The Unassuming Economist

From a new CEP Discussion Paper:

“The US suffers from large regional disparities in employment-population ratios (from here on, “employment rates”) which have persisted for many decades (Kline and Moretti, 2013; Amior and Manning, 2018). Concern has grown about these inequities in light of the Great Recession and a secular decline in manufacturing employment (Kroft and Pope, 2014; Acemoglu et al., 2016), whose impact has been heavily concentrated geographically (Moretti, 2012; Autor, Dorn and Hanson, 2013). In principle, these disparities should be eliminated by regional mobility, but this has itself been in secular decline in recent decades (Molloy, Smith and Wozniak, 2011; Dao, Furceri and Loungani, 2017; Kaplan and Schulhofer-Wohl, 2017).

In the face of these challenges, it has famously been argued that foreign migration offers a remedy. Borjas (2001) claims that new immigrants “grease the wheels” of the labor market: given they have already incurred the fixed cost of moving, they are very responsive to regional differences in economic opportunity – and therefore accelerate local population adjustment.1 And in groundbreaking work on the Great Recession period, Cadena and Kovak (2016) argue further that foreign-born workers (or at least low skilled Mexicans) continue to “grease the wheels” even some years after arrival. In terms of policy, if migrants are indeed regionally flexible, forcibly dispersing them within receiving countries may actually hurt natives as well as the migrants themselves. Basso, Peri and Rahman (2017) have extended the hypothesis beyond geography: they find that immigration attenuates the impact of technical change on local skill differentials.

I revisit the original question of geographical adjustment using decadal US data spanning 722 commuting zones (CZs) and 50 years – and using an empirical model which explicitly accounts for dynamic adjustment. Remarkably, I find that foreign migrants (and specifically new arrivals) account for around half of the average population response to local demand shocks. But in areas better supplied by new migrants, population growth is not significantly larger nor more responsive to these shocks. I claim that foreign migration crowds out the contribution from internal mobility that would have materialized in the counterfactual. This is not to say that natives gain little from the contribution of foreign migration. As I argue below, undercoverage of unauthorized migrants in the census may overstate the crowding out effect – and understate the foreign contribution to adjustment. And in any case, conditional on the overall level of immigration, a regionally flexible migrant workforce may save natives from incurring potentially steep moving costs themselves. As Molloy, Smith and Wozniak (2017) suggest, this may in principle shed a more positive light on the decline in regional mobility since the 1980s.”

From a new ECB Research Bulletin:

“How beneficial is labour market flexibility – for instance, the ability to hire and fire workers – for firm growth? And how does such flexibility interact with a firm’s ability to obtain bank credit? This article provides evidence that less rigid employment protection benefits firms during times of scarce credit. We study the performance of credit constrained Spanish firms during the financial crisis of 2008-09, exploiting a firm-size-specific labour regulation that imposes more stringent employment protection on firms with more than 50 employees. We find that Spanish firms with fewer than 50 employees operating in sectors in which labour and capital are close substitutes grew faster during the financial crisis when exposed to a negative credit shock than similarly credit constrained but larger firms. This effect is more pronounced for firms that were more productive before the crisis, suggesting that flexible employment protection laws benefit otherwise healthy firms that are credit constrained, by enabling them to substitute labour for capital and continue growing.”

A new working paper introduces “an original panel dataset based on the text of country reports by the International Monetary Fund. It consists of a total of 2594 Article IV consultation and program review documents. The reports were published between 2004 and 2017 and cover 189 countries. The text of these reports provides a unique in-depth window into the IMF ‘s assessment of the most important macroeconomic issues. They provide indications of the perceived policy weaknesses, economic risks, ongoing reforms and implemented or neglected policy advice. Thus the content of IMF reports are widely used for qualitative and quantitative analysis in the economics, political science and IR literature.”

The paper also presents “three examples in applying text analytic techniques on the dataset to demonstrate and validate its application for research. First, [it] compares conventional measures of resource dependence with a metric based on term frequency in reports. ”

“Second, [it] analyzes mentions preceding reform events as a way to study reform intent.”

“Finally, [it] shows how mentions of keywords describing opposite fiscal policy stances mimic changes in IMF policy advice during the global financial crisis.”

