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European Pooled Panel Phillips Curve

This continues joint research with Marco Fioramanti. Our aim is to understand something about European natural rates of unemployment and whether the European Commissions estimated levels which they call NAWRU (for non accelerating wage inflation rate of unemployment) are useful approximations.

Here is a brief summary of work to date (prior to this note). Various subsets of us wrote at length here, here, here, here , and here.

In this note I look at a panel of the 15 countries which were in the European Union in 1997 (that is those for which long series of data are available) and ask if the Commission’s estimates of the NAWRU are useful if one wishes to forecast the acceleration of wage inflation. They don’t seem to be very useful at all.

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The Economist on Diversity and Development

I was looking for information on how cultures affect growth and stumbled on this 12.5 year old article in The Economist:

Diversity and development might seem to sit oddly together. But they are intimately linked, and the report seeks to show that they are not related in the way many people assume. The UNDP’s press release says unambiguously that “there is no evidence that cultural diversity slows development”, and dismisses the idea that there has to be a trade-off between respecting diversity and sustaining peace. Some of the world’s richest and most peaceful countries are historically multi-ethnic, such as Switzerland, Canada and Belgium. And most of the world’s richest countries are now the destination of immigrants from around the world, making America, Britain and other wealthy nations hugely diverse.

I imagine if you make a movie whose cast is perfectly representative of the population of diverse Switzerland or Belgium of a decade ago when this article was written, and the movie was a masterpiece, it would run afoul of #oscarssowhite.

But there is some evidence that diversity has costs. In a recent book, “The Size of Nations” (see article), two economists show that managing ethnic diversity is expensive, as governments must deal with the demands of groups competing for scarce resources. In the United States, a study has shown that people are willing to pay more for services like education if they can live with people more like them in ethnicity and class. In other words, people place a value on being with others like them. Multi-ethnic nations have been breaking apart recently (the Soviet Union, Yugoslavia); few countries have merged during the same period, and those that have were ethnic mates (East and West Germany, North and South Yemen).

A quick look at the Human Development Index (HDI), released each year in the report, seems to support the idea that diversity has its costs. In the bottom 35 countries ranked as having “low human development”, all but three are in vastly diverse Africa, where borders drawn by colonialists showed no respect for tribal, linguistic or religious identities. Meanwhile, while single-ethnicity states are rare (just 30 countries in the world do not have a religious or ethnic minority that constitutes at least 10% of the population), they are strongly represented at the top of the HDI: places like Norway, Sweden, the Netherlands, Japan, Ireland and Austria.

The article continues:

The report recommends several political strategies for coupling diversity and development. One is “asymmetrical federalism”—the type of constitutional arrangement seen in Spain and Canada, where regions dominated by a cohesive minority (like Québec or the Basque country) get special local-government powers that others do not. This both recognises the region’s distinct identity and binds it to the central state. After all, the authors point out, most people in Spain’s minority regions see themselves as both Spanish and Basque (or Catalan or Galician)—not just one or the other. Giving those overlapping identities constitutional form can be one way to stabilise a diverse country. However, it can also give rise to resentment among the majority—be they anglophone Canadians or Castilian Spaniards—over the privileges of minorities.

My guess is this works only as long as the Quebecois mostly continue to live in a geographic distinct area. In other words – where diversity however it is measured exists at a macro but is minimized at a micro level. I imagine living and working together in a way that forms elite teams requires an approach that does more to smooth out whatever differences are perceived to exist and treat everyone as the same. (Warning – Youtube & profanity.)

 

The authors of the report argue for several other policies to protect and promote what they call “cultural liberty”, with certain caveats. For example, they support affirmative action, which, they say, has led to an increase in the number of black professionals in America, and has helped ethnic Malays in Malaysia and various minorities in India as well. But they lightly question the wisdom of letting such policies become entrenched, asking for example whether the children of affirmative action’s beneficiaries should themselves be eligible for a helping hand.

I suspect that such programs are very, very hard to dismantle. Differing cultural traits (which necessarily exist as long as people are assisted in keeping apart) will result in different outcomes, and different outcomes are a justification for keeping these programs intact.

The authors also propose treating “cultural goods” differently from other kinds when discussing trade. They give some of the oft-cited statistics about the cultural dominance of a few countries—for example, that America accounts for 85% of films screened worldwide. Their assumption is that, left to raw market forces, products from smaller cultures would be drowned out of the market. But rather than proposing restrictions on, say, importing American films, the authors propose allowing governments to take positive action to boost the production of their local fare. (Some trade agreements treat such support as an illegal subsidy.)

