after-tax wage growth for the lowest income tercile has surpassed that of the top 5% for the first time since December 2024.

We have discussed the “K-shaped” divide between higher- and lower-income households’ spending and wage growth. But since May, our data has shown a significant narrowing in this gap. As of July, spending and wage growth have largely converged across income cohorts, with the exception of the top 5% of earners, who continue to outpace the rest. A similar dynamic was evident in discretionary spending. In our view, one factor behind the narrowing spending growth gap is stronger after-tax wage growth. For lower- and middle-income households, after-tax wage growth rose to 5.2% YoY and 4.2% YoY, respectively, in July.

Takeaways by Macro Roundup^® AI

The K-shaped spending and wage growth divide has largely closed since May, with income cohorts converging by July—except the top 5% of earners, who continue to outpace all other groups.
After-tax wage growth for lower-income households reached 5.2% YoY in July versus 4.2% for middle-income households, with stronger after-tax gains identified as a primary driver of narrowing discretionary spending gaps across cohorts.

Income Shocks and Intrahousehold Dynamics: Evidence from a Guaranteed Income Experiment

Elizabeth Rhodes, David Broockman, Eva Vivalt, Patrick Krause, et al. National Bureau of Economic Research

Date Posted:: August 10, 2026
Is Database:: Database
Is Important:: Important

In a randomized guaranteed-income experiment, giving one adult a transfer of $1,000/month for two years cut the other household members’ income by ~$1,700/year. Partners worked less and advanced less at work, while schooling and training among others rose.

Figure 4 summarizes treatment effects on the standardized family-level indices. The transfers’ effects reshaped the income and employment of other household members. The gap between participant income and total household income fell by about $1,700 per year (s.e. $800). The decline appears to reflect lower earnings among other household members. Effects on employment outcomes are consistent with this interpretation. Partner promotions and transitions to better jobs decrease significantly, but these effects are very small in magnitude. Partner hours and employment show more meaningful declines but are not significant in the unconditional analysis. Several other measures provide supporting evidence of negative effects on labor supply. Net transfers—the value given [to extended family] minus the value received—increased by roughly $135 per year. Estimates for household stability, decision-making, and the division of labor cluster near zero.

Takeaways by Macro Roundup^® AI

Guaranteed income transfers narrowed the gap between participant income and total household income by approximately $1,700 per year, a reduction driven by lower earnings among other household members rather than collective income gains.
Guaranteed income transfers reduced partner labor supply, with statistically significant declines in promotions and job transitions, though effect sizes were small.
partner hours and employment showed larger but statistically insignificant declines.

The Impact of AI on the U.S. Labor Market

Sania Edlich and Torsten Sløk Apollo

Date Posted:: July 30, 2026
Is Database:: Database

A difference-in-differences design finds 6.7% slower real-wage growth in AI-exposed occupations since 2023 than in low-exposure ones, with no detectable job loss. The largest effects were for the lowest quartile (-10.7%) and service occupations (-24.3%).

We examine the wage and employment effects of AI adoption across U.S. occupations using observed usage data from the Anthropic Economic Index rather than the theoretical exposure measures that dominate prior work. Using a difference-in-differences design with occupation and year fixed effects across 321 matched occupations from 2015 to 2025, we find that high-exposure occupations experience a 6.7% decline in real wage growth post-2023 with no detectable employment effects. The effect is concentrated among the lowest earners: service workers face a 24.3% decline and the bottom wage quartile a 10.7% decline, while top earners show no significant effect.Today, 5.8 million workers are affected, but as AI adoption deepens across corporate America, this figure is likely to grow substantially, with significant implications for income inequality and labor market policy in the years ahead. Only 321 of roughly 800 BLS occupations were matched, and the post-2023 period may be partially confounded by post-pandemic labor market dynamics. [Editor’s note: Figure 3 shows both wage and employment growth and decline among high-exposure workers, but the exposure measure combines automated and augmentative use, and thus cannot distinguish substitution from complementarity.]

