Category Archives: Economy

New York City’s $15 Minimum Wage and Restaurant Employment and Earnings

Source: Lina Moe, James Parrott, Yannet Lathrop, Center for New York City Affairs at The New School and the National Employment Law Project, August 2019

From the press release:
Five years after New York State passed the first of several laws to gradually raise its minimum wage to $15 an hour, New York City’s restaurant industry continues to thrive, with strong growth in restaurant industry employment, wages, and the number of establishments around the city, according to a new report released today by the Center for New York City Affairs at The New School and the National Employment Law Project.

The report’s findings of a prospering restaurant industry are in sharp contrast to the “sky is falling” rhetoric of industry lobbyists who warned of massive job losses, $20 Big Macs, and shuttered restaurants. The report offers a first-of-its-kind assessment of restaurant employment and earnings over the entire period of the city’s historic minimum wage increases, during which the wage floor rose from $7.25 to $15.00 an hour.

The restaurant industry has the highest proportion of workers affected by the minimum wage of any industry. Researchers analyzed comprehensive employment, wage, and restaurant establishment data between 2013 and 2018 to assess the impact of the higher minimum wage on New York City’s restaurant industry. They found that during this period, New York City saw a strong economic expansion of the restaurant industry, outpacing national growth in employment, annual wages, and the number of both limited- and full-service restaurant establishments…..

U.S. Investment Since the Tax Cuts and Jobs Act of 2017

Source: Emanuel Kopp, Daniel Leigh, Susanna Mursula, Suchanan Tambunlertchai, International Monetary Fund (IMF), IMF Working Paper No. 19/120, May 2019

From the abstract:
There is no consensus on how strongly the Tax Cuts and Jobs Act (TCJA) has stimulated U.S. private fixed investment. Some argue that the business tax provisions spurred investment by cutting the cost of capital. Others see the TCJA primarily as a windfall for shareholders. We find that U.S. business investment since 2017 has grown strongly compared to pre-TCJA forecasts and that the overriding factor driving it has been the strength of expected aggregate demand. Investment has, so far, fallen short of predictions based on the postwar relation with tax cuts. Model simulations and firm-level data suggest that much of this weaker response reflects a lower sensitivity of investment to tax policy changes in the current environment of greater corporate market power. Economic policy uncertainty in 2018 played a relatively small role in dampening investment growth.

Stranded! How Rising Inequality Suppressed Us Migration and Hurt Those Left Behind

Source: Tamim Bayoumi, Jelle Barkema, International Monetary Fund (IMF), IMF Working Paper No. 19/122, June 2019

From the abstract:
Using bilateral data on migration across US metro areas, we find strong evidence that increasing house price and income inequality has reduced long distance migration, the type most linked to jobs. For those migrating uphill, from a less to a more prosperous location, lower mobility is driven by increasing house price inequlity, as the disincentives from higher house prices dominate the incentives from higher earnings. By contrast, increasing income inequality drives the fall in downhill migration as the disincentives from lower earnings dominate the incentives from lower house prices. The model underlines the plight of those trapped in decaying metro areas-those ‘left behind’.

Voices from an age of uncertain work – Americans miss stability and a shared sense of purpose in their jobs

Source: David L. Blustein, The Conversation, July 18, 2019

On the surface, the well-being of the American worker seems rosy.
Unemployment in the U.S. hovers near a 50-year low, and employers describe growing shortages of workers in a wide array of fields.

But looking beyond the numbers tells a different story. My new book, “The Importance of Work in an Age of Uncertainty,” reveals that some Americans are experiencing an erosion in the world of work that is hurting their well-being, relationships and hopes for the future.

We can’t simply blame the rise of the gig economy. It’s also a result of a growing impermanence in the U.S. economy, with more short-term jobs that lack security and decent benefits. At the same time, worker wages continue to stagnate, which underscores the breadth of the problem.

Financial Frictions and Stimulative Effects of Temporary Corporate Tax Cuts

Source: William Gbohoui, Rui Castro, IMF Working Paper No. 19/97, May 2019

From the abstract:
This paper uses an industry equilibrium model where some firms are financially constrained to quantify the effects of a transitory corporate tax cut funded by a future tax increase on the U.S. economy. It finds that by increasing current cash-flows tax cuts alleviate financing frictions, hereby stimulating current investment. Per dollar of tax stimulus, aggregate investment increases by 26 cents on impact, and aggregate output by 3.5 cents. The average effect masks heterogeneity: multipliers are close to 1 for constrained firms, especially new entrants, and negative for larger and unconstrained firms. The output effects extend well past the period the policy is reversed, leading to a cumulative multiplier of 7.2 cents. Multipliers are significantly larger when controlling for the investment crowding-out effect among unconstrained firms.

The ‘giant sucking sound’ of NAFTA: Ross Perot was ridiculed as alarmist in 1992 but his warning turned out to be prescient

Source: Harley Shaiken, The Conversation, July 12, 2019

…. As it turns out, Perot, who died on July 9, had a point. His projections were often fanciful, but his warning turned out to be prescient. ….

…. “You implement that NAFTA, the Mexican trade agreement, where they pay people a dollar an hour, have no health care, no retirement, no pollution controls,” Perot said during the second presidential debate in October 1992, “and you’re going to hear a giant sucking sound of jobs being pulled out of this country.”

