• Pending Home Sales Fall in December

    Pending home sales dropped significantly in December, according to the National Association of Realtors.  The NAR's Pending Home Sales Index was 92.4 for the month.  It was 101.2 in November (8.7% higher) and 101.3 in December 2012 (8.8% higher).  NAR chief economist Lawrence Yun points to bad weather and "home prices rising faster than income" as key factors.

  • Personal Income Flat, But Spending Rose in December

    Personal income rose ever so slightly in December according to the Commerce Department.  So slightly that it rounds down to a statistical reading of 0.0%.  Personal Consumer Expenditures, meanwhile, rose again.  PCE increased 0.4%, after rising 0.6% in November.  Real disposable income decreased 0.2% while real PCE rose 0.2%.  Take a look at the monthly change:

    Read the full Bureau of Economic Analysis release here.

  • Jeremy Siegel on the State of the Stock Market

    While many were bemoaning the slow rate of recovery in the U.S. economy overall, the stock market had a very good year--delivering a return over 30%.  So, of course, everyone wonders if stocks were overvalued.  Jeremy Siegel seems pretty sure they are not.  In this Knowledge@Wharton interview, he makes the case that stocks match up with earnings fairly well.  Bonds, however, are another story:

  • GDP Growth Slowed in Fourth Quarter

    Real Gross Domestic Product expanded at an annual rate of 3.2% in the third quarter of 2013, according to the advance estimate from the Commerce Department. This was .9% lower than the final estimate for the third quarter of 4.1%.

    As with the third quarter, the Bureau of Economic Analysis report points to inventory investment as a key variable--(only this time it is the reason for a drop in the rate of growth):

    The slowdown in real GDP growth mainly reflected a slowdown in inventory investment. In fact, GDP less inventory investment (real final sales of domestic product) accelerated, rising 2.8 percent in the fourth quarter, compared with 2.5 percent in the third quarter.

    Also contributing to the economic slowdown: a larger decrease in federal government spending, a downturn in housing investment, a slowdown in state and local government spending, and a slowdown in business investment.

    Here is a look at the trend:

    Read the BEA release here.

  • Economic Impact of Electrification on Rural US Communities in the 1930s

    One potential path to increasing economic activity in developing economies is infrastructure investment.  Getting rural communities "on the grid" in poorer nations, for example, connects them with the global economy in direct and indirect ways.  University of Mississippi economist Carl Kitchens looked in his own backyard to see the impact of bringing electricity to rural communities--he notes that 1.3 billion people worldwide do not have access to electricity today--on economic advancement.  From Vox:

    While large-scale projects have demonstrated benefits, often at a large expense, the literature has neglected smaller, more targeted, less expensive projects. In new research (Kitchens and Fishback 2013), we focus on electrification projects that directly connect rural consumers to the electric grid. In 1935, the Rural Electrification Administration (REA) was created in the US. In a five-year period, the REA provided $3.6 billion in subsidised loans to newly established cooperatively owned utilities. With these funds, rural utilities doubled the number of farms receiving electric service, and constructed more rural distribution line than private companies had constructed in the previous 50 years.

    Using a sample of approximately 1,400 rural counties in the US from 1930 to 1940, we estimate the relationship between changes in access to electricity via the REA and agricultural outcomes such as crop values, livestock values, farm size, and land values. We are interested in how counties that received access to electricity from the REA changed relative to similar counties that did not receive REA electricity.

    Our empirical findings suggest that access to electricity improved outcomes in agricultural counties. While agriculture was in decline everywhere at the peak of the Great Depression, counties that received electricity through the REA witnessed smaller declines in agricultural productivity, smaller declines in land values, and more retail activity relative to counties that did not obtain electricity from the REA.

    Read US Electrification in the 1930s here.

  • Foster Cooperation, Improve Productivity

    Yves Morieaux wants to know why workers are so miserable.  He says he has worked with more than 500 companies, and all of them share a big problem: workers are disengaged and that has a negative affect on productivity.  To fix this problem, he wants us to throw out a lot of what we know.  Forget the standard org chart and reporting lines.  Instead, focus on the "interplay" between colleagues.  In this Ted Talk,he lays out six steps to improve cooperation and increase productivity.

