Category Archives: Economy

The labor market in the US, 2000−2016

Source: Daniel S. Hamermesh, IZA World of Labor, April 2017

Recovery from the Great Recession is essentially complete, but there are difficult unemployment and wage issues

From the blog post:
A new IZA World of Labor report looking at the US labor market (2000-2016) finds a remarkable drop in the labor force participation rate; the nearly full recovery of unemployment from the depths of the Great Recession; and the continuing growth in post-inflation average earnings while earnings inequality continues to rise.

The report by IZA Network Coordinator Dan Hamermesh (Royal Holloway, University of London) looks at the development of the American labor market since before the 2001 recession. In the aggregate the US labor market is doing quite well today. Unemployment is currently below 5%, and real weekly earnings of full-time workers increased from the 2000 cyclical peak to the current period of near full employment.
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The Closing of the Jobs Gap: A Decade of Recession and Recovery

Source: Diane Whitmore Schanzenbach, Ryan Nunn, Lauren Bauer, Audrey Breitwieser, Brookings Institution, Hamilton Project, Economic Analysis, August 4, 2017

From the summary:
The Great Recession caused labor market devastation on a scale not seen for many decades. Millions of jobs were lost in the United States during 2008 and 2009, leaving the labor market with a hard road to recovery. Indeed, that recovery has required many years of job growth, and it was only in April 2014 that total employment reached its pre-recession level.

However, this milestone did not mark a return to pre-recession labor market conditions. Because the U.S. population is growing, simply reaching the previous number of jobs is not sufficient to return to pre-recession employment rates. At the same time, more baby boomers have entered retirement, somewhat offsetting the effects of population growth and reducing the number of jobs needed for a full economic recovery.

In order to accurately track the progress of the labor market recovery, The Hamilton Project developed a measure of labor market health—the “jobs gap”—that reflects changes in both the level and the demographic composition of the U.S. population (more details regarding the jobs gap methodology are provided in appendix A). Beginning in May of 2010, The Hamilton Project has calculated the number of jobs needed to return to the national employment rate prior to the Great Recession, accounting for population growth and aging.

Redefining Economic Development Performance Indicators for a Field in Transition

Source: Center for Regional Economic Competitiveness (CREC), July 2017

…State economic development leaders have embraced the need to report program outcomes to demonstrate the impact of their efforts but seek better indicators to measure those outcomes. This paper, Redefining Economic Development Performance Indicators for a Field in Transition, identifies a set of metrics beyond jobs and investment tallies to capture the broader benefits of economic development initiatives. This effort reflects an ongoing transition within economic development as the field moves from a recession-driven emphasis on job creation via business attraction and retention to a focus on wealth generation and asset building, especially among communities that have not enjoyed the benefits of economic recovery. Accordingly, this paper examines metrics that capture a wider approach to economic development by focusing on indicators related to job quality/worker prosperity and business dynamics….

The Better Care Reconciliation Act: Economic and Employment Consequences for States

Source: Leighton Ku, Erika Steinmetz, Erin Brantley, Nikhil Holla, Brian Bruen, Center for Health Policy Research, Department of Health Policy and Management, Milken Institute School of Public Health, George Washington University, July 2017

From the abstract:
Issue: A draft Better Care Reconciliation Act (BCRA) has been introduced in the U.S. Senate as an alternative to the American Health Care Act (AHCA), which was passed by the House of Representatives on May 4, 2017. The Congressional Budget Office estimates the BCRA would raise the number of uninsured by 22 million by 2026.

Goal: To determine the consequences of the draft BCRA on employment and economic activity in every state. This report updates an earlier analysis of the effects of the AHCA.

Methods: We compute changes in federal spending and revenue from 2018 to 2026 for each state and use the PI+ model to project the effects on states’ employment and economies.

Findings and Conclusions: While the draft BCRA and the AHCA would have similar effects on the number of uninsured Americans, the BCRA would lead to significantly larger job losses and deeper reductions in states’ economies by 2026. A brief spurt in employment would add 753,000 more jobs in 2018, but employment would then deteriorate sharply. By 2026, 1.45 million fewer jobs would exist, compared to levels under the current law. Every state except Hawaii would have fewer jobs and a weaker economy. Employment in health care would be especially hard hit with 919,000 fewer health jobs, but other employment sectors lose jobs too. Gross state products would be $162 billion lower in 2026. States that expanded Medicaid would be especially hard hit.

