Tuesday, December 29, 2015

Labor Income of Natives and Immigrants

Below, Corrections displays the labor income of natives (those born in the United States and its territories) and nonnatives (those born in other countries) over time (click to enlarge).  Unfortunately, the CPS only started asking a question about nativity whose answers can easily be compared in 1993.
Interestingly, the gap has fairly steadily closed in percentage terms, as depicted below (click to enlarge).
While historically, it's not too uncommon for immigrants to make more than native workers (there are strong selection patterns in immigration (there's a reason some people come to the U.S.), and immigrant workers have far less access to welfare programs than natives and lower take-up of the programs they do have access to, meaning they must rely on labor income more).  

Friday, November 27, 2015

Understanding Inequality and Taxes

Claims of how many households pay income taxes, or income and payroll taxes, or net tax (thanks to negative tax impacts of EITC) are common, but frequently erroneous.  Corrections looks to help put these to rest.
While it can be looked up, Corrections gives two graphs to give an idea of what households pay taxes.  Depending on our measurements (including Federal or state+federal, no deductions/deductions, etc.), 68.2% and 78.7% of households pay positive taxes.  This differs by about 17%-28% from Mitt Romney's "51%" that  "paid taxes."  About 10% of this comes from not being in the depths of the great recession, most of the rest comes from including FICA taxes (which are rarely included in these calculations), with some of the residual also coming from including state taxes.

 First, we display six different measures of the proportion of household heads or households that pay taxes.  We break things up by federal vs. federal+state taxes, and before and after tax deductions (primarily the EITC and additional child credit).  We also include two additional measurements by including SSI and TANF benefits as well as EITC (click to enlarge).  We give these graphs by age of household head.
We also display the distribution of the size of welfare payments (EITC, SSI, TANF, Additional Child Credit) conditional on being positive (click to enlarge).  

We can certainly reject claims like "60% of households don't pay taxes."  We can also note that claims with high proportions of households not paying taxes depend heavily on the use of households that are above the age of 60, or by including people in households that pay taxes but that themselves don't pay taxes, as when households file separately.  

As an aside, Corrections has heard the phrase "IQ's drop by 20 points when discussing politics."  Corrections has a mildly more amusing (tongue-in-cheek) formula with the same concept.  
  1. Let IQ_P be ones IQ when discussing politics.
  2. Let IQ be ones IQ under normal circumstances.
  3. Let R be ones ranking of Reagan (or FDR) on a scale from 0-1.
IQ_P = IQ-2*IQ*(R-0.5)^2

Is the U.S. a less competitive environment?

There exists an open question: "Is the U.S. a less competitive environment than it was in the past?"

There are many ways of trying to answer this question.  I start by running two tests, three examinations to examine whether or not the U.S. is a less competitive environment.  The first is what percent of the total market cap (AMEX, NASDAQ, NYSE) is held by the largest 10 and 20 firms (click to enlarge).  The second is what percent of the total market cap of the top 100 firms are held by the largest 10 and 20 firms (click to enlarge).  Both show fairly clearly that inequality, in the top 100 (and across the market barring market size effects)  has reduced: any "capital" advantages held by the largest firms are smaller than they were historically.
Next I look at the 10-year change in the top-10 and top-20 firms.  That is, the chart below (after 1935) gives data on the number of new firms in the top 10 or top 20 (by market capitalization) that weren't in the top 10 or top 20 10 years ago.  Unlike the cross-sectional data on firm size, this shows a lowering of competitiveness starting around Q2 2001 and continuing for the next 13-14 years (click to enlarge).

Saturday, October 17, 2015

Oil Futures

From NYMEX, Corrections displays light crude oil futures prices from 2015-2023 (click to enlarge). Note that we know that futures prices are not unbiased predictors of future spot prices (there are risk premia) but that they give an idea of the direction and magnitude of what future prices will be.

Friday, June 5, 2015

U.S. Hours per Working Age Person

Below, Corrections takes an estimate of the total hours worked by the non-institutional population and divides it by the U.S. population between 16 and 64 (click to enlarge).

Thursday, April 9, 2015

An Experiment in Kansas

In mid-2012, Kansas cut personal income taxes, from 6.45% to 4.9% for those making more than $60,000 when married or $30,000 when single, and from 6.25% to 4.9% for those making between $30,000 and $60,000.  Finally, it reduce tax rates on those making between $15,000 and $30,000 from 3.5% to 3%.  These tax rates have continued to reduce incrementally in 2013 and 2014.

Did this cause an employment increase? Or a break in trend?  It looks like the answer is no.  Below, Corrections depicts total employment in Kansas and the four contiguous states.  While Colorado took off, other states look fairly similar to Kansas (click to enlarge).
Alternatively, we could see if there was a break in trend by linearly regression pre-July 2012 data on time, and then taking the difference between the linear fit and the data.  This is depicted below (click to enlarge). 
This was a "supply-side" experiment that appears to have failed to stimulate employment.  This is an important finding, but should be seen in light of both the successes and other failures of tax cuts in increasing production and employment.  

Reactions to the experiment will be a far more definitive test about the intellectual honesty of proponents than this experiment was.

Thursday, March 26, 2015

Thinking about the Recession Recoveries

When thinking about the very slow (or extremely impressive, in the view of some) U.S. recovery from the Great Recession, self-serving theories fly fast and furious.  It is useful to discipline theory with data.  Below, Corrections depicts both the percentage change in real GDP per capita for a selection of advanced economies (click to enlarge) and the percentage change in the employment population ratio for the same countries (click to enlarge).  
The U.S. GDP recovery has been quite impressive: while it was the third largest drop from 2007 to 2009, it has had the second largest increase.  On average, it gained ground compared to these other economies.  Only Germany and Canada (for most of the recovery) had better post-recession growth.  
The U.S. labor recovery has been very unimpressive.  While a non-negligible proportion of the drop is due to demographic changes, well more than half is not.  U.S. employment to population ratio has recovered from its bottom slightly, but not by much.

