Category Archives: disaggregating the economy

Two views of California

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Peter Leyden wrote,

So how has California’s big, bold progressive political approach worked for the state? It turns out — awesome. The California economy is booming, doing better than the rest of the United States by many standard economic measures. Since Brown started leading as governor, California has added 2.3 million jobs, which leads the nation (from 2012 to 2016, California accounted for 17 percent of job growth in the United States, and a quarter of the growth in GDP.) From 2011 to 2014 coming off the Great Recession, California’s economic growth rate was 4.1 percent. In 2016, California’s rate was still 2.9 percent compared to rival Texas’s paltry growth rate of 0.4.

Michael Shellenberger writes (pointer from Tyler Cowen),

Where 56 percent of Californians could afford a middle-class home in 2012, in the third quarter of 2017, just 28 percent could.

…Progressive leaders who daily denounce Republicans as racist have blithely presided over a significant decline in the academic performance of black and Latino eighth graders relative to their counterparts in other states. Today, less than 40 percent of non-white and non-Asian students meet state educational standards.

There is more at both links. Did you two visit the same state?

Non-cognitive human capital

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Chong Xiang and Stephen Ross Yeaple write,

First, the U.S. has very high output per worker. The abundance of resources makes the low U.S. PISA scores even harder to justify. Second, the employment share of cognitive occupations is relatively low in the U.S., implying weak incentives to accumulate cognitive human capital. The effects of resources and incentives thus offset each other, leaving the U.S. ranking in cognitive productivities very close to its ranking in PISA scores, near the bottom in our set of 28 countries. In our Introduction, we discussed the worries and concerns about the quality of the U.S. educational system. Figure 3 quantifies these concerns and shows that they are well justified, when we look at the cognitive dimension.

,,,the U.S. indeed has a comparative advantage for noncognitive skills

As I understand it, they show that the proof of this comparative advantage is that a lot of our labor force is engaged in occupations that are classified as “non-cognitive” but with high productivity. I found the paper difficult to follow, so I won’t comment on this interpretation.

City income differentials widen

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Thomas B. Edsall writes,

According to Romem, between 2005 and 2016, those moving into the San Francisco area had median household incomes averaging $12,639 a year more than the households of the families moving out, $70,015 to $57,376.

Conversely, in the struggling Syracuse metropolitan area (Clinton 53.9 percent, Trump 40.1 percent), families moving in between 2005 and 2016 had median household incomes of $35,219 — $7,229 less than the median income of the families moving out of the region, $42,448.

It’s a long essay, worth reading in its entirety. Edsall’s focus is on the evolution of the political coalition that makes up the Democratic Party. But I find the economic phenomenon interesting. The data support the Handle Hypothesis that urbanization has become a winners-take-most game. The article by Issi Romem that Edsall refers to is also worth reading. Romem writes,

Why do the expensive coastal metros exhibit positive income sorting? These metros are expensive because they have restricted their supply of new housing even as they continue to generate strong demand for it.

Kevin Erdmann and many others have been saying this for quite some time.

Related: Pew reports,

In 2001, 13 percentage points separated the shares of white and African-American renter households that were burdened: 26 and 39 percent, respectively. . .By 2015, the share of African-American-led renter households that were burdened had risen to 46 percent

Rent-burdened is defined as spending more than 30 percent of a household’s income on rent. Pointer from Tyler Cowen.

I think that the political threat to the Democratic Party is minimal. Group identity seems to overcome anything. The Democrats can be anti-Israel and still get most of the Jewish vote. Their policies make housing less affordable and drive African-Americans out of Washington, D.C. or San Francisco, but they still get most of the black vote.

Kevin Erdmann on U.S. housing supply

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He writes,

Just a few cities are at the heart of the housing supply problem, most notably New York City, Los Angeles, Boston, and San Francisco, which I refer to as Closed Access cities. There are two very different housing markets within the United States: the Closed Access market, where new housing is highly constrained, rents rise relentlessly, and households are forced to make difficult choices as housing expenses eat up their budgets; and the rest of the country, where homes can generally be built to meet demand, housing construction is healthy, and housing expenses remain at comfortable levels for the typical household.

Pointer from Tyler Cowen.

This is an important point, which I would like to see stressed over and over. We do not have just one housing market in the U.S.

For the nation as a whole, Erdmann makes two claims.

1. There was no significant widespread overbuilding during the housing boom. This claim is contrary to many people’s impression, but pay attention to his statistical support.

2. There has been under-building since 2007. This claim strikes me as undeniable. But I saw an essay on Medium recently that tried to deny it, using what I thought were inappropriate and misleading indicators.

I strongly recommend reading the entire paper, or at the very least skimming it to get all the main ideas. He is doing important work.

