UC Davis Econ in the News

Peri’s at it again. Now, he and co-author Ottaviano look at immigration’s impact in Germany in the 90’s (pdf). Germany is an interesting case because much of the immigrants were more highly educated than in the U.S. case. Their results:

[W]e find that the substantial immigration of the 1990’s had no adverse effects on native wages and employment levels. It had instead adverse employment and wage effects on previous waves of immigrants. This stems from the fact that, after controlling for education and experience levels, native and migrant workers appear to be imperfect substitutes whereas new and old immigrants exhibit perfect substitutability. Our analysis suggests that if the German labour market were as `flexible’ as the UK labour market, it would be more efficient in dealing with the effects of immigration.

The last sentence is an implication of the following story: if a labor market was perfectly flexible, wages there would adjust immediately following a supply shock (e.g. a large flow of immigration) and displaced workers would immediately find employment (or they would take lower wages). In other words, there would be no employment effects from labor supply shocks, only wage effects.

Peri and crew run the following thought experiment: eliminate employment effects by changing wages (down for substitute groups like other immigrants and up for compliment groups like natives). To eliminate employment effects (and thus simulating a flexible labor market) wages would have to be about 260 million euros lower in a particular year. In that same year, unemployment benefits for the workers displaced by immigration cost the German state 310 million euros. In other words, the German labor market inefficiency (cushy unemployment insurance) cost the Germans about 50 million euros.

This is a small effect because immigration has a small effect on the labor market. New immigrants really only displace old immigrants, not natives, and even so only one old immigrant becomes unemployed for every 10 new immigrants that become employed.

It should be pointed out, though, 50 million euros is about 15% of these expenditures in the unemployment insurance program. This does seem like significant waste relative the size of the expenditures.

Ack! There IS an “asset bubble” variable in the Taylor rule

And it was right under my nose this whole time. Fellow Grad student at UCD and job market candidate, Takeshi Yagihashi, estimated a Taylor rule with credit channel variables. He finds that the Fed seems to care about credit channel efficiency more than the output gap when making policy and he finds interest rate smoothing isn’t that big a concern ((I have a hard time believing the Fed doesn’t care about smoothing… why does it move in such small increments even when everyone knows its going to move more in the future? why not all at once?)).

And of course I studied credit channel models last year, the deficiency is in me not the theory or the UCD monetary curriculum. I just didn’t “get” the policy implications of those models.

AND guess who wrote the papers that give the theoretical underpinnings for the rules Takeshi estimated? I’ll give you one guess. Hint: he has a beard and he has to worry about credit channel problems.

UC Davis Econ in the News

  • Prof. Carroll, new to the faculty this year, got a huge Department of Education grant to study why some qualified high school grads don’t go to college… I eagerly await his results as they’ll touch on my research
  • Prof. Cogley became an editor at JEDC, which is ranked as a top 30 journal overall and top 5 macro journal by various methodologies
  • This is a couple months old, but new to me… Prof. Olmstead became president of the Economic History Association

Go team!

UC Davis Econ in the News

Davis Professor Paul Bergin’s (with Fed economist Reuven Glick) paper (pdf) on trade costs and oil prices is discussed at econbrowser.

My favorite line in the abstract: “This time-variation [in price dispersion, a measure of trade “thickness”] is difficult to explain in terms of the standard gravity equation variables common in the literature, as these tend not to vary much over time.” The gravity model estimates trade costs using distance between countries (and some other stuff)…

Oh, boy

The man who offered this indictment of economics,

Since the Industrial Revolution, however, we have entered a strange new world where economic theory is of little or no use in understanding differences in income across societies, or the future path of income in any specific society… Economists have no recipe to offer poor countries by which they can become rich.

i.e. economic theory (at least growth theory) is pretty worthless at its primary task, has written this review of a sociology book:

This latest work, however, illustrates why world-systems theory has found little purchase except in the most intellectually undemanding environments (including, apparently, sociology departments)… The book offers more insight into the sad state of intellectual development in sociology departments, even at such prestigious institutions as Johns Hopkins, than it does into the realities of wealth and poverty in the world economy.

I don’t think they’re going to like his tone.

UPDATE: Come to find out Clark and the rest of us economist don’t know jack. Glad we got that cleared up.

Alms Watch 2007 2008

The book reviews, the “real” book reviews, are rolling in:

  • Robert A. Margo says,
    So, in the end, should you read A Farewell to Alms? If you are into Big Think as a consumer or producer, the answer is a definite “yes” — especially if you are a producer (trust me, you will need to prepare a response to Clark, if you haven’t already). Even if, in the end, you are like me — you don’t care for Big Think but you have graduate students to worry about — the answer is still “yes”. Just make sure that your students realize that the scholarly behaviors they should be emulating are the virtues — patience, hard work and discipline — that produced the articles underlying this book in the first place.

    The review contains a good summary of the book for those of you who have yet to read it. BTW, one of his big complaints is he doesn’t like the “tone” of the book. Booooring.

  • Arnold Kling is generally more receptive to Clark’s culture story, but wants institutions to play a bigger role in the story of development. Booooring.

UC Davis Econ in the News

Borjas strikes back!

[T]he finding of immigrant-native complementarity evaporates simply by removing high school students from the data (under the Ottaviano and Peri classification, currently enrolled high school juniors and seniors are included among high school dropouts, which substantially increases the counts of young low-skilled workers ). More generally, we cannot reject the hypothesis that comparably skilled immigrant and native workers are perfect substitutes once the empirical exercise uses standard methods to carefully construct the variables representing factor prices and factor supplies.

The Economist weighs in here.

Its not clear to me, and a subsequent discussion with Prof. Peri has validated my hunch, that High School students should be given zero weight as Borjas et al suggest. Perhaps they should be given a lower weight than Ottaviano and Peri gave them, but a zero weight? Also, while Peri’s result may be counter-intuitive, on closer inspection doesn’t it seem obvious that low-skill immigrants (who have sub-par English skills, aren’t expert at negotiating our culture, etc) aren’t perfect substitutes for natives? It seems the proper null hypothesis (the one that should be harder to reject) would be complementarity.

The real news here, actually, is the extreme transparency with which this debate has been played out. Both authors have their papers (and data) available on their websites and this has been so BEFORE the results were published. Anyone can download the data and reproduce either author’s result. The authors have corresponded heavily; everyone has shown each other their cards.

Even from the inside, this looks like a fairy tale academic debate! (I just hope it pays off for everyone… and I’m not thinking of the Harvard tenured professor.)

In other news, Economic Principles talks about economics in the University of California

UC Davis Econ in the News

Clark on peak oil. That’s right. Peak oil. At least he’s sticking to his sweet-spot academic subject…

The economy would withstand enormous increases in energy costs with modest damage because energy is even now so extravagantly cheap that most of it is squandered in uses of little value. Recently, I drove my 13-year-old son 230 miles round-trip from Davis to Chico, to play a 70-minute soccer game. Had every gallon of gas cost four hours of my wage, I am sure his team could have found opposition closer to home.

Actually, Clark has written a paper close this subject. I discussed it a while back. His argument in that paper is basically that the industrial revolution drove increases in demand for fossil fuels thus encouraging firms to develop new ways to discover and extract those fuels. Say’s Law in reverse, I guess.

(h/t CD and egghead)