  • McKinsey Quarterly: The Next Trend in Manufacturing

    There was massive growth in "offshoring" in the years before the global economic crisis.  Then some manufacturing jobs returned to the U.S. and we called it "reshoring."  Are you ready for "next-shoring"?  In the McKinsey Quarterly, Katy George, Sree Ramaswamy, and Lou Rassey take stock of the economics of manufacturing for today and the coming years, and they make the case for that new technologies are making labor costs less of a factor in choosing where to set up factories.

    More than two-thirds of global manufacturing activity takes place in industries that tend to locate close to demand. This simple fact helps explain why manufacturing output and employment have recently risen—not only in Europe and North America, but also in emerging markets, such as China—since demand bottomed out during the recession following the financial crisis of 2008.

    Regional demand looms large in sectors such as automobiles, machinery, food and beverages, and fabricated metals. In the United States, about 85 percent of the industrial rebound (half a million jobs since 2010) can be explained just by output growth in automobiles, machinery, and oil and gas—along with the linkages between these sectors and locally oriented suppliers of fabricated metals, rubber, and plastics (Exhibit 1).2 The automotive, machinery, and oil and gas industries consume nearly 80 percent of US metals output, for example.

    In China too, locally oriented manufacturers have contributed significantly to rising regional investment and employment. The country has, for example, emerged as the world’s largest market and producer for the automotive industry, and many rapidly growing manufacturing sectors there have deep ties to it. As automotive OEMs expand their capacity in emerging markets to serve regional demand, their suppliers have followed; the number of automotive-supplier plants in Asia has tripled in just the past decade.

    Read Next-shoring: A CEO’s guide here.

  • Case-Shiller: House Prices Drop Slightly in November, But Year-Over-Year Gains Remain Strong

    Home prices dropped slightly in November, dropping 0.1% from October according to the latest Case-Shiller Home Price Indices release.  But they were up significantly from November 2013.  Year-over-year, the Case Shiller 10-city composite rose 13.7%, while the 20-city composite rose 13.8%.  Here's a look at the long term trend:

    From the release:

    “November was a good month for home prices,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Despite the slight decline, the 10-City and 20- City Composites showed their best November performance since 2005. Prices typically weaken as we move closer to the winter. Las Vegas, Los Angeles and Phoenix stand out as they have posted 20 or more consecutive monthly gains.”

    “Beginning June 2012, we saw a steady rise in year-over-year increases. November continued that trend with another strong month although the rate of increase slowed. Looking at the year-over-year returns, the Sun Belt continues to push ahead with Atlanta, Las Vegas, Los Angeles, Miami, Phoenix, San Diego, San Francisco and Tampa taking eight of the top nine spots. Detroit continues to recover but remains the only city with prices below its 2000 level.”

    “Home prices continue to rise despite last May’s jump in mortgage interest rates. Mortgage applications for purchase were up in recent weeks confirming home builders’ optimism shown by the NAHB survey. Combined with low inflation -- 1.5% in 2013-- home owners are enjoying real appreciation and rising equity values. While housing will make further contributions to the economy in 2014, the pace of price gains is likely to slow during the year.”

    Read the full release here.

  • Pew Research Center: American Attitudes Toward Poverty and Inequality

    Ahead of tomorrow's State of the Union Address, in which President Obama is expected to speak to concerns over economic inequality, the Pew Research Center has released some interesting survey results on American attitudes toward poverty and inequality.  Most Americans, the survey shows, believe that there is "broad public agreement that economic inequality has grown," and that most Americans (Republicans, Democrats, Independents) think the government should do something about poverty. 

    Among Democrats, 90% say the government should do “a lot” or “some” to reduce the gap between the rich and everyone else, including 62% who say it should do a lot. But only half as many Republicans (45%) think the government should do something about this gap, with just 23% saying it should do a lot. Instead, nearly half of Republicans say the government should do “not much” (15%) or “nothing at all” (33%) about the wealth divide.