This must work because movies hav a discernible effect on the culture in different countries. That is so very unlike movies more typical goods like the Honda Civic, Sony Walkmen, SAP ERP, AK-47, Google’s search engine and Coca-Cola have had no discernible effect on any country’s culture.

While the report is full of feel-good language and social-science jargon, like “participation exclusion” and “living mode exclusion”, it is an interesting first stab at marrying diversity and development, two subjects not often found side-by-side. The report is, by its own admission, short on data about just how bad the problem of cultural exclusion is around the world. But it estimates, probably not too wildly, that one in seven people in the world is a member of some kind of disadvantaged minority. When engineering a new constitution, founding fathers in Iraq, Afghanistan and other nations under construction, as well as those who would advise them, would do well to take the suggestions of this report to heart.

And I predict that as long as society encourages people to think of themselves as distinct from their neighbors, and their neighbors as distinct from themselves, we will only increase the number of people who are members of what the Economist calls “some kind of disadvantaged minority.”

Updated to include comments on Swiss and Belgian diversity. Also, second blockquote was not originally shown as quote.

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Education – Close to Home Edition

This email just arrived from the Long Beach Unified School District (LBUSD), where my son is currently enrolled in one of the elementary schools:

Long Beach Unified is conducting a survey of all students, staff and parents on the culture and climate of our schools. The surveys, all of which are available for review on our website, are an important part of our accountability plan. Your input is very valuable so please watch your in-box tomorrow for an email titled “Long Beach Unified School District Parent Survey”. If you do not receive an email, log into your ParentVUE account and click on the tab, Core Parent Survey, in order to complete the survey. The survey is available in English, Spanish, Khmer, Chinese, Tagalog, Korean and Arabic and takes 5-10 minutes to complete. Thank you.

On the LBUSD home page, though, Parent Guidelines are only available in English, Spanish and Khmer. Apparently the district is changing rapidly or they’d have the Parent Guidelines in Chinese, Tagalog, Korean and Arabic.

Just for reference, Ed-Data, run by the California Department of Education, provided data on the “Languages of English Learners” at the school my son attends:

Number of Students by language from ed-data dot org

 

For reference, in 2015-16 there were 3 under Arabic, 3 under Filipino, and 6 under Vietnamese.  Nine are “all other”, which is just under the 11 figure for Khmer.  Also for reference, there are about 1,000 students in total at the school.

Anyway, I have no conclusions, or anything else to add.  I just found the data to be interesting.

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Barack Obama: a noble failure

(Dan here…NDd takes a shot at evaluating the President Obama legacy.)

by New Deal Democrat

Barack Obama: a noble failure

Let me preface this essay by saying that I voted for Barack Obama twice, in both 2008 and 2012. In fact in 2008 I supported him in the primary against Hillary Clinton, who I believed had a ceiling of support at about 52% or 53% even under even under the most favorable of circumstances (which certainly seems correct now!). I believed Obama was simply more capable of winning the Presidency, and I believed he could overcome his weaknesses and grow into the job.  By and large he did, but it took 5 full years before he finally gave up on his central, failed approached to governance.  I believe that failure is going to cause him to be ranked, over time, in the bottom half of all Presidents.

“There is no red or blue America,” Barack Obama declared in the 2004 convention speech that first brought him fame.  His presidency was largely based on that premise.  I think very few people would agree with that statement now.  This worldview was epitomised in his 2009 Inaugural Address:

On this day, we gather because we have chosen hope over fear, unity of purpose over conflict and discord.On this day, we come to proclaim an end to the petty grievances and false promises, the recriminations and worn-out dogmas, that for far too long have strangled our politics.

….[E]verywhere we look, there is work to be done. The state of the economy calls for action, bold and swift, and we will act ….
….
What the cynics fail to understand is that the ground has shifted beneath them — that the stale political arguments that have consumed us for so long no longer apply.
For we know that our patchwork heritage is a strength, not a weakness…. [W]e cannot help but believe that the old hatreds shall someday pass; that the lines of tribe shall soon dissolve ….

But on that very same day in 2009, Mitch McConnell and other GOP leaders also met, and resolved a strategy of total intransigence, to deny Barack Obama any bipartisan victories whatsoever.

Asked about that strategy early on, Obama replied that if Republicans would not come to the table with him, then they would miss the chance to have their imprint of the solutions to big problems. Rather than be shut out, they would negotiate with him for bipartisan Great Solutions.