When discussing the drop in labor markets, a joint explanation of all phenomena should be much more attractive than a single theory based on local politics.  For instance, many countries have had slow labor recoveries without sudden increases in socialistic policies.  And some countries have had robust GDP recoveries without sudden increases in socialistic policies.  Indeed, many seem to have had leadership that would be fairly indistinguishable from mildly conservative or mildly liberal leadership.

Friday, February 13, 2015

The Middle-Class Comeback Is Under Way

Wall Street Journal op-ed "The Middle-Class Comeback Is Under Way" (February 12th, 2015) makes a painful error while trying to pin the world's woes on the Fed.
The Fed’s easy-money policies were also slamming the middle class by encouraging speculation in—and thus pushing up the price of—commodities like oil and food, which are an incidental expense for the rich and a real burden for everyone else.
Normally of the left, this sort of talk belongs in the economic dark ages (60's, 70's).  Markets are driven by supply and demand.  Speculators essentially never take delivery of their product: they purchase a contract for future delivery with the intent to sell later.  They can, of course, sell to other speculators, but eventually speculators must sell to an agent that will actually take delivery of oil.

Assume first there is no storage market.  Agents who take delivery inelastically supply oil, and demand determines price.  This price determines what the delivery agent is willing to pay, which pins down the price they are willing to buy from speculators.  Whatever heights the oil may reach during speculation is pinned down by what it will actually be worth when it arrives.  Speculation can't impact prices at the pump in this world.  (One might say: "but maybe they can sell at a higher price to the agent and he will pass it on to consumers!"  The question this raises is "if he could sell at a higher price to consumers, why wasn't he before?  They don't care about his costs, only their value and the price.")

There is little difference with a storage market.  With a storage market, speculators can actually temporarily bring up prices, but only at a loss to themselves, if they brought it up incorrectly.  Say speculators anticipate (or act like they anticipate) a demand shock: oil will be pricier, they think.  They purchase many shares and drive the price up because they think it will be valuable in the future.  This causes less oil to go on the market today, and the price at the pump to rise today, and less oil is consumed.

After this, there will be a sharp plunge in oil prices, as storage capacity is sold but demand hasn't gone up.  (That is, speculators could potentially shift supply down and then up.  If there is no fundamental demand shift, this will cause a rise, then a fall in prices, easily mappable to storage).

Inventories did not change enough, and prices were not sharply changing enough, to allow speculation to have any role in the rise in oil prices.  Instead according to Knittel and Pindyck (2013), it seems that (as economic theory would predict) speculation lead to the smoothing of oil supply over demand shocks, actually reducing the price volatility (but not changing the level: changing the level over the long run is highly unrealistic, for the reason discussed earlier).

While theory and empirics line up to tell a clear story (viz., speculators are not to blame for price rises the way you ever read in newspapers), February 12th's Wall Street Journal's op-ed page doesn't just seem to abandon coherence of multiple signals, but even a sensible signal to begin with.  For shame.

Theory: the Federal Reserve is a liberal "long con."  The idea is to drive conservatives to heights of irrationality, causing the party to twist itself in knots to blame the Fed for each new and imagined ill, bringing them to the point of making up easily refuted historical and current "facts."

Tuesday, February 10, 2015

Beveridge Curve December 2000 - December 2014

Below, Corrections displays the Beveridge Curve from December 2000 to December 2014 (click to enlarge).

Thursday, February 5, 2015

Senator Rand Paul re-introduces 'Audit the Fed' bil

Reuters  article "Senator Rand Paul re-introduces 'Audit the Fed' bill" (January 28th, 2015) discusses a new bill introduced by Rand Paul, Ted Cruz, and 28 other Senators to "audit the Fed." This would expand the yearly audits taken by 1) Government Accountability Office, 2) the Office of the Inspector General, and 3) Private firms, to include monetary policy discussions, minutes of which are currently released with a three week lag.  Detailed accounts of their holdings are released each week.

The real intent of the bill seems to be to monitor Federal Reserve policy discussion in real time.  This will have two effects: first, to generate more comments for politicians like Rand to jawbone Fed officials about.  Second, it will chill discussion in times of crisis.

In the end, chipping away at the Fed's independence is a good way to get higher inflation.  From Alesina and Summers (1993), the relationship between Federal Reserve bank independence and inflation (click to enlarge).
Another aspect of the conservative echo chamber that has lead to insanity.  Sadly, Corrections sees little way to end it.

Edit:  Even a broken clock is right twice a day.  Senator Warren:
[...] but I oppose the current version of this bill because it promotes congressional meddling in the Fed's monetary policy decisions, which risks politicizing those decisions and may have dangerous implications for financial stability and the health of the global economy.
The worst thing for a party about giving up its sanity for poorly-thought-out crusades,is it cedes sanity to the opposition.

Wednesday, January 28, 2015

Federal vs. private employment over the last few years

Below, Corrections depicts the absolute deviation from Feb 2010 (the local minimum of total employment) of Federal employment (excluding Census hiring) and private employment (click to enlarge).  Private employment has rebounded by about eleven million workers, while government employment has fallen by about 484 thousand workers, or 2.16% of its February 2010 level. 
The figure below transforms the deviations into percent deviations (click to enlarge).