Tyler Cowen's Blog, page 233

How happy should we be about ACA supply-side responses to work less?

Following the CBO report that Obamacare will induce many people to leave the workforce or cut back on their hours, I have read numerous blog posts suggesting this is benign or possibly even favorable.  After all, why should people be forced to work just to keep their health insurance?  Imagine a 57-year-old man, freed from the necessity to grub for pay at a second-class retail job, which he had to take just to get insurance to cover the bills for his periodic back treatments.

Alternatively, when I read about demand-side shocks which induce unemployment, I am reminded of the work of Alan Krueger.  In two papers, one of which is quite recent, and does not stem from the Heritage Foundation, Krueger shows rather convincingly that the unemployed maintain reservation wages which are simply too high.  They would be better off lowering those wages, being more realistic, accepting work, and getting back on their feet again.  In other settings (not considered by Krueger), other workers seem to be too slow to move to new areas for new jobs, given the costs of being unemployed long-term.

A lot of Keynesians try to maintain the communication of the feeling (if not the outright statement) that demand-driven employment shocks have very little to do with the choices of workers but that is closer to wrong than right.  (By the way, sarcastic comments about soup kitchens causing the Great Depression belie an understanding of both this argument and of contemporary search models for the labor market.)

OK, given all that, when those workers, hit by negative shocks, do not rush to go back to work at lower reservation wages, we then read a portrait of hysteresis, despair, and soul-crushing joblessness, a psychic swamp so difficult to escape that even summoning up the strength to go back to work may be difficult.

In other words, would-be workers irrationally undervalue the benefits of having a job and they also underestimate the costs of remaining unemployed.

Now let’s switch settings.  A benefit shock comes along, positive for many people, and it induces many of them to work less or not work at all.  How happy should we be?  And here I mean happy at the margin, due to their change in employment decision.

People, it is rather difficult to have it here both ways.  I guess it is possible that workers are irrational in changing their employment decisions in response to changes in relative dollar wage opportunities, but rational when changing their employment decisions in response to changes in relative benefit opportunities.  It really is possible.  But are any of you actually arguing that or holding some deep-seated reason for believing in that difference, other than perhaps the reason this post might have induced you to come up with?  No, I see one assumption about a destructive choice in one context and the opposing assumption about a beneficial choice in the other context, without much regard for the tension or contradiction between those two assumptions.  A lot of you may be subbing in general feelings — “unemployment is terrible,” and “ACA is good,” and simply transferring those general feelings to feelings about the respective marginal changes in employment in each case.  That is a fallacy and dare I say it is a “mood affiliation” fallacy?

And by the way, the distinction between a substitution effect and an income effect is a little tricky in this context.  But providing ACA-subsidized health insurance for non-workers is in general a substitution effect which switches them out of working in a way that, if pro-ACA stories about adverse selection and uninsurability are true, a simple equivalent cash grant would not.

A simpler possibility is that people undervalue the long-term benefits of having a job and thus in both settings the contraction in employment is a quite negative outcome.  That is then very bad news for ACA, if only in expected value terms.

I am reading what people write on this topic and seeing massive fog through my spectacles, a bit on both sides of the debate in fact.

Addendum: Ross Douthat made a good point:

At 500,000-800,000, I wasn’t *that* troubled: http://nyti.ms/1exzxlm  At 2-2.5 million, I am. Is there a # that would trouble @CitizenCohn?

Ross has additional comments here.

Private Schooling In India: Results from a Randomized Trial

Karthik Muralidharan runs very large, randomized controlled trials on education in India. His previous work showed that performance pay for teachers in India has large and significant improvements on student learning. In his latest paper (with Venkatesh Sundararaman) he reports on the results of The Andhra Pradesh School Choice Project, a long-term randomized controlled trial covering over 6,000 students in 180 villages for four years (2008-2012). The study offered students a lottery for a private school scholarships and lottery winners were compared with non-winners. The results show modest improvements in learning for private school students and big increases in school productivity.

