Category Archives: Timothy Taylor is my Favorite Blogger

Did You Two Visit the Same Country?

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Timothy Taylor excerpts from the latest issue of the Journal of Economic Perspectives.

Steven N. Kaplan and Joshua Rauh write,

We believe that the US evidence on income and wealth shares for the top 1 percent is most consistent with a “superstar”-style explanation rooted in the importance of scale and skill-biased technological change. It is less consistent with an argument that the gains to the top 1 percent are rooted in greater managerial power or changes in social norms about what managers should earn.

Josh Bivens and Lawrence Mishel write,

the increase in the incomes and wages of the top 1 percent over the last three decades should be interpreted as driven largely by the creation and/or redistribution of economic rents, and not simply as the outcome of well-functioning competitive markets rewarding skills or productivity based on marginal differences.

As President Kennedy once asked two of his advisers on Vietnam, “You two did visit the same country, didn’t you?”

Fewer $20 Bills to Pick Up

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That is how Greg Kaplan and Sam Schulhofer-Wohl explain the decline in internal migration in the United States.

the causes of decreased migration that we identify suggest that the economy may not be less flexible after all. Rather, low migration means that workers either do not need to move to obtain good jobs or have better information about their opportunities.

They suggest that returns to skill have tended to equalize across regions. I am not sure how to reconcile this with Enrico Moretti’s work.

Pointer from Timothy Taylor.

Taking Care of Elderly Parents

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Timothy Taylor writes,

Some other high-income countries have government programs to pay for long-term care. Not surprisingly, they spend a substantially greater share of GDP on long-term than does the U.S. In any event, the long-term U.S. budget picture is grim enough that adding another entitlement for the elderly isn’t likely.

As usual, he has useful links, primarily a CBO study.

I have a vision of the year 2025 in which the difference between the rich and everyone else is that the rich can afford to send their children to private schools, pay full fare for the children’s college education, and pay for their own parents’ long-term care. Everyone else will depend on public schools, community colleges and scholarships, and government-provided nursing homes. Otherwise, the lifestyles of the rich and the non-rich will look pretty similar.

Labor’s Share of Income

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Timothy Taylor quotes a report by the International Labor Organization showing that labor’s share of income has declined between 1990 and 2009 in 26 out of the 30 countries surveyed. Taylor comments,

When a trend cuts across so many countries, it seems likely that the cause is something cutting across all countries, too. Looking for a “cause” based on some policy of Republicans or Democrats in the U.S. almost certainly misses the point.

This is a stereotypical Tim Taylor find–who else would read through an ILO report?

The Null Hypothesis and Online Education

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Bradford S. Bell and Jessica E. Federman write,

The meta-analyses reviewed above show that when instructional design characteristics are held constant across delivery conditions, e-learning and classroom instruction generally produce similar learning outcomes.

Pointer from Timothy Taylor–read his whole post.

The null hypothesis is that there is no difference in outcomes, and apparently the “meta analysis” does not reject the null hypothesis. Taylor interprets this as evidence that online learning has “caught up” to classroom learning in terms of quality. My more cynical interpretation is that there was never any catching up required, because what students learn does not appear to depend in any way on how they are taught. I am sure that there is a limit to this: presumably, if you do a randomized experiment in which one group of students gets $50,000 worth of instruction and another group gets zero, you will see some difference in outcomes. However, I would bet that, relative to what we do today, the way to improve cost-effectiveness in education is to slash costs. That is, my view of the null hypothesis is that most of what we spend on education has no marginal impact.

Note, however, that the authors of the study seem convinced that the null hypothesis is false. They believe that empirical evidence shows that pedagogical techniques do affect outcomes.

Productivity Measurement Pessimism

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Timothy Taylor reports on a symposium on productivity trends. He quotes Robert Gordon,

I have often posed the following set of choices. Option A is to keep everything invented up until ten years ago, including laptops, Google, Amazon, and Wikipedia, while also keeping running water and indoor toilets. Option B is to keep everything invented up until yesterday, including Facebook, iphones, and ipads, but give up running water and indoor toilets; one must go outside to take care of one’s needs; one must carry all the water for cooking, cleaning, and bathing in buckets and pails. Often audiences laugh when confronted with the choice between A and B, because the answer seems so obvious.

I think that what this anecdote indicates is that measured productivity is bunk. Gordon’s anecdote suggests that people derive a lot of consumers’ surplus from modern water systems. But this consumers’ surplus does not show up in measures of productivity, either for one hundred years ago or for today.

I am becoming a productivity measurement pessimist. That is, I am becoming pessimistic that what we call “productivity” is anything more than a crude indicator of trends in living standards.

I can imagine coming up with an accurate measure of productivity in soybean output. However, it is difficult to imagine coming up with anything accurate for health care, where we have little idea about what generates value at the margin, or for education, we where have almost no idea at all.

Moreover, the value of many goods and services, including the Internet and modern water systems, is under-estimated because we do not measure consumers’ surplus. Going forward, suppose that researchers come up with a way to prevent or cure Alzheimer’s. The effect on consumers’ surplus would be quite large. The effect on measured productivity? To a first approximation, nil.

In assessing economic progress, productivity may be the best indicator we have. However, we take small differences in measured productivity growth rates way too seriously. On the one hand, it is correct to say that if you extrapolate a difference in productivity growth of 1 or 2 percentage points over thirty years, it accumulates to a big number. But I fear that it is quite possible that the error in measuring productivity growth can exceed 1 or 2 percentage points for thirty years or more. That is, I think it is quite possible to take two thirty-year periods and arrive at a very large estimate of the difference in the rate of growth of living standards that is entirely due to mis-measurement.

New Commanding Heights Watch

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Timothy Taylor writes,

there are clearly countries that spend less per student than you would expect given their level of per capita GDP, like Iceland, which is labelled, and Italy, which is the unlabelled point more-or-less under Spain. There are also countries that spend more per student than you would expect given their GDP, including Ireland, Canada, and especially the United States.

He is referring to higher education.

Returning to the Oregon Medicaid study, Tyler Cowen writes,

The key question here is how we should marginally revise our beliefs, or perhaps should have revised them all along (the results of this study are not actually so surprising, given other work on the efficacy of health insurance). For instance should we revise health care policy toward greater emphasis on catastrophic care, or how about toward public health measures, or maybe cash transfers? (I would say all three.) One might even use this study to revise our views on what should be included in the ACA mandate, yet I haven’t heard a peep on that topic. I am instead seeing a lot of efforts to distract our attention toward other questions.

Nick Schulz and I have referred to health care and education as the new commanding heights. That is, they are as important in the 21st century as steel and electric power were in the 20th. However, steel and electric power had major scale economies that lent themselves to top-down, bureaucratic management. Health care and education do not.

What I think this means that those who want to apply centralized, technocratic solutions in health care and education (“Obamacare,” “No Child Left Behind”) are on the wrong side of history. Perhaps my views are mistaken. But in any case, I wish that people were less emotionally invested in the technocratic approach, so that if it does prove to be dysfunctional they are able to back off.

Tantalizing Findings

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David Autor and Melanie Wasserman summarize trends in education and labor market outcomes by gender. Timothy Taylor locates their explanation for the relative decline among males.

the earnings power of non-college males combined with gains in the economic self-sufficiency of women—rising educational attainment, a falling gender gap, and greater female control over fertility choices—have reduced the economic value of marriage for women. This has catalyzed a sharp decline in the marriage rates of non-college U.S. adults—both in absolute terms and relative to college-educated adults—a steep rise in the fraction of U.S. children born out of wedlock, and a commensurate growth in the fraction of children reared in households characterized by absent fathers.

The second part of the hypothesis posits that the increased prevalence of single-headed households and the diminished child-rearing role played by stable male parents may serve to reinforce the emerging gender gaps in education and labor force participation by negatively affecting male children in particular. Specifically, we review evidence that suggests that male children raised in single-parent households tend to fare particularly poorly, with effects apparent in almost all academic and economic outcomes. One reason why single-headedness may affect male children more and differently than female children is that the vast majority of single-headed households are female-headed households. Thus, boys raised in these households are less likely to have a positive or stable same-sex role model present.

As I interpret it, their story is one of mutually reinforcing economic and social trends. The economic trend is that the comparative advantage of non-college-educated males in the work force has declined, as innovation and globalization have increased productivity in manufacturing. This reinforces a social trend in which those males are not attractive marriage partners, so that women who formerly would have married them are instead having children out of wedlock. This social trend then reinforces the economic trend, because men born out of wedlock are disadvantage when it comes to being able to remain in school.

I would say that the trends are real, but the narrative is controversial. I think this is a situation where you pick your narrative to fit your policy recommendation. Are you Bryan Caplan, and do you recommend promoting marriage? Then your narrative has to be that marriage plays a causal role in improving men’s earnings. Are you Barack Obama, and do you recommend expanding pre-school and access to college? Then your narrative is that the the main causal factor is education. Are you Charles Murray and do you recommend promoting Victorian virtues? Then your narrative is that this is a civilization-barbarism problem, and we have to reverse the slide into barbarism.

My preferred narrative is that Neal Stephenson predicted this in The Diamond Age. The Vickies and the Thetes have divergent lifestyles, and I suspect that the attempt by the Vickies to impose their lifestyle on the Thetes is doomed to fail.

On the topic of marriage trends, Reihan Salam writes,

instead of serving as a foundation of a successful adult life (a “cornerstone”), it is seen as a culmination of a successful young adulthood (a “capstone”), according to the authors of the Knot Yet report on delayed marriage.

Pointing out the likely correlation between a decline in marriage and an increase in government dependency, Salam writes,

My suspicion is that it will be very difficult to construct such a post-marital libertarian agenda, but that’s not to suggest it’s a futile effort.

He then writes,

What I find interesting is the emerging tension between two tendencies on the center-left: (1) the civil libertarian desire to protect the autonomy of families, particularly families rooted in minority cultural traditions, as a post-marital culture yields ever more children raised in the context highly fragile, unstable family relationships; and (2) the egalitarian imperative to do more to build the human capital of children raised in the poorest households, an effort that may well require increasingly intrusive, heavy-handed, paternalistic interventions.

At the risk of being uncharitable, I do not think that (1) is a factor. Using the three-axes model, the single mom is in the oppressed class and her disadvantaged offspring are in the oppressed class, end of story.

In the talk that I gave in Phoenix, I compared universal pre-school to eugenics. Both appeal to the same desire to improve the human race based on “scientific evidence” of the unfitness of some parents.

Quintile Mobility: Built-in Properties

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Timothy Taylor writes,

For example, for all those born into the bottom quintile, 44% are still in that quintile as adults. About half as many, 22%, rise to the second quintile by adulthood. The percentages go down from there. … Similarly, those born into the top income quintile are relatively likely to remain in the top. Among children born into the top quintile, 47% are still there as adults. Only 7% fall to the bottom quintile. The experiences of those born into the middle three quintiles are quite different. The distribution among income quintiles as adults is much more even for those born in these three middle groups, suggesting significant mobility for these individuals. … This pattern has led researchers to conclude that the U.S. income distribution has a fairly mobile middle, but considerable “stickiness at the ends” …”

This result is nearly an arithmetical certainty. Suppose that everyone faces three equally-probable outcomes:

–their income as adults puts them in the same quintile as their parents
–their income as adults rises enough to move up a quintile
–their income as adults falls enough (in relative terms) to move down a quintile

If this were the case, then people in the top would have a 2/3 chance of remaining at the top, because those who get lucky have nowhere to go but up within the top quintile. Similarly, people would have a 2/3 chance of remaining at the bottom, because those who get unlucky have nowhere to go but down within the same quintile. People in the middle quintiles would have only a 1/3 chance of remaining in their original quintile, because they can move in either direction. This pattern would lead researchers to conclude that the U.S. income distribution has a fairly mobile middle but considerable stickiness at the ends, even though by construction everyone in all quintiles has the same probability of moving up or down the income scale.

Health Care Costs Near the End of Life

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Timothy Taylor writes,

say for the sake of argument that such cases could be identified, and spending in this area could be reduced by half. If attainable, cuts of this size would be $70 billion in annual savings, which is certainly a substantial sum. But to keep it in perspective, total U.S. health care spending is in the neighborhood of $2.6 trillion. Thus, the potential gains from even fairly aggressive limits on end-of-life health care spending through Medicare is a little under 3% of total U.S. healthcare spending.

Read the whole post. Many people think that the share of health care spending in the last year of life is high and rising. In fact, it is fairly stable at about 7 percent of total health care spending (note that Taylor’s figures only include Medicare spending, not Medicaid or private spending).