The response to that remark was fierce and immediate. Economists argued he was dead wrong as they sang the praises of free trade. Perot’s warning, however, resonated with workers, unions, environmentalists and people in manufacturing towns across the country, helping him earn 20 million votes or about 19% of the total. ….

…..Scholars and policymakers often disagree about the impact that NAFTA has had on economic growth and job generation in the U.S. That impact, they say, is not always easy to disentangle from other economic, social and political factors that have influenced U.S. growth.

It is true that leaders of all three countries did tear down trade barriers and insert effective protections for corporations and investment. But critics like Perot were right – and Clinton was wrong – about the warning on jobs.

The Economic Policy Institute, a left-leaning think tank, concluded that the U.S. lost about 850,000 jobs from 1993 to 2013 as a result of NAFTA and that number has undoubtedly risen. And the “social progress as well as economic growth” in relation to the agreement never seemed to appear. Despite strong productivity growth in U.S. and Mexican manufacturing, real wages sank by 17% in Mexico from 1994 to 2011 and slid in the U.S. as well. ….

Calculation and Corporate Tax Incentives

Source: Rosolino Candela, Peter Jacobsen, GMU Working Paper in Economics No. 19-21, July 1, 2019

From the abstract:
Amazon’s HQ2 campaign drew both large support at the possibility of job creation and backlash for perceived cronyism. In this paper we evaluate corporate tax incentive policies in light of the Austrian contribution to the problem of economic calculation. In doing so we highlight the contextual nature of the knowledge problem associated with policy packages and the potential cronyism arising from such a problem. We argue that because political decision-makers lack the knowledge generated via competition in the market process, they are unable to allocate resources in a way that achieves economic growth. In the place of this knowledge, they tend to gain knowledge from the political process which helps them respond to political incentives and rent-seeking behavior by special-interest groups.

Everything but the Kitchen Sink? Factors Associated With Local Economic Development Strategy Use

Source: Jonathan Q. Morgan, Michele M. Hoyman, Jamie R. McCall, Economic Development Quarterly, OnlineFirst, Published June 28, 2019
(subscription required)

From the abstract:
Rubin (1988) argued communities “shoot anything that flies and claim anything that falls” in their efforts to attract businesses. Such a perspective implies local governments will use large numbers of strategies as they try “everything but the kitchen sink” to promote job creation and private investment. Conversely, Stokan (2003) claims localities are more selective in how they approach economic development, which implies there should be wide variation in the number of development strategies used across jurisdictions. Based on original survey data from North Carolina cities and counties of all sizes, the findings provide support for both explanations. The data show localities vary considerably with respect to the number of strategies they employ. Notably, variation in strategy use is associated with certain community characteristics including government capacity and development network strength. However, the data also reveal that communities are, on average, utilizing a relatively high number of strategies, lending some credence to Rubin’s theory.

Where jobs are concentrating and why it matters to cities and regions

Source: Chad Shearer, Jennifer S. Vey, and Joanne Kim, Brookings, June 18, 2019

From the blog post:
The relationship between place and economy is constantly evolving, and continually shaping the growth, development, and decay of our communities. Today, new ideas and innovations are fostering the creation of products and services that increase productivity and raise overall standards of living. But this digital revolution is also benefiting some industries, workers, and communities over others.

This report aims to help leaders and local stakeholders understand how the changing demands for place are shifting the concentration and dispersal of economic activity within 94 large metropolitan areas from 2004 to 2015—a period of dramatic urban and economic change.

The findings suggest a need for local leaders to embrace policies and investment strategies that advance more concentrated growth patterns, while also supporting transformative placemaking solutions that help such dense places become vibrant communities where businesses and workers thrive.

Related:
Press release
Data appendix

Americans Aren’t So Optimistic About Economic Mobility

Source: James Devitt, Futurity, June 25, 2019

Americans overestimate the future income for children from wealthy and middle-income families, but underestimate that of children from poor ones, according to a new study.

Related:
Americans overestimate the intergenerational persistence in income ranks
Source: Siwei Cheng and Fangqi Wen, Proceedings of the National Academy of Sciences (PNAS), first published June 24, 2019
(subscription required)

Significance
Intergenerational mobility indicates the openness within a society. The question of how Americans think about socioeconomic mobility prospects is drawing growing attention from scholars and policy makers. Our study proposes a survey instrument that connects the empirical literature on patterns of mobility with the literature on the public perceptions of mobility. With large-scale, population-representative data, we show that Americans overestimate the intergenerational persistence in income ranks. That is, they tend to see greater inequality of economic prospects between children from rich and poor families. These results highlight the need for policy and political solutions that seriously engage with Americans’ concerns about the equality of opportunity in the society.

Abstract
Recent research suggests that intergenerational income mobility has remained low and stable in America, but popular discourse routinely assumes that Americans are optimistic about mobility prospects in society. Examining these 2 seemingly contradictory observations requires a careful measurement of the public’s perceptions of mobility. Unlike most previous work that measures perceptions about mobility outcomes for the overall population or certain subgroups, we propose a survey instrument that emphasizes the variation in perceived mobility prospects for hypothetical children across parent income ranks. Based on this survey instrument, we derive the perceived relationship between the income ranks of parents and children, which can then be compared against the actual rank–rank relationship reported by empirical work based on tax data. We fielded this instrument in a general population survey experiment (n = 3,077). Our results suggest that Americans overestimate the intergenerational persistence in income ranks. They overestimate economic prospects for children from rich families and underestimate economic prospects for those from poor families.