We find that private school teachers have lower levels of formal education and training than public-school teachers, and

are paid much lower salaries. On the other hand, private schools have a longer school day, a longer

school year, smaller class sizes, lower teacher absence, higher teaching activity, and better school

hygiene. After two and four years of the program, we find no difference between the test scores of

lottery winners and losers on math and Telugu (native language). However, private schools spend

significantly less instructional time on these subjects, and use the extra time to teach more English,

Science, Social Studies, and Hindi. Averaged across all subjects, lottery winners score 0.13 σhigher,

and students who attend private schools score 0.23 σhigher. We find no evidence of spillovers on

public-school students who do not apply for the voucher, or on students who start out in private schools

to begin with, suggesting that the program had no adverse effects on these groups. Finally, the mean

cost per student in the private schools in our sample is less than a third of the cost in public schools.

Our results suggest that private schools in this setting deliver (slightly) better test score gains than

their public counterparts, and do so at substantially lower costs per student.

As Karthik notes in a Ideas for India short article that summarizes:

Since private schools achieved equal or better outcomes at one-third the cost, the fundamental question that needs to be asked is “How much better could private management do if they had three times their current level of per-child spending?”

Is any economist doing more important work with greater potential for real improvement in the lives of millions than Karthik Muralidharan?

The certainty of the “New Atheists”

From the excellent Jonathan Haidt:

…I took the full text of the three most important New Atheist books—Richard Dawkins’ The God Delusion, Sam Harris’s The End of Faith, and Daniel Dennett’s Breaking the Spell and I ran the files through a widely used text analysis program that counts words that have been shown to indicate certainty, including “always,” “never,” “certainly,” “every,” and “undeniable.” To provide a close standard of comparison, I also analyzed three recent books by other scientists who write about religion but are not considered New Atheists: Jesse Bering’s The Belief Instinct, Ara Norenzayan’s Big Gods, and my own book The Righteous Mind. (More details about the analysis can be found here.) 

To provide an additional standard of comparison, I also analyzed books by three right wing radio and television stars whose reasoning style is not generally regarded as scientific. I analyzed Glenn Beck’s Common Sense, Sean Hannity’s Deliver Us from Evil, and Anne Coulter’s Treason. (I chose the book for each author that had received the most comments on Amazon.) As you can see in the graph, the New Atheists win the “certainty” competition. Of the 75,000 words in The End of Faith, 2.24% of them connote or are associated with certainty. (I also analyzed The Moral Landscape—it came out at 2.34%.)

There is more here, and for the pointer I thank Eric Auld.

John Roemer changes his mind on a bunch of things, including socialism

He has a new published paper, in Analyse & Kritik, entitled “Thoughts on Arrangements of Property Rights in Productive Assets,” here is the abstract:

State ownership, worker ownership, and household ownership are the three main forms in which productive assets (firms) can be held.  I argue that worker ownership is not wise in economies with high capital-labor rations, for it forces the worker to concentrate all her assets in one firm.  I review the coupon economy that I proposed in 1994, and express reservations that it could work: greedy people would be able to circumvent its purpose of preventing the concentration of corporate wealth.  Although extremely high corporate salaries are the norm today, I argue these are competitive and market determined, a consequence of the gargantuan size of firms.  It would, however, be possible to tax such salaries at high rates, because the labor-supply response would be small.  The social-democratic model remains the best one, to date, for producing a relatively egalitarian outcome, and it relies on solidarity, redistribution, and private ownership of firms.  Whether such a solidaristic social ethos can develop without a conflagration, such as the second world war, which not only united populations in the war effort, but also wiped out substantial middle-class wealth in Europe — thus engendering the post-war movement toward social insurance — is an open question.

There are some probably gated versions here.  He also explains later in the paper that socialism cannot work because a generally solidaristic social ethos will be undermined by a selfish minority, driven by greed, which will turn social institutions to their favor and evolve into a new ruling class.  In other words, Hayek’s The Road to Serfdom is not yet obsolete and still holds the power to sway men’s minds.