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Aurora, Colorado; Republican Congressional Representatives in Action

In Colorado, on Saturday, Republican Rep. Mike Coffman held an event for his constituents at a
Coffman a public library in Aurora, Colorado. At least 150 constituents showed up, most of them hoping to ask Coffman about his recent vote to repeal the Affordable Care Act and his plans for a replacement. But only about 70 people got to meet with Coffman: Despite booking a large room with ample space, Coffman allowed in only four constituents at once for five minutes at a time. When the crowd grew restless, police put up crime scene tape and Coffman snuck out the back door—six minutes before the event was scheduled to end.

Coffman co-authored a Denver Post op-ed on Friday urging the full and immediate repeal of the ACA. About 419,000 Coloradans have gained health care coverage since the enactment of the law, and many of them stand to lose their insurance if it is repealed. Yet Coffman has not proposed a clear replacement for the law, an issue constituents hoped to ask him about on Saturday. “I am potentially going to lose my health insurance,” Berthie Ruoff told NBC 9 while she waited to meet with her representative. “I’ve had a preexisting condition. I’ve had breast cancer. What’s going to happen to me? My spouse who had health insurance passed away. What do I do? You know, what am I supposed to do?”

But neither Ruoff nor many other constituents who stand to lose coverage had an opportunity meet with Coffman. When it grew clear that Coffman would refuse to meet with a majority of those at the event, the crowd channeled its agitation into patriotic songs:
This show of unity, however, did not impress Coffman. Indeed, it appears to have scared him: Rather than address the crowd, Coffman had police officers secretly escort him out of the back door before the event was set to conclude.

A few people noticed Coffman sneaking out and attempted to address him. “Next time,” one woman pleaded, “please be sure you hear all your constituents!” Coffman ignored them, hopped into a waiting car, and drove away.

“Have a good afternoon!” yelled another exasperated woman.

GOP Rep. Sneaks Out of Townhall Meeting, Mark Joseph Stern, Slate, January 15, 2016

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Net Migration and Economic Growth Around the World – 1958 to the Present

In my last post, I used World Bank data to look at the effect of net migration on economic growth. Net migration is defined by the World Bank as the number of immigrants (coming into a country) less the number of emigrants (leaving the country). I showed that net migration as a share of the population in 2012 (the last year with for which this data has been reported so far) is negatively correlated with growth of PPP GDP per capita from 2012 to 2015. In other words, countries where the share of immigrants as a percent of the population was larger grew more slowly than countries with a smaller proportion of immigrants.

The natural question is… does this relationship hold over a longer period of time? In this post, I will show that the answer is yes.

As to data… I will use three series compiled by the World Bank: net migration, population, and PPP GDP per capita. Net migration data is reported every fifth year beginning in 1962, and it covers five years of activity. In other words, the net migration figure for 1962 is the sum total net migration for the years 1958 through 1962. Similarly, the net migration figure for 1967 is the total for the years from 1963 through 1967. Population is available annually going back to 1960. PPP GDP per capita is available annually, but only begins in 1990. To maximize the use of the available data, and still avoid situations where growth could be leading immigration, I looked at total migration from 1958 to 1992 as a share of the population in 1992, and compared it to growth in PPP GDP per capita from 1993 to 2015.

In other words, I took a look at (roughly) the percentage of the population that had migrated over 34 years, and compared that to the growth rate from the following year to 2015, which is a period of 22 years.

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Minimum Wages and Productivity

Originally published at Econospeak

by Peter Dorman

Minimum Wages and Productivity

I had a chuckle reading a report in today’s New York Times that describes a pair of papers on the minimum wage presented at the recently-concluded economics meetings in Chicago, especially the first, an experimental study by John Horton of NYU.  Horton set up an online matching system between employers and workers, where each made wage offers for a variety of tasks that could be performed remotely.  The design allowed him to measure the actual productivity of workers in these tasks if they successfully concluded a deal with the employers.  Then he imposed a minimum wage to see what would happen.  The result was that employers sought out the most productive workers when they had to pay higher wages to everyone.  (They could estimate productivity differences from information on workers’ prior wages.)

There was lots of back and forth in the article about whether this result would generalize to a minimum wage established over all employers within a region rather than just a few (who could better pick and choose), but for me the irony is that this is exactly what proponents of the minimum wage hope it will achieve.  That is, one of the main purposes of setting a floor under wages is to generate incentives for firms to increase productivity.