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The Immigration Effect

Source: Lena Groeger, ProPublica, July 19, 2017

There’s a Way for President Trump to Boost the Economy by Four Percent, But He Probably Won’t Like It.

President Trump has promised to increase U.S. economic growth – in fact, he’s banking on it. The budget he proposed to Congress in May assumes a 3 percent growth rate, and the White House website promises a return to 4 percent annual economic growth. Both predictions are far higher than the roughly 2 percent growth rate assumed by the Congressional Budget Office or the Federal Reserve.

In fact, most economists doubt that a 3 to 4 percent growth rate is possible at all without some fundamental policy shift. Sustained periods of such high growth haven’t occurred since the tech boom of the 1990’s and, before that, the baby boomers entering the workforce in the 1960’s. But according to a new analysis, there is a quick route to high growth: a massive increase in immigration.

In an analysis for ProPublica, Adam Ozimek and Mark Zandi at Moody’s Analytics, an independent economics firm, estimated that for every 1 percent increase in U.S. population made of immigrants, GDP rises 1.15 percent. So a simple way to get to Trump’s 4 percent GDP bump? Take in about 8 million net immigrants per year. To show you what that really looks like, we’ve charted the effect below. You can see for yourself what might happen to the economy if we increased immigration to the highest rates in history or dropped it to zero – and everything in between….

Special Issue: Reforming State and Local Tax Systems

Source: Public Finance Review, Volume: 45, Number: 4, July 2017
(subscription required)

From the introduction:
State tax reform is fundamentally different than federal tax reform. States are continually modifying their taxes to meet revenue challenges and to cope with the changing structure of the national and regional economy. Most state tax reforms are modest affairs and not major rewrites of the tax codes. Reforms must consider the existing institutional structure of the state, state economic policies, and current state politics. Nonetheless, there are some common themes in reforms across the states, including an expansion of the sales tax base to include services and a broadening of the base for income taxation.

Articles include:
What Drives State Tax Reforms?
James Alm, Trey Dronyk-Trosper, Steven M. Sheffrin

State tax reform is fundamentally different than federal tax reform. States are continually modifying their taxes to meet revenue challenges and to cope with the changing structure of the national and regional economy. Most state tax reforms are modest affairs and not major rewrites of the tax codes. Reforms must consider the existing institutional structure of the state, state economic policies, and current state politics. Nonetheless, there are some common themes in reforms across the states, including an expansion of the sales tax base to include services and a broadening of the base for income taxation.

Personal Income Tax Revenue Growth and Volatility: Lessons and Insights from Utah Tax Reform

Gary C. Cornia, R. Bruce Johnson, Ray D. Nelson

In order to reduce the volatility of the personal income tax in Utah, review and reform efforts recommended a simple flat tax that disallowed all deductions or exemptions. Among the reasons for the recommended flat tax was the argument that it would result in a more stable year-over-year tax revenue stream. This was especially important for education financing. The tax system that was finally adopted retained exemptions and deductions through a tax credit. Using a series of simulations based on twenty-one years of tax returns, we establish that by retaining exemptions and deductions, tax reform efforts failed to appreciably reduce the volatility of personal income tax revenues. These simulations also show that the initially proposed flat income tax with no exemptions or deductions would have decreased volatility at the cost of reducing the growth rate. This study contributes insights, caveats, methodology, and potential alternatives for future individual income tax reforms by focusing on the growth and volatility of three different tax systems.

Reducing Property Taxes on Homeowners: An Analysis Using Computable General Equilibrium and Microsimulation Models
Andrew Feltenstein, Mark Rider, David L. Sjoquist, John V. Winters

We consider a proposal that reduces by half the taxes on homesteaded properties and replaces the lost revenue by increasing the base and rate of the state sales tax. We develop a computable general equilibrium (CGE) model and a microsimulation model (MSM) to analyze the economic and welfare effects of such a proposal if adopted in Georgia. The results from the CGE model suggest that the proposed reforms have a substantial negative effect in percentage terms on Georgia’s economy. The MSM suggests that such a policy has no effect on the distribution of consumption by income class but increases the percentage of owner-occupied housing relative to rental housing by 20 percent in the aggregate.