    The differences are somewhat less stark when it comes to views of government action in reducing poverty: Nearly all Democrats (93%) and large majorities of independents (83%) and Republicans (64%) favor at least some government action. However, more than twice as many Democrats as Republicans say the government should do a lot to reduce poverty (67% vs. 27%).

    In part, these differences reflect divergent beliefs about the effectiveness of government action on inequality and poverty. Republicans are far less likely than Democrats to say the government can do a lot to reduce poverty and especially inequality.

    Three-quarters of Democrats favor raising taxes on the wealthy and corporations to expand programs for the poor as the better approach to lessen poverty. Republicans, by about two-to-one (59% to 29%), believe the government could do more to reduce poverty by lowering taxes on the wealthy and corporations in order to encourage more investment and economic growth.

    Divisions are comparably wide when it comes to the effect of government assistance programs to the poor: By a 66% to 26% margin, most Democrats think aid to the poor helps because people can’t get out of poverty until their basic needs are met. But by a 65% to 28% margin, most Republicans believe these programs do more harm than good by making people too dependent on the government.

    Read the full report here.

  • Draghi on Eurozone's 'Path from Crisis to Stability'

    Well, isn't this a change.  At this year's annual World Economic Forum in Davos, European Central Bank President Mario Draghi spoke about reduced risks and "dramatic recovery" in Europe's economies.  In this interview with Philipp Hildebrand, Draghi talked about how Europe has moved to more stable footing, and addresses the risks ahead (including deflation):

  • OECD Report on Russian Economy: Structural Reforms Needed to Restart Strong Growth

    The Winter Olympics are set to begin in Sochi, Russia, and the news media has been focusing on the host nation's ongoing terrorism concerns.  There are economic concerns as well, according to the latest analysis from the OECD.  After a strong start to the 21st century--and Russia's economy weathered the storm of the global economic crisis relatively well--there are, according to the OECD, several structural problems that have slowed growth since late 2012.  The economy has the capacity to change course--but not if it remains so dependent on commodity prices. 

    Read the report here.

  • IMF World Economic Outlook Update and Stronger Global Economic Activity

    Following a relatively strong finish to 2013 for world trade, he IMF has updated its World Economic Outlook for 2014, now projecting a global growth average of 3.7% instead of the previous projection of 3%.  Here's a look at the projections for specific and regional economies:

    Olivier Blanchard shares the view from the IMF in this short interview.

    Read the World Economic Outlook update here.

  • Existing Home Sales Rose in December

    After three successive months of decline, existing home sales rose in December.  The seasonally adjusted annual rate of sales for the month was 4.87million, up from 4.82 in November, according to the National Association of Realtors.  That represents a modest increase of 1%.  Overall, 2013 was a good year for home sales, in spite of limited inventory and low employment.  Overall, sales rose 9.1 percent for the year, and topped the 5 million mark.  The 5.09 million existing homes sold in 2013 was the highest total since 2006.  From the NAR report:

    The national median existing-home price for all of 2013 was $197,100, which is 11.5 percent above the 2012 median of $176,800, and was the strongest gain since 2005 when it rose 12.4 percent.

    The median existing-home price for all housing types in December was $198,000, up 9.9 percent from December 2012. Distressed homes – foreclosures and short sales – accounted for 14 percent of December sales, unchanged from November; they were 24 percent in December 2012. The shrinking share of distressed sales accounts for some of the price growth.

    Ten percent of December sales were foreclosures, and 4 percent were short sales. Foreclosures sold for an average discount of 18 percent below market value in December, while short sales were discounted 13 percent.

    Total housing inventory at the end of December fell 9.3 percent to 1.86 million existing homes available for sale, which represents a 4.6-month supply at the current sales pace, down from 5.1 months in November. Unsold inventory is 1.6 percent above a year ago, when there was a 4.5-month supply.

    The median time on market for all homes was 72 days in December, up sharply from 56 days in November, but slightly below the 73 days on market in December 2012. Adverse weather reportedly delayed closings in many areas. Twenty-eight percent of homes sold in December were on the market for less than a month, down from 35 percent in November, which appears to be a weather impact.

