Category Archives: Economy

Tax Incentives and Business Climate: Executive Perceptions From Incented and Nonincented Firms

Source: G. Jason Jolley, Mandee Foushee Lancaster, and Jiang Gao, Economic Development Quarterly, Vol. 29 no. 2, May 2015
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From the abstract:
Executive surveys ranking business climate factors have become commonplace in site selection publications. However, these rankings rarely examine if the surveyed firms are receiving economic development incentives and whether or not these incentives influence business climate perceptions. This research note examines the differences in business climate perceptions in North Carolina between executives in companies receiving tax credits for business investment and job creation activities and executives in companies not receiving tax credits. Both groups rank the availability of skilled labor as the primary factor influencing business climate. In addition, executives in both groups prefer overall tax reductions rather than select tax incentives to improve the state’s economy. Contrary to the belief among many economic development practitioners that tax credits are a motivating factor for firms to engage in economic development, only 30% of executives in incented companies were aware that their company had received a state economic development tax credit.

Are Immigrants a Shot in the Arm for the Local Economy?

Source: Gihoon Hong, John McLaren, National Bureau of Economic Research (NBER), NBER Working Paper No. 21123, April 2015
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From the abstract:
Most research on the effects of immigration focuses on the effects of immigrants as adding to the supply of labor. By contrast, this paper studies the effects of immigrants on local labor demand, due to the increase in consumer demand for local services created by immigrants. This effect can attenuate downward pressure from immigrants on non-immigrants’ wages, and also benefit non-immigrants by increasing the variety of local services available. For this reason, immigrants can raise native workers’ real wages, and each immigrant could create more than one job. Using US Census data from 1980 to 2000, we find considerable evidence for these effects: Each immigrant creates 1.2 local jobs for local workers, most of them going to native workers, and 62% of these jobs are in non-traded services. Immigrants appear to raise local non-tradables sector wages and to attract native-born workers from elsewhere in the country. Overall, it appears that local workers benefit from the arrival of more immigrants.

CES employment recovers in 2014

Source: John P. Mullins, Brittney E. Forbes, U.S. Bureau of Labor Statistics, Monthly Labor Review, April 2015

U.S. nonfarm payroll employment continued to grow steadily in 2014, adding 3.1 million jobs, according to the Current Employment Statistics (CES) survey. This article uses CES data to discuss how private and public industry employment, hours, and earnings changed over the year. Job gains in 2014 were widespread across industries, with all broad industry groups experiencing employment increases. Employment growth was concentrated in the service-providing sector and led by industries that have been adding jobs for some time. However, even goods-producing industries saw an uptick in employment growth over the year.

Robots: Curse or Blessing? A Basic Framework

Source: Jeffrey D. Sachs, Seth Benzell, Guillermo LaGarda, National Bureau of Economic Research (NBER), NBER Working Paper No. w21091, April 2015
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From the abstract:
Do robots raise or lower economic well-being? On the one hand, they raise output and bring more goods and services into reach. On the other hand, they eliminate jobs, shift investments away from machines that complement labor, lower wages, and immiserize workers who cannot compete. The net effect of these offsetting forces is unclear. This paper seeks to clarify how economic outcomes, positive or negative, depend both on specific parameters of the economy and public policy. We find that a rise in robotic productivity is more likely to lower the welfare of young workers and future generations when the saving rate is low, automatable and non-automatable goods are more substitutable in consumption, and when traditional capital is a more important complement to labor. In some parameterizations the relationship of utility to robotic productivity follows a “noisy U” as large innovations are long-run welfare improving even though small innovations are immiserizing. Policies that redistribute income across generations can ensure that a rise in robotic productivity benefits all generations.

U.S. Labor: Satisfying Foreign Investors’ Needs

Source: Steve Stackhouse-Kaelble, Area Development, Location USA, 2015

Although the labor environment varies from state to state, foreign companies choosing a U.S. location are finding competitive wage rates, quality training resources, and workers eager to join their labor forces….

… Unionization and Right-to-Work Laws
That understanding begins with the acknowledgment that the United States is a collection of 50 states, with widely varying characteristics and regulatory environments. That’s not a bad thing, of course, because global site selectors have just as widely varying requirements. Consider the subject of unionization. “Some want to have an open shop, some like to have unions, and some are neutral and have to bring that neutrality here,” Thuston says….

….“Right-to-work” laws tend to drive down unionization rates, which may in turn lead to lower wage rates. Be that as it may, cheaper labor isn’t everything, he says. “What companies are looking for is not necessarily the lowest labor cost, but dependability and the capability of delivering quality.”
Lewin adds that while many companies — including many of the non-U.S. automakers that have sought U.S. sites in recent years — instinctively seek to avoid unionization, others feel less threatened by organized labor. “You can run a unionized operation and do very well in business. In some industries the highest-performing companies are highly unionized.” …

The Job Opportunity Cost of War

Source: Heidi Garrett-Peltier, Brown University, Watson Institute for International Studies, August 19, 2014

