Wednesday, August 20, 2014

Homeownership Rates Come Back Down the Mountain

Back in the mid-1990s, I thought of the U.S. homeownership rate as fairly constant, holding at about 64-65% most of the time. In the fourth quarter of 1995, for example, the homeownership rate was a bit above this range at 65.1%. But looking back at Census Department data for the fourth quarter of various years (see Table 14 here), the homeownership rate had been 64.1% in 1990, 63.5% in 1985, 65.5% in 1980, 64.5% in 1975, 64.0% in 1970, and 63.4% in 1965.

Since 1995, U.S. homeownership rates have climbed a mountain--speaking graphically--and have now come back down. Here's a figure from the Census Bureau's July 29 report on "Residential Vacancies and Homeownership in the Second Quarter 2014." The homeownership rate checked in at 64.7% in the second quarter of 2014.


Here's a slightly different perspective from the same report, looking at the vacancy rate--that is what share of rental housing and of homes are vacant.
At about the same time that the homeownership rate was rising in the first half of the 1990s, the vacancy rate for homes was also rising--which suggests that an enormous boom in residential construction was occurring at the time.

It's worth remembering that as homeownership rates climbed up one side of the mountain from about 1995 to 2004, the change was viewed as a success by  both parties. Bill Clinton had a National Homeownership Strategy  which pushed to make it easier for people with lower incomes to own a home. As Clinton said in announcing the initiative:

You want to reinforce family values in America, encourage two-parent households, get people to stay home? Make it easy for people to own their own homes and enjoy the rewards of family life and see their work rewarded. This is a big deal. This is about more than money and sticks and boards and windows. This is about the way we live as a people and what kind of society we're going to have. ...  The goal of this strategy, to boost home ownership to 67.5 percent by the year 2000, would take us to an all-time high, helping as many as 8 million American families across that threshold. ... Our home ownership strategy will not cost the taxpayers one extra cent. It will not require legislation. It will not add more Federal programs or grow Federal bureaucracy. It's 100 specific actions that address the practical needs of people who are trying to build their own personal version of the American dream, to help moderate income families who pay high rents but haven't been able to save enough for a downpayment, to help lower income working families who are ready to assume the responsibilities of home ownership but held back by mortgage costs that are just out of reach, to help families who have historically been excluded from home ownership.


The Clinton initiative, together with the booming U.S. economy in the second half of the 1990s,  reached that goal of 67.5% homeownership rate by the year 2000. When George W. Bush became president, he pushed for an "ownership society," with policies to help people with down payments on a home and increase the number of minority homeowners. As Bush  said in a 2003 speech:
"This Administration will constantly strive to promote an ownership society in America. We want more people owning their own home. It is in our national interest that more people own their own home. After all, if you own your own home, you have a vital stake in the future of our country."

When the homeownership rate peaked at 69.4% in the second quarter of 2004, and for some months afterward, there was strong bipartisan support for the policies that had raised homeownership rates. At the time, existing homeowners were largely delighted as well with the swelling price of their homes.

Of course, the underlying problems have now become obvious. It's hard to oppose policies that gives low-income people a better chance to own a home. But if those policies involve encouraging those with lower incomes to take out subprime mortgages, so that the people you are claiming to help will be actually be carrying overly large debt burdens and become highly vulnerable to a downturn in housing prices, then this way of pushing for higher rates of homeownership is a poisoned chalice. I'm very supportive of building institutions and laws that will make it easier for those with low and medium incomes to accumulate financial and nonfinancial assets, including a home. But let's focus on ways of encouraging actual saving, not ways of encouraging excessive borrowing.

Tuesday, August 19, 2014

US Becomes Oil and Gas Production Leader

OK, I admit that it's arbitrary to compare countries according to their oil and gas production, setting aside coal, hydroelectric, nuclear, and renewables like solar and wind. Still, as someone who started paying attention to economic issues during the OPEC-related oil price shocks of the 1970s, this figure shows an outcome that I never expected to see. Taking oil and gas together, the U.S. has now surpassed Russia and Saudi Arabia as the world's leading producer.

This figure was produced by the Stanford Institute for Economic Policy Research (SIEPR) as part of it annual "Facts at a Glance" chartbook. For purposes of this comparison, natural gas has been converted into an energy-equivalent amount of oil: specifically, 5,800 cubic feet is equal to about 1 barrel of oil.

