Friday, September 27, 2013

Two Readings on Obamacare

Tuesday, September 24, 2013

Some Observations on Minimum Wages

John Cochrane has a nice post on minimum wages.

I was recently discussing the topic of minimum wages with a friend who favors them.  (He is a prominent economist, whose name you would surely recognize, but conversations with friends are off the record).  As justification for his view, he pointed me to this paper by Lee and Saez, called "Optimal minimum wage policy in competitive labor market."

What was notable to me about this paper is the incredibly strong assumptions they need to make their case.  In particular,
Assumption 1. Efficient rationing: Workers who involuntarily lose their low-skilled jobs due to the minimum wage are those with the least surplus from working in the low-skilled sector.
 Later they point out:
Finally, the desirability of the minimum wage hinges again crucially on the “efficient rationing” assumption. Under “uniform rationing”, where unemployment strikes independently of surplus, the minimum wage cannot improve upon the optimal tax allocation, a point formally proven in Lee and Saez (2008). Indeed, with efficient rationing, a minimum wage effectively reveals the marginal workers to the government. Since costs of work are unobservable, this is valuable because it allows the government to sort workers into a more socially (albeit not privately) efficient set of occupations, making the minimum wage desirable. In contrast, with uniform rationing, as unemployment strikes randomly, a minimum wage does not reveal anything about costs of work. As a result, it only creates (privately) inefficient sorting across occupations without revealing anything of value to the government. It is not surprising that minimum wages would not be desirable in this context.
Rather than providing a justification for minimum wages, the paper seems to do just the opposite. It shows that you need implausibly strong assumptions, such as efficient rationing, to make the case.  I cannot see any compelling reason to believe that in the presence of excess supply of workers, the market will somehow manage to efficiently ration the scarce jobs.

Monday, September 23, 2013

Economics Teaching Conference

The 9th Annual Economics Teaching Conference sponsored by the National Economics Teaching Association and Cengage Learning will be in Austin on October 24 and 25. I will be speaking at lunch the first day.

If you would like to register for the conference, you can do so here.

Teaching Monetary Policy

Saturday, September 21, 2013

The debt ceiling tactic is not unprecedented

The Washington Post reports:
In 1973, when Richard Nixon was president, Democrats in the Senate, including Sen. Edward Kennedy (D-Mass.) and Sen. Walter Mondale (D-Minn.), sought to attach a campaign finance reform bill to the debt ceiling after the Watergate-era revelations about Nixon’s fundraising during the 1972 election. Their efforts were defeated by a filibuster, but it took days of debate and the lawmakers were criticized by commentators (and fellow lawmakers) for using “shotgun” tactics to try to hitch their pet cause to emergency must-pass legislation.... 
One of the most striking examples of a president being forced to accept unrelated legislation on a debt-ceiling bill took place in 1980. The House and Senate repealed a central part of President Jimmy Carter’s energy policy — an oil import fee that was expected to raise the cost of gasoline by 10 cents a gallon. Carter vetoed the bill, even though the United States was close to default, and then the House and Senate overrode his veto by overwhelming numbers (335-34 in the House; 68-10 in the Senate).
Even so, at the present time, I don't think the tactic is going work well for the Republicans.

Thursday, September 19, 2013

I talk with Larry Kudlow

Tuesday, September 17, 2013

Crowd-sourcing an Award

Voting is open for the Economist Educators Best in Class Teaching Award, but only for this week. If you teach economics, you may want to review the finalists and vote. Click here to learn more.

Friday, September 13, 2013

David Landes

Thursday, September 12, 2013

Ec 10 is still number one

Who predicted the sluggish economy?

Friday, September 06, 2013

A Striking Labor Market Fact

John Lott points out the following: "So far this year there have been 848,000 new jobs. Of those, 813,000 are part time jobs.... To put it differently, an incredible 96% of the jobs added this year were part-time jobs."

Update: Here is the CEA take on this general topic.  And this is from the San Francisco Fed.  I found the following chart of interest.

 Part-time employment as a share of total employment for selected groups

This shows that part-time work is notably higher than it has been historically for prime-age workers with little education (no more than a high school degree).  Whether this is just due to a weak labor market or other more structural changes is an open question.

Tuesday, September 03, 2013

Ronald Coase has died

Marginal Tax Rates under Obamacare

Back in 2009, I pointed out in a NY Times column that President Obama's healthcare reform would involve substantial increases in implicit marginal tax rates.  I am delighted that Casey Mulligan is now giving the issue some serious attention in two new NBER working papers (here and here).  He reports:
This paper calculates the ACA’s impact on the average reward to working among nonelderly household heads and spouses. The law increases marginal tax rates by an average of five percentage points (of employee compensation), on top of the marginal tax rates that were already present before the it went into effect....Measured in percentage points, the Affordable Care Act will, by 2015, add about twelve times more to average marginal labor income tax rates nationwide than the Massachusetts health reform added to average rates in Massachusetts following its 2006 statewide health reform.

Monday, September 02, 2013

Don't 'Fight for Fifteen'