    Short sales were on the market for a median of 122 days in December, while foreclosures typically sold in 67 days and non-distressed homes took 70 days.

    Read the full release here.

  • Bill Gates Debunks Three Myths

    In a recent interview with The Economist's Matthew Bishop, Bill Gates reminds us that, despite the myriad problems around the globe, now is, relatively, a really good time to be alive.  And he sets out to debunk "three myths that block progress for the poor"--for example, the idea that aid does not work.

    Click here to read the Bill and Melinda Gates letter that Gates and Bishop discuss in the interview.

  • Why Germans Rent

    The Germans have been putting themselves forward as the model for smart economic behavior in Europe over the last few years (in fairness, others have looked to them as the model as well).  So it is interesting to note that they are not big on home ownership.  At Quartz, Matthew Phillips has an interesting article on why Germans love to rent and are reluctant to buy.

    And though those data are old, we know Germany’s homeownership rate remains quite low. It was 43% in 2013.

    This may seem strange. Isn’t home ownership a crucial cog to any healthy economy? Well, as Germany shows—and Gershwin wrote—it ain’t necessarily so.

    In Spain, around 80% of people live in owner-occupied housing. (Yay!) But unemployment is nearly 27%, thanks to the burst of a giant housing bubble. (Ooof.)

    Only 43% own their home in Germany, where unemployment is 5.2%.

    Of course, none of this actually explains why Germans tend to rent so much. Turns out, Germany’s rental-heavy real-estate market goes all the way back to a bit of extremely unpleasant business in the late 1930s and 1940s.

    Read Most Germans don’t buy their homes, they rent. Here’s why. here.

  • Ongoing Risk of Global Jobless Recovery

    We have been tracking unemployment figures in the U.S. closely, but what about global unemployment?  The International Labour Organization's latest Global Employment Trends is out, and it shows how wide reaching the unemployment problem is.  ILO researchers expect the total number of unemployed workers to keep rising in 2014 (and beyond) even as GDP improves in economies around the world.  Here's a look at the latest figures and projections from the report:

    The global unemployment rate remained at 6.0 per cent of the global labour force, unchanged from 2012. The number of unemployed around the world is estimated to have reached 201.8 million in 2013, an increase of 4.9 million from a revised 196.9 million in the previous year. There were 31.8 million more unemployed persons around the world in 2013 than in 2007, prior to the onset of the global economic crisis (figure 4). On the basis of current macroeconomic projections, the ILO expects little improvement in the global labour market in 2014, with the global unemployment rate ticking up to 6.1 per cent and the number of un- employed rising by a further 4.2 million.

    Should a sustainable economic recovery fail to materialize once again, a downside scenario would imply that unemployment would rise much faster than in the baseline (figure 5). In such a scenario, global economic growth in 2014 would reach only 2.8 per cent, which is 0.1 per- centage points less than in 2013 and 0.8 percentage points below the baseline. Also, after 2014, output growth would be around 1 percentage point lower in each year than in the base- line. Based on these assumptions, unemployment is projected to increase by a further 5 mil- lion jobseekers relative to the baseline projection of 215 million in 2018. The unemployment rate would reach 6.2 per cent in 2018 compared to 6.0 per cent in the baseline. Most of the additional increase in unemployment in the downside scenario would occur in the Developed Economies and European Union region, with almost 3 million more unemployed by 2018 than in the baseline scenario.

    Download the full report here.  And watch this summary of the report:

  • The Challenge Ahead for Commodity-Price Dependent Latin American Economies

    Andrés Velasco, former finance minister of Chile, is not exactly bullish on growth in his country and across the region.  At Project Syndicate, he lays out the challenge ahead.  If Latin American economies do not diversify sufficiently, then maintaining anything close to the recent rate of growth will be difficult.  Velasco:

    It is pretty clear by now that an extraordinarily benevolent external environment, not a revolutionary policy shift, underpinned Latin America’s rapid growth in the years following the 2008-2009 global economic crisis. As long as the price of soy, wheat, copper, oil, and other raw materials remained stratospheric, commodity-rich countries like Brazil, Chile, and Peru got a tremendous boost; even Argentina grew rapidly, despite terrible economic policies.