Russ Roberts and Ed Glaeser on the secular decline in employment

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Strongly recommended. Glaeser says,

the changing nature of innovation has meant that there’s more of a complementarity between skilled workers and other skilled workers rather than between skilled workers and unskilled workers. And in some sense, I often say that sort of every non-employed American is a failure of entrepreneurial imagination. . .That’s one aspect. A second aspect is . . . between 1950 and 1992, the inter-county migration rate–meaning the share of Americans who moved across county borders in every year–was never less than 6%. . . since 2007, it has never been above 4%. . . .prior to 1960 people moved to higher income areas. So, the farmers moved to Detroit. They moved to Chicago. The Okies in the Great Depression moved to California. So, there’s this migration to high-income areas. We’ve seen much less of that over the last 30 years. Particularly for less-skilled Americans. There’s very little that’s directed toward high-income areas. And, one possible explanation for this is that this has to do with the restrictions that we’ve put on housing markets in these areas. That, yes, you could find work in Silicon Valley if you are a less-skilled person working in, you know, a variety of service industries; but you are going to have to pay for housing in that area. And, the overall deal doesn’t look particularly good when you are kind of happy sitting there at home in Kentucky. So, this migration has really shut down dramatically; and that’s a second change.

These comments elaborate on an essay that Glaeser wrote last year, which I linked to when it first came out.

Disaggregating the economy: consumption tribes

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In a paper marked “preliminary and incomplete,” Brent Neiman and Joseph Vavra write,

Our key findings, that household product concentration and cross-household variance are both rising, is pervasive and robust: it holds in every geographic market in Nielsen data and so is not simply the result of growing differences across regions. Similarly, while household concentration levels differ with some observable demographic characteristics, the rise in household concentration and cross-household variance holds within income, race, education, age, and other demographic groups. The pervasiveness of the patterns suggest a key role for marketing, production or search technologies, or broad-based increases in preference heterogeneity. We demonstrate the salience of product innovation and the expansion of available varieties for the increase in concentration and segmentation of consumption: these trends hold within most retailers but are strongest in those with the largest increases in offered UPCs. In addition, when we compute concentration growth separately for existing and new products, we find that household concentration increases much more in the bundle of new products. That is, the products accounting for rising shares of consumption within narrow categories are predominantly new products not previously consumed by the household. Over the last decade there have been large increases in the set of products available within particular retailers, and our results suggest this enhances the scope for households to sort into particular product niches.

Thirty years ago, we already knew that households could be sorted into different consumption groups. Looking at just the period 2004-2015, the authors write,

Increases in household-product Herfindahls are even larger, rising by roughly 10 percent over the same time span. Overall these increases in household product concentration are nearly monotonic across time, highly statistically significant, and robust to a variety of specification changes.

Handle hypothesis watch

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His hypothesis is that winner cities increasingly dominate. Marc Muro and Jacob Whitin write,

growth across communities now tracks exactly with their size. The nation’s bigger communities — powered by well-educated millennial workers and the agglomeration trends brought by digital technology — are now growing notably faster and accounting for more and more of the nation’s growth than before, even as small metros wane and most of the rural hinterland slides into deep decline. In short, fully half of all of the country’s employment growth took place in just 20 metropolitan areas, home to about one-third of Americans, led by the usual suspects of New York, Boston, the Bay Area, Seattle, and Washington, D.C., along with such fast-growing Sun Belt hubs as Dallas, Atlanta, Miami, and Orlando.

Sluggish economic adjustment

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Timothy Taylor writes,

In the decades after World War II and up into the 1980s, the US economy experienced regional convergence: that is, the economies and incomes in poorer regions (like the US South) tended to grow more quickly than the economies of richer regions (like the US North). But in the 1980s, this pattern of regional convergence slowed down.

He cites interesting papers on the topic by Peter Ganong and Daniel W. Shoag as well as by Elisa Giannone.

Also relevant is the paper by Ryan A. Decker and others, cited by Tyler Cowen.

Disaggregating the economy: online prices

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At the AEA session on measuring well-being, Austan Goolsbee and Pete Klenow write in an abstract,

We use transactions-level data from Adobe Analytics to analyze inflation online vs. offline. Online inflation from 2014-2017 period averaged about 100 basis points lower than inflation in the CPI for the same categories. Entry and exit of new product varieties is extremely important in most online categories (but less so in food and grocery). Data on quantities is particularly important because the entry and exit rates vary with product sales. The increased variety of products sold online implies an additional 100 basis points of lower inflation than in the matched model/CPI style indices.

In my view “the” inflation rate is an increasingly dubious concept. People can argue forever about whether true inflation is really much lower or much higher than what the CPI indicates.

Because we do not know the true inflation rate, we do not know the true real interest rate or the true growth rate of real wages. Not to mention the fact that there is no such thing as “the” wage rate, given the divergence in wage behavior across different categories of workers.