Does Perception of Gas Tax Paid Influence Support for Funding Highway Improvements?
Ronald C. Fisher, Robert W. Wassmer

The issue for this research is whether perception of the rate and amount of fuel taxes paid by an individual influences his or her support for funding highway improvements from any source of revenue. A survey of likely California and Michigan voters demonstrates that they often overestimate the rate of their state’s gasoline excise tax and the subsequent amount they are likely to pay for this tax in a month. Regression analyses show that voter misperceptions concerning the magnitude of state fuel taxes affect their views regarding an increase in funding to support highway investment proposals. A reasonable policy implication is that the adoption of proposals to generate additional funds for highway investment is more likely if accompanied by a campaign identifying the existing rate of the state’s gasoline excise tax and the relatively small amount of this tax paid by the state’s typical driver.

State Export Promotion and Firm-level Employment
Andrew J. Cassey, Spencer Cohen

Most US states have export promotion programs, but it is unknown if these programs create long-term employment, which is often the policy’s stated goal. We merge administrative export promotion and employment data from Washington State to test the effect of firm-level export promotion on firm-level employment using the differences-in-differences estimator. We believe we are the first to have US state data at this level of detail. We find firm participation in an export assistance program increases firm-level employment fleetingly, but not in subsequent periods. Thus, we do not find a statistically significant impact to long-term employment from program participation.

Protecting the Vulnerable or Ripe for Reform? State Income Tax Breaks for the Elderly—Then and Now
Ben Brewer, Karen Smith Conway, Jonathan C. Rork

State governments have a long history of providing income tax relief to their elderly constituents. Our research investigates the current distributional and revenue effects of these tax breaks, as well as the economic status of the elderly, and explores how these measures have changed since 1990. Using data from the 1990 Integrated Public Use Microdata Series and the 2013 American Community Survey, combined with the TAXSIM calculator, we calculate current state income tax liabilities and revenues and simulate the effects of removing all age-related tax breaks. Our analyses reveal that the economic well-being of the elderly has grown substantially relative to the nonelderly and that state tax breaks primarily benefit the middle- and upper-income elderly. Revenue costs of these tax breaks have also grown substantially, and their modest and mixed effects on income equality, measured by changes in the Gini, cast doubt on equity as a justification.

States With the Best and Worst Economies

Source: Samuel Stebbins, Thomas C. Frohlich, Evan Comen and Michael B. Sauter, 24/7 Wall St., June 27, 2017

Is your state a drag on the American economy or a boon? The 50 states — as diverse as they are — each contribute something to the U.S. economy. Because of their diversity, state economies rarely trend in unison. GDP growth is often the default measure for economic strength, but it often fails to tell the whole story. Unemployment, poverty, job growth, and education among other factors can also play a part in defining the strength of an economy.

Economic vitality is as much about growth as it is about the state’s ability to support its population — with jobs, education, economic opportunities and more. In turn, employed, better-paid, and better-educated residents of a state further contribute to economic growth.

24/7 Wall St. reviewed economic growth, poverty, unemployment, job growth, and college attainment rates nationwide to compare and rank each state’s economy. As a result, the best ranked states tend to have fast-growing economies, low poverty and unemployment, high job growth, and a relatively well-educated workforce, while the opposite is generally the case among states with the worst ranked economies. ….

Employment, Hours, and Earnings Consequences of Job Loss: US Evidence from the Displaced Workers Survey

Source: Henry S. Farber, Journal of Labor Economics 35, no. S1, July 2017
(subscription required)

From the abstract:
Data are used from the 1984–2016 Displaced Workers Surveys (DWS) to investigate the incidence and consequences of job loss, 1981–2015. These data show a record high rate of job loss in the Great Recession, with serious employment consequences for job losers, including very low rates of re-employment and difficulty finding full-time employment. The average reduction in weekly earnings for job losers making a full-time–full-time transition are relatively small, with a substantial minority reporting earning more on their new job than on the lost job. Most of the cost of job loss comes from difficulty finding new full-time employment.

Index of State Economic Momentum

Source: State Policy Reports, Volume 35, Issue 12, June 2017
(subscription required)

The Index of State Economic Momentum, developed by Reports founding editor Hal Hovey, ranks states based on their most recent performance in three key measures of economic vitality: personal income growth, employment growth, and population growth. Reports updates the index each quarter. In the second quarter of 2017, Virginia most closely approximated the national average economic performance.