For the pointer I thank Kevin Vallier.�� � ��

The history of political economy workshop at Duke

Bruce Caldwell emails me:

The Center for the History of Political Economy at Duke University will be hosting another Summer Institute on the History of Economics this coming June. The program is designed for students in graduate programs in economics. Students will be competitively selected and successful applicants will receive a $2000 stipend for attending, plus free housing and reading materials. The deadline for applying is March 3. More information on the Summer Institute is available at our website,

http://hope.econ.duke.edu/

I am writing to ask you if you would again promote our program on the Marginal Revolution blog. The 2012 institute, which was also aimed at grad students (the 2013 one was for faculty), attracted applicants from a host of universities, and we want to keep the momentum going. When we did follow up with previous participants to see how they had found out about the institute, a significant majority of them said that it was from reading about it on a blog.

Gangland average is over the rent is too damn high, Southland edition

From the LA Times:

So many gang members have been priced out of the neighborhood, he said, that their presence can be hard to spot during the week. But on Fridays and Saturdays, they make a pilgrimage back to their roots. They ride in from El Sereno, Eagle Rock, even the Inland Empire, to hang out. Each Monday, trash cans and stop signs wear fresh “ExP” graffiti.

“It becomes a weekend gang,” Arellano said.

The pointer is from Binyamin Applebaum.

Income volatility for top earners, especially in finance

Justin Lahart has a new article about research in the works on top earners, here is one relevant snippet:

The economists have also been looking into what’s going on with the top 0.1%, while digging more deeply into incomes for specific occupations. In a preview of this work he presented at the American Economic Association’s annual meeting last month, Mr. Guvenen showed that over the past 30 years income cyclicality for this group has risen substantially relative to the population at large.

That is largely a result of a change in the composition. It used to be that doctors — a group with very little income cyclicality — represented about a quarter of top 0.1%. Now they account for less than a tenth. Filling the gap, a bigger share of people in finance-related occupations.

The underlying research you will find here.  For the pointer I thank Ray Lopez.

Assorted links

1. Major “Freestyle” chess tournament starts today.  And what machines can’t do, by David Brooks.

2. Why Hollywood will never look the same again.

3. The New York Fed on labor market participation and Krugman’s response.  Adjusting for changes in immigration is worth a ponder here too.

4. Interview with me in Italian.

5. DOT is moving forward with “connected vehicle technology.”

6. Demise of the Great Gatsby curve.  And the economics of human sacrifice.

New estimates on ACA and employment

The Affordable Care Act will also reduce the number of fulltime workers by more than 2 million in coming years, congressional budget analysts said in the most detailed analysis of the law’s impact on jobs.

The CBO said the law’s impact on jobs would be mostly felt starting after 2016. The agency previously estimated that the economy would have 800,000 fewer jobs as a result of the law.

The impact is likely to be most felt, the CBO said, among low-wage workers. The agency said that most of the effect would come from Americans deciding not to seek work as a result of the ACA’s impact on the economy. Some workers may forgo employment, while others may reduce hours, for a equivalent of at least 2 million fulltime workers dropping out of the labor force.

That is from The Washington Post.

Addendum: Annie Lowrey adds comment.

*The Son Also Rises* and social mobility in India

That is the new Greg Clark book and yes it is an event and yes you should buy it. Here is one passage I found of interest:

There are surprisingly few studies of social mobility in India.  Thus the two recent international surveys of social mobility…do not include India.  However, a recent study estimated the Indian intergeneration income correlation to be 0.58, making social mobility rates in India among the world’s lowest.

The estimated persistence rate for income in India of 0.58, however, is not much higher than those for the United Kingdom (0.5) or the United States (0.47).  The share of income variance in the next generation attributable to inheritance from parents in India is still only (0.58)squared, or 0.34.  This suggests that even in India, an individual’s position in the income ranks is not primarily derived from inheritance.  Thus, by conventional estimates, modern India has become a society of rapid social mobility, where three to four generations might see the elimination of all traces of millennia-old patterns of inequality.

You can buy the book here.  Here is a previous MR post on the book, there will be more to come.