Cognitive Ability in Labor and Capital Markets

Spencer Bastani, Kristina Karlsson, Jonas Kolsrud and Daniel Waldenström Uppsala University

Date Posted:: July 8, 2026
Is Database:: Database
Is Important:: Important

Cognitive ability positively predicts capital as well as labor income, with the capital-income gradient ~3x as large in % terms. This reflects both higher saving rates and higher risk-adjusted returns, neither fully explicable by earnings.

We document three results. First, cognitive ability predicts capital income. Figure 2 plots mean log income and mean income rank against the nine cognitive ability scores reporting test performance on a 1–9 scale, with both series normalized to zero at the lowest score. In the log specification (Panel a), the capital income gradient is roughly three times steeper than the labor income gradient. In the rank specification (Panel b), the ordering reverses: the labor income gradient is steeper, because the heavy right tail of capital income compresses rank differences. Figure 3 provides a complementary perspective, plotting average cognitive ability across percentiles of the labor and capital income distributions. [The relationship between ability and rank flattens at the top of the labor distribution but strengthens at the top of the capital distribution.] Second, the capital-income gradient is only partially explained by labor income: a decomposition shows that ability is associated with higher saving rates and investment returns through channels beyond labor income. Third, the investment return channel is consistent with skill rather than risk compensation, as high-ability individuals earn higher risk-adjusted excess returns while holding portfolios with lower systematic risk.

Takeaways by Macro Roundup^® AI

Cognitive ability’s capital income gradient is 3x steeper than labor income gradient in log specifications, driven by higher saving rates.
High-ability individuals earn higher risk-adjusted excess returns while holding lower-risk portfolios, indicating skill-based rather than risk-based compensation in capital markets.
Ability-income associations persist across genders and remain largely unexplained by education, occupation, or family background, suggesting intrinsic cognitive factors drive.

The Economist’s venerable Big Mac Index is indicative of significantly higher after-tax, PPP-adjusted wages for American workers than for their French and German counterparts.

Does working longer hours mask stagnant American wage growth?

Takeaways by Macro Roundup® AI

Related Articles:

ADP microdata from 2016–25 suggest firms set wages according to “wage norms” ~ invariant to inflation. The 2020–21 inflation surge mechanically reduced real wages. By the end of 2025, 34% of incumbent workers’ real wages were lower than in 2020.

Do sticky wage norms systematically reduce real wages during inflation spikes?

Takeaways by Macro Roundup® AI

Related Articles:

US corporate profit margins rose ~250bp y/y in Q2 and are approaching an all-time high. Reinhart notes that tech and communications services drove ~58% of recent S&P 500 profit growth, even as the sectors have been “steadily losing employment since late 2022.”

Are record corporate profits driven by growth or margin expansion?

Takeaways by Macro Roundup® AI

Related Articles:

Over the last two years, after-tax wage growth for the top 5% has outpaced the rest of the distribution. BofA internal data show after-tax wage growth for the lowest income tercile has surpassed that of the top 5% for the first time since December 2024.

Are lower-income households finally catching up in wage growth?

Takeaways by Macro Roundup® AI

Related Articles:

In a randomized guaranteed-income experiment, giving one adult a transfer of $1,000/month for two years cut the other household members’ income by ~$1,700/year. Partners worked less and advanced less at work, while schooling and training among others rose.

Does guaranteed income reduce household work effort beyond the transfer amount?

Takeaways by Macro Roundup® AI

Related Articles:

A difference-in-differences design finds 6.7% slower real-wage growth in AI-exposed occupations since 2023 than in low-exposure ones, with no detectable job loss. The largest effects were for the lowest quartile (-10.7%) and service occupations (-24.3%).

Related Articles:

Cognitive ability positively predicts capital as well as labor income, with the capital-income gradient ~3x as large in % terms. This reflects both higher saving rates and higher risk-adjusted returns, neither fully explicable by earnings.

Does cognitive ability generate superior investment returns independent of risk?

Takeaways by Macro Roundup® AI

Related Articles:

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI