Category Archives: Economy

State Taxation and the Reallocation of Business Activity: Evidence from Establishment-Level Data

Source: Xavier Giroud, Joshua D. Rauh, US Census Bureau Center for Economic Studies Paper No. CES-WP-17-02, January 11, 2017

From the abstract:
Using Census microdata on multi-state firms, we estimate the impact of state taxes on business activity. For C corporations, employment and the number of establishments have corporate tax elasticities of -0.4, and do not vary with changes in personal tax rates. Pass-through entity activities show tax elasticities of -0.2 to -0.3 with respect to personal tax rates, and are invariant with respect to corporate tax rates. Reallocation of productive resources to other states drives around half the effect. Capital shows similar patterns but is 36% less elastic than labor. The responses are strongest for firms in tradable and footloose industries.

Understanding the Economic Impact of the H-1B Program on the U.S.

Source: John Bound, Gaurav Khanna, Nicolas Morales, NBER Working Paper No. 23153, February 2017
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From the abstract:
Over the 1990s, the share of foreigners entering the US high-skill workforce grew rapidly. This migration potentially had a significant effect on US workers, consumers and firms. To study these effects, we construct a general equilibrium model of the US economy and calibrate it using data from 1994 to 2001. Built into the model are positive effects high skilled immigrants have on innovation. Counterfactual simulations based on our model suggest that immigration increased the overall welfare of US natives, and had significant distributional consequences. In the absence of immigration, wages for US computer scientists would have been 2.6% to 5.1% higher and employment in computer science for US workers would have been 6.1% to 10.8% higher in 2001. On the other hand, complements in production benefited substantially from immigration, and immigration also lowered prices and raised the output of IT goods by between 1.9% and 2.5%, thus benefiting consumers. Finally, firms in the IT sector also earned substantially higher profits due to immigration.
Using H-1B Visas To Help Outsource IT Work Draws Criticism, Scrutiny
Source: NPR, All Things Considered, February 13, 2017

Immigration Restrictions as Active Labor Market Policy: Evidence from the Mexican Bracero Exclusion

Source: Michael A. Clemens, Ethan G. Lewis, Hannah M. Postel, National Bureau of Economic Research, NBER Working Paper No. 23125, February 2017
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From the abstract:
An important class of active labor market policy has received little rigorous impact evaluation: immigration barriers intended to improve the terms of employment for domestic workers by deliberately shrinking the workforce. Recent advances in the theory of endogenous technical change suggest that such policies could have limited or even perverse labor-market effects, but empirical tests are scarce. We study a natural experiment that excluded almost half a million Mexican ‘bracero’ seasonal agricultural workers from the United States, with the stated goal of raising wages and employment for domestic farm workers. We build a simple model to clarify how the labor-market effects of bracero exclusion depend on assumptions about production technology, and test it by collecting novel archival data on the bracero program that allow us to measure state-level exposure to exclusion for the first time. We cannot reject the hypothesis that bracero exclusion had no effect on U.S. agricultural wages or employment, and find that important mechanisms for this result include both adoption of less labor-intensive technologies and shifts in crop mix.

Repealing the Affordable Care Act would cost jobs in every state

Source: Josh Bivens, Economic Policy Institute, January 31, 2017

From the press release:
A new report by EPI Research Director Josh Bivens finds that repealing the Affordable Care Act (ACA) will cost the economy 1.2 million jobs in 2019, with jobs lost in every state. The report looks at the effects of cuts to both spending and taxes that would occur under a full repeal.

The $109 billion in spending cuts would have a disproportionally negative effect on states with the highest share of low and middle-income families and those states that took up the ACA Medicaid expansion, while the $70 billion tax cuts would disproportionately benefit those states with the largest share of households in the top 1 percent. Because low- and moderate-income households tend to spend a much higher share of marginal increases in disposable income, the overall effect of ACA repeal would be less spending and slower demand growth across all states…..

The Budget and Economic Outlook: 2017 to 2027

Source: Christina Hawley Anthony, Barry Blom, Nathaniel Frentz and Joshua Shakin, Charles Whalen and Christopher Williams, Amber Marcellino, Pamela Greene, Dan Ready, Nathaniel Frentz, Claire Sleigh, Congressional Budget Office, pub. number 52370, January 2017

From the summary:
CBO projects that, under current law, the deficit in 2017 will total $559 billion (or 2.9 percent of GDP)—but over the next decade, budget deficits would eventually follow an upward trajectory, as growth in revenues would be outpaced by rising spending for retirement and health care programs that target older people and for interest on the federal debt.

Economic growth over the next 10 years is projected to remain close to its modest rate since the end of the recession in 2009. CBO expects that reduced slack in the economy will put upward pressure on inflation and interest rates. ….

An economy for the 99 percent: It’s time to build a human economy that benefits everyone, not just the privileged few

Source: Deborah Hardoon, Oxfam International, Briefing Paper, January 2017

From the abstract:
New estimates show that just eight men own the same wealth as the poorest half of the world. As growth benefits the richest, the rest of society – especially the poorest – suffers. The very design of our economies and the principles of our economics have taken us to this extreme, unsustainable and unjust point. Our economy must stop excessively rewarding those at the top and start working for all people. Accountable and visionary governments, businesses that work in the interests of workers and producers, a valued environment, women’s rights and a strong system of fair taxation, are central to this more human economy.
Press Release

Evidence from states shows why Trump’s brand of Carrier-style dealmaking won’t work

Source: Joshua Jansa, The Conversation, January 9, 2017

In late November, President-elect Donald Trump announced that he had reached a deal with Carrier to keep about 800 manufacturing jobs in Indiana from moving to Mexico. After the announcement, we learned that the Indiana Economic Development Corporation would give US$7 million in tax credits and grants to Carrier’s parent company in exchange for keeping the jobs in the state.

Trump proudly praised the agreement as a “great deal for workers” and said that it was part of a larger approach to keep jobs at home, saying “this is the way it’s going to be.”

Having the chief executive of the United States negotiate individualized deals with corporations is certainly a new approach to economic policy nationally, though it is not without precedent. In fact, state governments have been negotiating targeted incentives with corporations for decades.

My research focuses on why states use incentives to attract and retain investment from corporations and whether they are effective. My work, as well as that of many others, shows that these deals do not create the jobs and economic growth they are purported to…..

Evidence from a Minimum Wage Experiment

Source: John J. Horton, New York University – Leonard N. Stern School of Business, January 10, 2017

Firms posting job openings in an online labor market were randomly assigned minimum hourly wages. When facing a minimum wage, fewer firms made a hire, but those workers they did hire were paid a higher wage. However, the reduction in hiring was not large, even at the highest minimum wage imposed. In contrast, minimum wages substantially reduced hours-worked, across cells. Firms facing a higher minimum wage also hired more productive workers, which can explain, in part, the reduction in hours-worked: with more productive workers, projects were simply completed in less time. This labor-labor substitution margin of adjustment would presumably be less effective in equilibrium, if all firms sought out more productive workers. However, using the platform’s imposition of a market-wide minimum wage after the experiment, I find that many of the experimental results also hold in equilibrium, including the labor-labor substitution towards more productive workers.

New index of economic marginalisation helps explain Trump, Brexit and alt.right

Source: Andrew Cumbers, The Conversation, January 12, 2017

….Much has been said about the crisis of liberal political democracy, but these trends look inextricably linked with what is sometimes referred to as economic democracy. This is about how well dispersed economic decision-making power is and how much control and financial security people have over their lives. I’ve been involved in a project to look at how this compares between different countries. The results say much about the point we have reached, and where we might be heading in future.

Our economic democracy index looked at 32 countries in the OECD (omitting Turkey and Mexico, which had too much missing data). While economic democracy tends to focus on levels of trade union influence and the extent of cooperative ownership in a country, we wanted to take in other relevant factors.

We added three additional indicators: “workplace and employment rights”; “distribution of economic decision-making powers”, including everything from the strength of the financial sector to the extent to which tax powers are centralised; and “transparency and democratic engagement in macroeconomic decision-making”, which takes in corruption, accountability, central bank transparency and different social partners’ involvement in shaping policy…..

….The index provides strong evidence that xenophobic politics may be linked to changing levels of economic participation and empowerment – notwithstanding the French data. We found that the greater the poverty and inequality in a country, the lower the rates of economic democracy.

These findings suggest, for example, that the Anglo-American-led attack on trade unions and flexible labour policies may actually drive up poverty and inequality by cutting welfare benefits and driving up individual employment insecurity. While the OECD itself advocated these policies until recently, countries with high levels of economic democracy such as Norway, Denmark and Iceland have much lower levels of poverty than countries such as the US and UK…..
Democratising the economy: Transforming Public Policy Through Economic Democracy