Of course the economic consequences of being the largest energy producer will be different for the U.S. than for Russia or Saudi Arabia. For example, the enormous US economy uses more energy than it produces, and thus remains an energy importer, while the economies of Saudi Arabia and Russia depend on energy exports. But before I try to figure out what it all means. I need to spend some time just wrapping my head around the idea of the U.S. as the world's leading oil and gas producer.

Monday, August 18, 2014

International Minimum Wage Comparisons

How does the level of the minimum wage relative to other wages compare across higher-income countries around the world? Here are a couple of figures generated from the OECD website, using data for 2012.

As a starter, here's a comparison of minimum wages relative to average wages. New Zealand, France, and Slovenia are near the top, with a minimum wage equal to about half the average wage. The United States (minimum wage equal to 27% of the average wage) and Mexico (minimum wage equal to 19% of the average wage) are near the bottom.


However, average wages may not be the best comparison. The average wage in an economy with relatively high inequality, like the United States, will be pulled up by the wages of those at the top. Thus, some people prefer to look at minimum wages relative to the median wage, where the median is the wage level where 50% of workers receive more and 50% receive less. For wage distributions, which always include some extremely large positive values, the median wage will be lower than the average--and this difference between median and average will be greater for countries with more inequality.

Here's a figure comparing the minimum wage to the median wage across countries.  The highest minimum wage by this standard is Turkey (71% of the median wage) followed by France and New Zealand (about    60% of the median wage). The lowest three are the United States (38%), the Czech Republic (36%) and Estonia (36%).


This post isn't the place to rehearse arguments over the minimum wage one more time: if you want some of my thoughts on the topic, you can check earlier posts like "Minimum Wage and the Law of Many Margins" (February 27, 2013), "Some International Minimum Wage Comparisons" (May 29, 2013), "Minimum Wage to $9.50? $9.80? $10?" (November 5, 2012). Moreover, minimum wages across countries should also evaluated in the context of other government spending programs or tax provisions that benefit low-wage families.

However, I will note for US readers that the international comparisons here can give aid and comfort to both sides of the minimum wage argument in this country. Those who would like the minimum wage raised higher can point to the fact that the U.S. level remains relatively low compared to other countries. Those who would prefer not to raise the minimum wage higher can take comfort in the fact that, even after the minimum wage increased signed into law by President Bush in May 2007 and then phased in through 2009, the U.S. minimum wage relative to average or median wages remains comparatively low.






Friday, August 15, 2014

What's the Difference Between 2% and 3%?

If you calculated that the difference between 2% and 3% is 1%, you are of course arithmetically correct, but in an economic sense, you are missing the point. Herb Stein explained the difference in an 1992 essay about the work of Edward Dennison on economic growth. Stein wrote:
The difference between 2 percent and 3 percent is not 1 percent but 50 percent. That, of course, is not the result of research--at least, not Dennison's--but it is an often-neglected and important proposition that he emphasized. Its significance is that what seems a small increase in the growth rate--say, from 2 to 3 percent--is really a large increase. As a first approximatino, such an increase in the growth rate would require an increase of 50 percent in all the resources, effort, and attention that went into generating the 2 percent growth rate.

Dennison had died in 1992, and Stein's short remembrance, "Memories of a Model Economist," was published in the Wall Street Journal, November 23, 1992. It was reprinted in On the Other Hand ... (pp. 235-239), a 1995 collection of Stein's popular essays and writings published by the AEI Press.

One of the challenges of teaching basic economics is to explain why small differences in the annual rate of economic growth are so important. Stein's comment from Dennison is one way to focus attention on these issues. In the short run of a single year  the difference between 2% and 3% is indeed 1%, but when the issue is how to bring down the unemployment rate, raising the number of workers needed is a big deal. In the longer run of a decade or two, the key point to remember is that economic growth accumulates, year after year, so losing 1% every year means losing (approximately, not adjusted for compounding of growth rates) 10% after a decade and 20% after two decades.

When a nation falls behind in productivity growth over a sustained period of time, it is a matter of decades to make up that foregone productivity growth. (If you doubt it, consider the experience of the United Kingdom or Argentina during the earlier parts of the 20th  century, or think about a quarter-century of lethargic growth has affected perceptions and reality of Japan's economy.) No matter what your public policy goal--more for social programs, tax cuts, deficit reduction, rescuing Social Security and Medicare--the task is politically easier if the growth rate has been on average higher and the economic pie is therefore substantially larger. In the last few years,  U.S. economic policy has for good reason been focused on the aftereffects and lessons of the Great Recession. But looking ahead a couple of decades, the single most important factor for the health of the U.S. economy is whether we create an economic climate so that the rate of per capita growth can be 1 or 2% faster per year.