    But now “secular stagnation” – the concept du jour in US policy debates since former Treasury Secretary Larry Summers argued last November that the US (and perhaps other advanced economies) has entered a long period of anemic GDP growth – may also be coming to Latin America.

    The argument goes like this: high consumer debt, slowing population growth, and rising income inequality have weakened consumer demand and stimulated savings, while slowing growth in productivity and output itself has discouraged investment. So the “natural” rate of interest – the rate at which the demand for investment equals the supply of savings – has fallen, and arguably has become negative. But, because real interest rates cannot be strongly negative unless inflation is high (which it is not), there is a savings glut. With consumption and investment lagging, the US economy is bound to stagnate.

    But how could such a situation apply to Latin America, where GDP growth is faster, interest rates are higher, and domestic demand is stronger than in the US?

    Consider the region’s history. Until the recent commodity-driven boomlet, growth in Latin America was mediocre. The 1980’s are known as the “lost decade,” owing to a debt crisis and massive recessions, while the market-based reforms of the 1990’s did little to reignite short-run growth. From 1960 to 2007, only four countries in Latin America and the Caribbean – Brazil, Chile, the Dominican Republic, and Panama – grew faster than the US. So meager growth in the coming years would be a return to Latin America’s historical pattern, not a deviation from it.

    Read Secular Stagnation Heads South here.

  • Bernanke Helps Open New Brookings Center for Fiscal and Monetary Policy Studies

    On Thursday the Brookings Institution opened the new Hutchins Center on Fiscal and Monetary Policy, and Ben Bernanke was one of the featured guests for the event.  Bernanke spoke about the past, present, and future of monetary policy in the U.S. and the Federal Reserve in particular.  With the Fed now in the early days of its centenary year, Bernanke is about to step down after being in charge for 8 challenging years.  In this excerpt from his talk, Bernanke takes a moment from discussing the long view to address monetary policy during the global economic crisis, saying "we did the right thing":

    Here is the full talk:

    You can watch other sessions from the Hutchins Center launch here.

  • Breaking the Habit of Overworking

    Hopefully, if you work in the U.S., you are spending Martin Luther King Day someplace other than your office.  Not only to honor Dr. King, but also because you realize that working more hours does not necessarily make you more productive, and some time away from your work can be healthy for you and your company.  In his New Yorker column, James Surowiecki makes the point that working more and more is now driven more by a cult-like workplace culture than by the bottom line (unless, that is, you get paid by the hour):

    Thirty years ago, the best-paid workers in the U.S. were much less likely to work long days than low-paid workers were. By 2006, the best paid were twice as likely to work long hours as the poorly paid, and the trend seems to be accelerating. A 2008 Harvard Business School survey of a thousand professionals found that ninety-four per cent worked fifty hours or more a week, and almost half worked in excess of sixty-five hours a week. Overwork has become a credential of prosperity.

    The perplexing thing about the cult of overwork is that, as we’ve known for a while, long hours diminish both productivity and quality. Among industrial workers, overtime raises the rate of mistakes and safety mishaps; likewise, for knowledge workers fatigue and sleep-deprivation make it hard to perform at a high cognitive level. As Solomon put it, past a certain point overworked people become “less efficient and less effective.” And the effects are cumulative. The bankers Michel studied started to break down in their fourth year on the job. They suffered from depression, anxiety, and immune-system problems, and performance reviews showed that their creativity and judgment declined.

    If the benefits of working fewer hours are this clear, why has it been so hard for businesses to embrace the idea? Simple economics certainly plays a role: in some cases, such as law firms that bill by the hour, the system can reward you for working longer, not smarter. And even if a person pulling all-nighters is less productive than a well-rested substitute would be, it’s still cheaper to pay one person to work a hundred hours a week than two people to work fifty hours apiece. (In the case of medicine, residents work long hours not just because it’s good training but also because they’re a cheap source of labor.) On top of this, the productivity of most knowledge workers is much harder to quantify than that of, say, an assembly-line worker. So, as Bob Pozen, a former president of Fidelity Management and the author of “Extreme Productivity,” a book on slashing work hours, told me, “Time becomes an easy metric to measure how productive someone is, even though it doesn’t have any necessary connection to what they achieve.”