Wars stimulate economic activity by increasing the demand for goods and services needed by the military. Increased demand for weapons systems, munitions, uniforms, and vehicles spurs an increase in manufacturing. However, wars also entail opportunity costs: by mobilizing military personnel and stimulating war-related activity, we forgo opportunities to stimulate other types of economic activities, such as manufacturing clean energy or expanding access to education. In this paper I examine the opportunity costs of war. Specifically, I present estimates of lost employment opportunities: the difference between the number of jobs created by U.S. federal spending on wars since 2001 and the number of jobs that could have been created through other types of federal spending. I show that federal spending dedicated to fighting wars over the past 14 years has resulted in lost employment opportunities of between one and three million jobs….We find that for each $1 billion of federal spending, fewer jobs are created by spending on the military than on any other area in our study. While $1 billion creates 1,200 military-related jobs (direct, indirect, and induced, described below), the same level of spending creates 15,100 jobs through tax cuts for personal consumption, 16,800 jobs in clean energy, 17,200 jobs in health care, and 26,700 jobs in education. In other words, clean energy and health care spending create 50% more jobs than the equivalent amount of spending on the military. Education spending creates more than twice as many jobs….
The Costs of War Project

Capital Tax Reform and the Real Economy: The Effects of the 2003 Dividend Tax Cut

Source: Danny Yagan, National Bureau of Economic Research (NBER), NBER Working Paper No. w21003, March 2015
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From the abstract:
Policymakers frequently propose to use capital tax reform to stimulate investment and increase labor earnings. This paper tests for such real impacts of the 2003 dividend tax cut — one of the largest reforms ever to a U.S. capital tax rate — using a quasi-experimental design and a large sample of U.S. corporate tax returns from years 1996-2008. I estimate that the tax cut caused zero change in corporate investment, with an upper bound elasticity with respect to one minus the top statutory tax rate of .08 and an upper bound effect size of .03 standard deviations. This null result is robust across specifications, samples, and investment measures. I similarly find no impact on employee compensation. The lack of detectable real effects contrasts with an immediate impact on financial payouts to shareholders. Economically, the findings challenge leading estimates of the cost-of-capital elasticity of investment, or undermine models in which dividend tax reforms affect the cost of capital. Either way, it may be difficult for policymakers to implement an alternative dividend tax cut that has substantially larger near-term effects.

Why are American Workers Getting Poorer? China, Trade and Offshoring

Source: Avraham Ebenstein, Ann E. Harrison, Margaret McMillan, National Bureau of Economic Research (NBER), NBER Working Paper No. w21027, March 2015
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From the abstract:
We suggest that the impact of globalization on wages has been missed because its effects must be captured by analyzing occupational exposure to globalization. In this paper, we extend our previous work to include recent years (2003-2008), a period of increasing import penetration, China’s entry into the WTO, and growing US multinational employment abroad. We find significant effects of globalization, with offshoring to low wage countries and imports both associated with wage declines for US workers. We present evidence that globalization has led to the reallocation of workers away from high wage manufacturing jobs into other sectors and other occupations, with large declines in wages among workers who switch, explaining the large differences between industry and occupational analyses. While other research has focused primarily on China’s trade, we find that offshoring to China has also contributed to wage declines among US workers. However, the role of trade is quantitatively much more important. We also explore the impact of trade and offshoring on labor force participation rates. While offshoring to China has a negative impact on US labor force participation, other factors such as increasing computer use and substitution of capital for labor are significantly more important determinants of US employment rates across occupations.

Tax Cuts for Whom? Heterogeneous Effects of Income Tax Changes on Growth and Employment

Source: Owen M. Zidar, National Bureau of Economic Research (NBER), NBER Working Paper No. w21035, March 2015
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From the abstract:
This paper investigates how tax changes for different income groups affect aggregate economic activity. I construct a measure of who received (or paid for) tax changes in the postwar period using tax return data from NBER’s TAXSIM. I aggregate each tax change by income group and state. Variation in the income distribution across U.S. states and federal tax changes generate variation in regional tax shocks that I exploit to test for heterogeneous effects. I find that the positive relationship between tax cuts and employment growth is largely driven by tax cuts for lower-income groups and that the effect of tax cuts for the top 10% on employment growth is small.

Globalization and Protest Expansion

Source: Kyle Dodson, Social Problems, Volume 62 Issue 1, First published online: 18 March 2015
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From the abstract:
Evidence of protest expansion both in the United States and abroad has stimulated theoretical discussion of a “movement society,” with some arguing that protest activities are becoming a standard feature of democratic politics. In advancing this claim, many have highlighted the role of domestic factors—for example, generational change or economic affluence—without fully accounting for the possibility that international dynamics may play an important role as well. The lack of work is surprising not only because the trend in protest is international in scope, but also because work in comparative sociology suggests globalization may make an important contribution. This study addresses the empirical gap by examining how political globalization (as measured by memberships in international organizations) and economic globalization (as measured by trade activity and foreign investment) influence trends in protest participation. Using data from World Values Surveys of 37,716 respondents in 17 advanced democracies merged with data on several national and international indicators, this study examines how the probability of participating in protest has changed over time as a result of these two forms of globalization. The results of multivariate, multilevel analysis combined with simulations indicate that trends in political globalization have expanded protest activity, while trends in economic globalization have limited that expansion. These results suggest that social movement scholarship should continue to examine the implications of globalization for protest behavior and other social movement dynamics.