Thursday, August 14, 2014

Is the Division of Labor a Form of Enslavement?

The idea that an economy functions through a division of labor, in which we each focus and specialize in certain tasks and then participate in a market to obtain the goods and services we want to consume, is fundamental to economic analysis. Indeed, the very first chapter of Adam Smith's 1776 classic The Wealth of Nations is titled "Of the Division of Labor," and offers the famous example of how dividing up the tasks involved in making a pin is what makes a pin factory so much more productive than an individual who is making pins.

But what if the division of labor, with its emphasis on focusing on a particular narrow job, runs fundamentally counter to something in the human spirit? Karl Marx raised this possibility in The German Ideology (1846 Section 1, "Idealism and Materialism," subsection on "Private Property and Communism"). Marx wrote:

“Further, the division of labor implies the contradiction between the interest of the separate individual or the individual family and the communal interest of all individuals who have intercourse with one another. … The division of labor offers us the first example of how, as long as man remains in natural society, that is, as long as a cleavage exists between the particular and the common interest, as long, therefore, as activity is not voluntarily, but naturally, divided, man's own deed becomes an alien power opposed to him, which enslaves him instead of being controlled by him. For as soon as the distribution of labor comes into being, each man has a particular, exclusive sphere of activity, which is forced upon him and from which he cannot escape. He is a hunter, a fisherman, a shepherd, or a critical critic, and must remain so if he does not want to lose his means of livelihood; while in communist society, where nobody has one exclusive sphere of activity but each can become accomplished in any branch he wishes, society regulates the general production and thus makes it possible for me to do one thing today and another tomorrow, to hunt in the morning, fish in the afternoon, rear cattle in the evening, criticism after dinner, just as I have a mind, without ever becoming hunter fisherman, shepherd or critic. This fixation of social activity, this consolidation of what we ourselves produce into an objective power above us, growing out of our control, thwarting our expectations, bringing to naught our calculations, is one of the chief factors in historical development up till now.
Like so much of Marx's writing, this passage seems to me to give voice to a difficult concept that contains a substantial slice of truth; indeed, I had this quotation up on my office door for a time. But also like a lot of Marx, it seems to ignore or evade counterbalancing arguments.

I suspect we all know people who at times feel trapped by the division of labor. I can think offhand of several friends who aren't happy being lawyers, and a doctor who would have preferred not to become a doctor. When you're grinding out the quarterly reports or the semi-required stint of overtime, it's easy to feel trapped by the narrowness of the job.

But on the other side, the division of labor contains within it an opportunity to learn and specialize--to be the expert in your own field of study. This matters to me both as a consumer and as a worker. As a consumer, I don't want the noontime appointment with a doctor who was a shepherd this morning, a social critic this afternoon, and is planning to try a different set of jobs tomorrow. I want a doctor who works hard at being a doctor. I also want a car made by workers who have experience in their jobs, an and I want to drive that car across bridges designed by engineers who spend their working time focused on engineering. As a consumer, I like dealing with goods and services produced by specialists.

As a worker, being stuck in one narrow occupation may feel like a trap. But fluttering from job to job can be is a trap of a different kind--a trap of a string of shallow experiences. I don't mean to knock shallow experience: there are a lot of things worth trying only once, or maybe a few times. But you can't get 10 years of experience at any job if you switch jobs every year, or in Marx's illustration, several times per day. There's probably a happy medium here of finding some variation in one's tasks and building expertise in different areas, both in work and in hobbies, over a lifetime. But to me, Marx's advice sounds like telling an ADHD worker to "find your bliss," and then watching that person flit like a butterfly on amphetamines.

Marx's challenge to the division of labor also sidesteps some practical issues. His  implication seems to be that what you choose to do as a worker can be detached from what society needs. It's not clear what a society does if on a given day, not enough people feel like showing up to be garbagemen or day care providers that day. Markets and pay and defined jobs are a mechanism of coordinating what is produced and consumed, and also for allowing that mechanism to evolve over time according to the range of jobs that people want to do as providers (given a certain wage) and the goods and services that people want in their economic role as consumers.

The division of labor can be constraining, but another fundamental principal of economics is that all choices involve giving up an opportunity to do something else. A world without a division of labor would just be constraining in a different and arguably less attractive way. If you would like some additional ruminations on moral issues surrounding labor markets, one starting point is this blog from last month, "Are Labor Markets Exploitative?"


Wednesday, August 13, 2014

Characteristics of U.S. Minimum Wage Workers

Set aside for a few heartbeats the vexed question of just how a minimum wage would affect employment, and focus on a more basic set of facts: What are some characteristics of U.S. workers who receive the minimum wage? The statistics here are from a short March 2014 report from the U.S. Bureau of Labor Statistics, "Characteristics of Minimum Wage Workers, 2013." Of course, the facts about who is receiving the minimum wage also reveal who will be most directly affected by any changes.

How many workers are paid at or below the minimum wage?

The BLS reports that 75 million American workers were paid at an hourly rate in 2013, out of about 136 million total employed workers. Of that total, 3.3 million, or about 4.3%, were paid at the minimum wage or less. A figure from an April 3, 2014,  BLS newsletter puts that level in historical context--that is, the share of hourly-paid workers receiving the federal the minimum wage is lower than in most of the 1980s and 1990s, but it is a little higher than in much of the 2000s. Of course, shifts in the  the share of workers receiving the minimum wage in large part reflect changes in the level of the minimum wage. When the federal minimum wage increase signed into law by President Bush in 2007 was phased in during 2008 and 2009, more workers were then affected by the higher minimum wage.

Percentage of hourly paid workers with earnings at or below the federal minimum wage, by sex, 1979–2013 annual averages

What's the breakdown of those being paid the minimum wage by age? In particular, how many are teenagers or in their early 20s? 

Of the 3.3 million minimum-wage workers in 2013, about one-quarter were between the ages of 16-19,  another one-quarter were between the ages of 20-24, and half were over the age of 25.

What's the breakdown of those being paid the minimum wage by full-time and part-time work status? 

Of the 3.3 million minimum-wage workers in 2013, 1.2 million were full-time, and 2.1 million were part-time--that is, roughly two-thirds of minimum-wage workers are part-time.

What's the breakdown of those being paid the minimum wage across regions? 

For the country as a whole, remember, 4.3% of those being paid hourly wages get the minimum wage or less. If the states are divided into nine regions the share of hourly-paid workers getting the minimum wage in each region varies like this: New England, 3.3%; Middle Atlantic, 4.8%;  East North Central, 4.3%, West North Central, 4.6%; South Atlantic, 5.1%; East South Central, 6.3%; West South Central, 6.3%; Mountain, 3.9%; Pacific, 1.5%.

The BLS has state-by-state figures, too. There are two main reasons for the variation. Average wages can vary considerably across states, and in areas with lower wages, more workers end up with the minimum wage. In addition, 23 states have their own minimum wage that is set above the federal level. In those state, fewer workers (with exceptions often made in certain categories like food service workers who get tips) are paid below the federal minimum wage. It's an interesting political dynamic that many of those who favor a higher federal minimum wage are living in states where the minimum wage is above the federal level; in effect, they are advocating that states who have  not adopted the minimum wage policy preferred in their own state be required to do so.

In what industries are hourly-paid workers most likely to receive the minimum wage? 

Percentage of hourly paid workers with earnings at or below the federal minimum wage, by occupation, 2013 annual averages

Whatever one's feelings about the good or bad effects of raising the minimum wage, it seems fair to say that those effects will be disproportionately felt by a relatively small share of the workforce, disproportionately young and part-time, and disproportionately in southern states.

Tuesday, August 12, 2014

Why Longer Economics Articles?

Articles in leading academic economics journals have roughly tripled in length over the last 40 years. Here's a figure from the paper David Card and Stefano DellaVigna,  "Page Limits on Economics Articles: Evidence from Two Journals," which appears in the Summer 2014 issue of the Journal of Economic Perspectives (28:3, 149-68). Five of the leading research journals in economics over the lasst 40 years are the Quarterly Journal of Economics, the Journal of Political Economy, Econometrics, the Review of Economic Studies, and the American Economic Review (AER). The authors do a "standardized" comparison that accounts for variations over time and across journals in page formatting. A typical article in one of these leading economic journals was 15-18 pages back in 1970, and now is about 50 pages.


I admit that this topic may be of more absorbing interest to me than to most other humans on planet Earth. I'v been Managing Editor of the JEP since the start of the journal in 1987, and the bulk of my job is to edit the articles that appear in the journal. The length of JEP articles hasn't risen much at all during the last 27 years, while the length of articles in other journals has roughly doubled in that time. Am I doing something wrong? In an impressionistic way, what are some of the plausible reasons for additional length?

Ultimately, longer papers in academic research journals reflect an evolving consensus about what constitutes a necessary and useful presentation of research results. Over time, it is plausible that journal editors and paper referees have become more aggressive in requesting that additional materials should presented, additional hypotheses considered, additional statistical tests run, and the like.

An economics research paper back in the 1960s often made a point, and then stopped. An academic research paper in the second decade of the 21st century is more likely to spend a few pages setting the stage for their argument, setting the stage for the big question, give some sense in the introduction of the paper of main results, have a section discussing previous research, have a section giving a background theory, and so on.

Changes in information and computing technology have pushed economics papers to become longer. There is vastly more data available than in 1970, so academic papers need to spend additional space discussing data. There has been a movement in the last couple of decades toward "experimental economics," in which economists vary certain parameters--either in a laboratory with a bunch of students, or often in a real-world setting--which also means reporting in the research paper what was done and what data was collected. With cheaper computing power and better software, it is vastly easier to run a wide array of statistical tests, which means that space is need to explain which tests were run, the differing results of the tests, and which results the author finds most persuasive.

In the past, the ultimate constraint on length of academic journals was the cost of printing and postage. But in web-world, where we live today, distribution of academic research can have a near-zero cost. Editors of journals that are primarily distributed on-line have less incentive to require short articles.

Finally, one should mention the theoretical possibility that academic writing has become bloated over time, filled with loose sloppiness, with unneeded and length excursions into technical jargon, and occasion bouts of unrestrained pompousness.

Whatever the underlying cause of the added length of articles in economics journals, it creates a conflict between the underlying purposes of research publications. One purpose of such publications is to create a record of what was done, so that the data, theory, and arguments are spelled out in detail. However, another purpose is to allow findings to be disseminated among other researchers, as well as students and policy-makers, so that the results can be more broadly considered and understood. Longer articles probably do a better job of creating a record of what was done, and why. But given that time limits are real for us all, it now takes more time to read an economics article than it did four decades ago. The added length of journal articles means that many more pages of economics research articles are published, and a smaller proportion of those pages are read. I skim many economics articles, but having the time and space to read an article from beginning to end feels like a rare luxury, and I suspect I'm not alone.

The challenge is how to strike the right balance between the competing purposes of full documentation of research (which if unrestrained could easily run to hundreds of pages of data, statistics, and alternative theoretical models for a typical research paper), and the time limits faced by consumers of that research. Many modern research papers are organized in a way that allows or even encourages skimming to hit the high spots: for example, if you need to know right now about the details of the data collection, or the details of the theoretical model, or the details of statistics, you can skip past those sections.

Another option mentioned by Card and DellaVigna is the role of academic journals that go back to the old days, with a focus on presentation of key results, with all details available elsewhere. They write: "There may be an interesting parallel in the field of social psychology. The top journal in this field, the Journal of Personality and Social Psychology, publishes relatively long articles, as do other influential journals in the discipline. In 1988, however, a new journal, Psychological Science, was created to mirror the format of Science. Research papers submitted to Psychological Science can be no longer than 4,000 words. ... Psychological Science has quickly emerged as a leading journal in its area. In social psychology, journals publishing longer articles coexist with journals specializing in shorter, high-impact articles."

My own journal, the Journal of Economic Perspectives, offers articles that are meant as informed essays on a subject, and thus typically meant to be read from beginning to end. We hold to a constraint of about 1,000 published pages per year. (But even in JEP, we are becoming more likely to have added on-line appendices with details about data, additional statistical tests, and the like.) I sometimes say that JEP articles are a little like giving someone a tour of a house by walking around and looking in all the windows. You can get a good overview of the house in that way. But if you really want to know the place, you need to go into all the rooms and take a closer look.

The growing length of articles in economic research journals means that the profession has been giving greater priority to full presentation of the back-story of research, at the expense of readers. In one way or another, the pendulum is likely to swing back, in ways that make it easier for consumers of academic research to obtain a somewhat nuanced view of a range of research, without necessarily being buried in an avalanche of detail--but while still having that avalanche of detail available when desired.