    Read The Cult of Overwork here.

  • Marketplace Explainer: Reverse Repo

    If the economy continues its steady improvement--and especially if growth picks up the pace--the Federal Reserve will be trying to manage something a little tricky: increasing interest rates without inflation climbing.  That means trying to influence important players in the financial sector who are not banks.  One of the tools they will likely use is called reverse repo.  Marketplace's Stacey Vanek Smith gives a good explainer on how reverse repo works (and no, Harry Dean Stanton and Emilio Estevez are not involved).

  • Vox: Examining New Evidence on GDP and Life Satisfaction

    At Vox, economists Eugenio Proto and Aldo Rustichini take a crack at better defining the relationship between GDP and life satisfaction.  To put it another way, the relationship between money and happiness.  Pointing to their own research and that of others, the relationship is strong in poorer nations, where, increases in GDP do indeed bring more life satisfaction.  The relationship is not so clear in developed nations.  Take a look:

    •People in countries with a GDP per capita of below $6,700 were 12% less likely to report the highest level of life satisfaction than those in countries with a GDP per capita of around $20,000.

    Countries with GDP per capita over $20,000 see a much less obvious link between GDP and happiness. Between this level and the very highest GDP per capita level ($54,000), the probability of reporting the highest level of life satisfaction changes by no more than 2%, and seems to be hump-shaped, with a bliss point at around $33,000. This corresponds broadly to the well-known Easterlin Paradox – that the link between life satisfaction and GDP is more or less flat in richer countries.

    To further assess the importance of taking into account the unobserved heterogeneity, we perform a second analysis of the relationship between aggregate income and life satisfaction on more homogeneous territorial units. We restrict the sample to all countries within the EU before the first enlargement to eliminate potentially confounding factors at the country level; Figure 2 show the main findings of this second analysis. This confirms the findings of the country-based analysis outlined above.

    •Data show a clearly positive relation between aggregate income and life satisfaction in the poorer regions, but this relation flattens and appears to turn negative for richer regions, with a bliss point between $30,000 and $33,000.

    Read the full post here.

  • World Economic Forum 2014 Global Risk Report

    The World Economic Forum's annual report on top global risks is out, and there are a few changes at the top of the list this year.  The top five risks in the 2012 and 2013 report were almost exactly the same.  In 2014, the extreme weather events, and unemployment and underemployment come in at numbers 2 and 3. Take a look at the top five risks for each of the last eight reports:

    The report explores how the top global risks "could systematically play out" over the next decade, but it focuses on three areas:

    – Instabilities in an increasingly multipolar world: Changing demographics, growing middle classes and fiscal constraints will place increasing domestic demands on governments, deepening requirements for internal reform and shaping international relations. Set against the rise of regional powers, an era of greater economic pragmatism and national self-protection might increase inter-state friction and aggravate a global governance vacuum. This may hinder progress on cross-cutting, long-term challenges, and lead to increased inefficiencies and friction costs in strategically important sectors, such as healthcare, financial services and energy. Managing this risk will require flexibility, fresh thinking and multistakeholder communication.

    – Generation lost? The generation coming of age in the 2010s faces high unemployment and precarious job situations, hampering their efforts to build a future and raising the risk of social unrest. In advanced economies, the large number of graduates from expensive and outmoded educational systems – graduating with high debts and mismatched skills – points to a need to adapt and integrate professional and academic education. In developing countries, an estimated two-thirds of the youth are not fulfilling their economic potential. The generation of digital natives is full of ambition to improve the world but feels disconnected from traditional politics; their ambition needs to be harnessed if systemic risks are to be addressed.