Note that it is the firm that is expected to do this.  Economists for some reason tend to assume that productivity is essentially a worker attribute, like how tall you are or whether you’re left-handed.  No doubt workers differ greatly according to their potential productivity, but most actual, realized productivity is the result of the way the work is set up—whether the output is of lesser or greater value, how much and what kind of equipment the worker has available to work with, what kinds of skills the work develops and makes use of, and how much opportunity the worker herself has to tinker with the job to make it go better.  These are employer choices.  In a world of low wages employers have less incentive to invest in the productivity of work, so they don’t.

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Wealth Inequality and Sentimental Credit

By Noni Mausa

Wealth Inequality and Sentimental Credit

I go to the store and buy a loaf of bread. But I haven’t actually harvested a loaf of bread (unless I am a shoplifter.) I have, instead, used a tiny scrap of credit to mobilize a farmer, a baker, a truck driver, and probably a score of others to exert their skill and energy to have a loaf of bread there when I arrive.

Though my credit is sliced very thin and passed around to these dozens of people, and though it travels backwards in time, so to speak, to reward them, it is merely a placeholder for an exchange of human effort.

My “credit” is not necessarily cash or even money. It is simply whatever leverage I can wield to direct human effort to my benefit. Sometimes, of course, it takes the form of cash, but just as often it can manifest as pity, fear, misdirection, beauty, hope, hatred, fun, or family feeling.

One way to increase one’s own power is to increase your ability to work one or another of these levers. Currently, people focus on only one of these – the possession of money, in the forms of cash, investments, steady incomes, etc.

When the possession or control of cash increases in a small group, we call this wealth inequality. But another way to increase inequality lies in reducing people’s access to non-cash credit, what you might call sentimental credit.

Sentimental credit is the credit the poor depend on when all else is stripped from them. This is the reason why people in the poorest countries are often described as generous, welcoming, lovely, cheerful, honourable, charitable, and keenly alive to community and family connections. It’s why these people create intricate art and music and wonderful food out of the unlikeliest poor materials, and tell long and fascinating stories. It’s why their land, however poor, is seen as their home, with loyalty, respect and family-feeling.

In deeply poor communities, sentimental credit circulate available resources, earns respect and trust, cultivates family feeling, builds pride, and basically keeps things together. People in these societies who aren’t generous, who are miserable to be around, who take but never give, who take no pride in skills, who know no stories, and yet are not actually crippled and thus deserving of assistance — these people don’t have anything to trade. They have little or no sentimental credit. Such people can get along fine if they have a good supply of cash and can live in a relatively anonymous society. Otherwise, they are, ahem, evolutionally impaired.

How does this apply to the descent of America into an unequal society?

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Millions Are Uninsured

When People claim “Millions Are Uninsured Under the PPACA,” it is a garbage statement meant to elicit a negative reaction without going into the detail of who is uninsured and why. Repeatedly Charles Gaba, Maggie Mahar, Commonwealth Fund, Urban Institute, Kaiser Foundation, etc. have explained the numbers and the whys of the uninsured, most of which are not the fault on the PPACA.

I see commenters come to AB and outside AB discussing the uninsured. Some being legitimate bloggers claim “millions are uninsured” and some have exaggerated it even more with citing “tens of millions” with their credibility disappearing as they can not recite the make-up of or the reasons for the number as they do not know it or are trying to make a political statement. The latter being worst than the ignorance of the former.

invisible hand

There are reasons for the uninsured as detailed by Kaiser Family Foundation. For example, Republican states which do not allow expansion of Medicaid accounts for 2.6 million, undocumented citizens 5.4 million, those eligible for Employee sponsored insurance 4.5 million, and 3.0 million who could have unsubsidized insurance. Then there are 6.4 million adults and children eligible for Medicaid and another 5.3 million eligible for Premium Subsidies and for some reason have not chosen to be insured. Some states like Michigan do make it difficult to enroll in Medicaid. These are the Kaiser numbers for 2016 and they total ~27 millionfor uninsured and why. A “tens of millions” uninsured is a BS numeric when we start accounting for Republicans blocking Medicaid Expansion in states, undocumented immigrants, ESI available insurance, 6.4 million eligible for Medicaid, and another 5.3 million eligible for subsidies. Other than undocumented citizens and states blocking the Medicaid Expansion, there is access to healthcare insurance in one form or another through the PPACA, much of which exists today due to the PPACA, or Employer Sponsored Insurance. When we account , the number drop as there are those without subsidy who chose not to be insured, others who could be on Medicare or have Premium subsidies, and those who could have Employee Sponsored Insurance.

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