From Conversable Economist:

“Imagine two people who have seemingly equal skills and background. They go to work for two different companies. However, one “superstar” company grows much faster, so that wages and opportunities in that company also grow much faster. Or they go to work in two different cities. One “superstar” urban economy grows much faster, so that wages and opportunities in that city also grow faster.

Of course, such patterns of unequal growth have always existed  to some extent. When evaluating a potential employer or location choice, people  have always taken into account the potential for joining a superstar performer. The interesting question is whether the gap between superstar and ordinary firms, or between superstar and ordinary cities, has been growing or changing over time. For example, some argue that the rise of superstar firms, and the resulting rise in between-firm performance and labor compentiation, can explain most of the rise in US income inequality.

The McKinsey Global Institute has a nice report summarizing past evidence and offering new evidence of their own in Superstars: The Dynamics of Firms, Sectors, and Cities Leading the Global Economy(October 2018). It’s written by a team led by James Manyika, Sree Ramaswamy,  Jacques Bughin, Jonathan Woetzel, Michael Birshan, and Zubin Nagpal. Short summary: Superstar firms and cities do seem to be widening their economic leadership gap, with the evidence that certain sectors are superstars seems weaker.

For superstar firms, the report notes:

“For firms, we analyze nearly 6,000 of the world’s largest public and private firms, each with annual revenues greater than $1 billion, that together make up 65 percent of global corporate pretax earnings. In this group, economic profit is distributed along a power curve, with the top 10 percent of firms capturing 80 percent of economic profit among companies with annual revenues greater than $1 billion. We label companies in this top 10 percent as superstar firms. The middle 80 percent of firms record near-zero economic profit in aggregate, while the bottom 10 percent destroys as much value as the top 10 percent creates. The top 1 percent by economic profit, the highest economic-value-creating firms in our sample, account for 36 percent of all economic profit for companies with annual revenues greater than $1 billion. Over the past 20 years, the gap has widened between superstar firms and median firms, and also between the bottom 10 percent and median firms. … The growth of economic profit at the top end of the distribution is thus mirrored at the bottom end by growing and increasingly persistent economic losses …”

 

Continue reading here.

On cross-country:

• Living and Leaving: Housing, Mobility and Welfare in the European Union – World Bank
• Why house prices in global cities are falling – Economist
• Comment – On building typologies of housing systems in the OECD – IDEAS

On the US:

• California Midterm Results: Funding for Affordable Housing and a Rent Control Defeat – New York Times
• Collateral Damage: The Impact of Foreclosures on New Home Mortgage Lending in the 1930s – NBER
• No boom, no bust in US housing – Financial Times
• Local Banks, Credit Supply, and House Prices – Federal Reserve Bank of New York
• Income Tax Expenditures for Housing and Homeownership – Tax Policy Center
• Housing America’s Older Adults 2018 – Harvard Joint Center for Housing Studies
• Housing Sentiment Continues Downward Trend Despite Favorable Economy – Fannie Mae
• Buy young, earn more: Buying a house before age 35 gives homeowners more bang for their buck – Urban Institute
• Consumer-Lending Discrimination in the Era of FinTech – UC Berkeley
• Supply Skepticism: Housing Supply and Affordability – NYU Furman Center
• Why Cities Must Tackle Single-Family Zoning – CityLab

On other countries:

• [Australia] Assessing the Effects of Housing Lending Policy Measures – Reserve Bank of Australia
• [China] A Fifth of China’s Homes Are Empty. That’s 50 Million Apartments – Bloomberg
• [France] New or old, why would housing price indices differ? An analysis for France – IDEAS
• [France] The impact of the 2014 increase in the real estate transfer taxes on the French housing market – IDEAS
• [France] Paris property benefits from Brexit bounce – Financial Times
• [France] Does issuing building permits reduce the cost of land? – Bourgogne Franche‑Comté
• [Italy] Home is where the ad is: online interest proxies housing demand – EPJ Data Science
• [Slovak Republic] Housing Policy in the Slovak Republic – Slovak University of Technology in Bratislava
• [Spain] La demanda sigue impulsando nuevos proyectos de inversión residencial – BBVA
• [United Kingdom] The collapse in public ownership of land – Financial Times

Photo by Aliis Sinisalu