    – Digital disintegration: So far, cyberspace has proved resilient to attacks, but the underlying dynamic of the online world has always been that it is easier to attack than defend. The world may be only one disruptive technology away from attackers gaining a runaway advantage, meaning the Internet would cease to be a trusted medium for communication or commerce. Fresh thinking at all levels on how to preserve, protect and govern the common good of a trusted cyberspace must be developed.

    The World Economic Forum's multimedia team provides this helpful video summary of the report:

    You can access the full report here.


  • Lit Review of Minimum Wage Studies

    With Congress and at least a dozen states set to consider raising minimum wage levels, now is a good time to review some of the literature.  If you are short on time, or just need some help in figuring out where to start, UMASS economist Arindrajit Dube has done some of the work for you.  Dube selected 12 key studies that 1) are peer reviewed studies "empirically estimate the effects of minimum wages, as opposed to simulate such effects."

    To take stock, the results in this literature are varied and sometimes appear to be inconsistent with each other. But is it possible to filter out some of the noise and actually obtain a signal? First, I note that across these 12 studies, nearly all (48) of the 54 estimates of the poverty rate elasticity are negative in sign. Indeed, only one study by Neumark et al. (2005) suggests that minimum wages actually increase the overall poverty rate. Moreover, this study uses an unconventional methodology that is both different from all other studies, and is also problematic.

    Second, if we take an “average of averages” of the poverty rate elasticities for the overall population across the seven studies that provide such an estimate so that (1) each study is weighted equally, and (2) within each study, all specifications reported in Table 2 are weighted equally as well, we obtain an average poverty rate elasticity of -0.07. However, excluding Neumark et al. (2005) [which uses a problematic and unconventional methodology], the “average of averages” of the poverty rate elasticities is -0.15. [Overall] the existing evidence points towards a modest impact on the overall poverty rate.

    Besides these seven studies, five additional studies reviewed here provide estimates for subsets of the population. If we take an “average of averages” of the poverty rate elasticities across all 12 studies, while (1) weighting each study equally, and (2) weighting each specification and group within study equally as well, we also obtain an elasticity of -0.15. If we exclude Neumark et al. (2005), the “average of averages” across the 11 studies is -0.20. There are, of course, other ways of aggregating estimates across studies. However, when I consider the set of nearly all available estimates of the effect of minimum wages on poverty, the weight of the evidence suggests that minimum wages tend to have a small to moderate sized impact in reducing poverty. [Below, I also plot histograms of all 54 elasticities---both unweighted, as well as weighted by the inverse of the number of estimates in each of the 12 studies, so that each study is weighted equally.]

    While there is a signal in the literature that minimum wages tend to reduce poverty, it is also true that the existing evidence is clouded by serious limitations. These include (1) inadequate assessment of time-varying state-level heterogeneity [i.e., states with high and low minimum wages have very different trajectories on a host of dimensions unrelated to the policy]; (2) limited sample length and/or exclusion of more recent years that have experienced substantially more variation in minimum wages; (3) insufficient attention to serial correlation [which means many of the tests of statistical significance may be incorrect]; (4) use of questionable estimators; and (5) frequent omission of demographic and other covariates. In [my own analysis], I use more and better data along with more robust forms of controls to address these limitations in the existing literature.

    Read Separating signal from noise: a review of 12 major studies on minimum wages and poverty here. (Hat tip Mark Thoma)

  • Modern Capitalism, Growth, and the Importance of Value, Purpose, and Responsibility

    Harish Manwani has been working for Unilever since 1976.  He started out as a management trainee and now is the company's COO.  In this Ted Talk, Manwani shares some of the lessons he has learned in his 37 years "selling soap."  And he argues that global growth depends now on "creating economic value and creating social value."

  • Retail Sales Rose Slightly in December

    Retail sales continue to show modest but steady improvement, according to the latest data from the Commerce Department.  Advance estimates for U.S. retail and food services came in at $431.9 billion, a 0.2% increase over November (after November growth was adjusted downward to 0.4%), and an increase of 4.1 percent from December 2012.  From the Census Bureau:

    Bloomberg's Michelle Jamrisko reports that the retail data exceeded economists' expectations, despite likely suffering from bad weather in much of the country.  

    Read the release here.