Category Archives: Politics

New paper: “Distributional effects of welfare reform for young adults: An unconditional quantile regression approach”

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In the spring of 2015, after having submitted my phd thesis, I attended an applied microeconometics course at the University of Oslo given by Monique de Haan, Tarjei Havnes and Edwin Leuven. I have previously blogged about a paper using the synthetic control method that grew directly out of that course. Now a second paper originating in a presentation in that course has been published:  “Distributional effects of welfare reform for young adults: An unconditional quantile regression approach,” Labour Economics, Volume 65, August 2020. The article is open access.

In the quantile regression class, I presented the paper “Is universal child care leveling the playing field?” by Havnes og Mogstad (Journal of Public Economics, Volume 127, July 2015). That paper uses several non-linear differences-in-differences methods to study the distributional effects of child care. One of their applied methods was the unconditional quantile regression approach of Firpo, Fortin and Lemieux (2009). At the time, I was working on the topic of welfare reform in Norway, and I realized that I could apply the same method to that question. That started a journey that now, 5 years later, has resulted in a published paper.

In the paper, I analyze what happened to earnings when Norwegian municipalities increased their use of conditions for (primarily young) welfare recipients. Of the age group I analyze in the paper (26–30 year olds), 8% received welfare at some time in 1993, the first year of the analysis. Welfare policy affects both those actually receiving welfare as well as a wider population with only a potential connection to the welfare system. I do not know exactly who is impacted, but the fact that changes in welfare policy mainly affect people with a low earning potential suggests going beyond the mean impact and analyzing the effects on the distribution. It is likely that the relatively small average effects mask an effect of higher earnings among low earners and no effects among high earners.

What do I find? Substantial positive effects of increased use of conditions in parts of the lower end of the earnings distribution for women and no or small negative effects for men. For women, earnings at the 20th percentile increase by around 25 percent, or € 2000 per year. As expected, there are no effects in the upper part of the distribution. Below is the key graph:


Fig. 3. Main quantile treatment effect estimates on earnings, 26–30 year olds.

Further, I find that although welfare payments decline, the effect on total income for women is also positive, indicating that they were able to find gainful employment that, overall, improved their financial circumstances.

I conclude that it is important to mention that the reform occurred in a beneficial environment, which may help to explain the good results. First, the reforming municipalities were responsible for undertaking and implementing the changes and therefore likely had a large degree of ownership of the reform and a strategy for implementing it. This may be hard to replicate in the case of changes mandated from a higher authority. Second, the social insurance offices had a large degree of discretion in deciding who should face conditions and what to demand of them. This may be beneficial compared to uniform requirements if caseworkers have relevant information about how to adapt the conditionality policy. Nevertheless, the policy represents a promising avenue to explore for other countries in need of social insurance system reform.

Film censorship in the US

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Reading The Master Switch: The Rise and Fall of Information Empires, a book about  the telecommunication industry in the US from the telephone onwards, I learnt something about censorship in Hollywood. Between 1930 and 1968, the film industry imposed a set of moral guidelines known as the Motion Picture Production Code on itself, out of fear of regulation. Among the forbidden things were swearing, “Any licentious or suggestive nudity – in fact or in silhouette,” White slavery, and Miscegenation.

There was also a list of topics that were to be treated very carefully, such as “Theft, robbery, safe-cracking, and dynamiting of trains, mines, buildings, etc. (having in mind the effect which a too-detailed description of these may have upon the moron),” Sympathy for criminals, Attitude toward public characters and institutions, and The institution of marriage. The industry also enforced the code itself.

It is fascinating that this was official policy. Of course it should come as no surprise that some things were not exactly right in the US of that time. As regards film censorship, Norway has also set itself up for some serious ridicule (in 1980!).

Piketty: “[the powerful force behind rising income and wealth inequality in the US since the 1970s] has little to do with r>g.”

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Much of the discussion about Thomas Piketty’s Capital in the Twenty-First Century has been concerned with his “law” of the relationship between the rate of return on capital (r) and the rate of economic growth (g), known as r > g. To such an extent that the Initiative on Global Markets at University of Chicago asked its panel of economic experts whether they agreed or not with the statement:

IGM Economic Experts 2014 Inequality and r versus g

The experts overwhelmingly disagreed.

Piketty’s reply in Slate was:

“I think the book makes pretty clear that the powerful force behind rising income and wealth inequality in the US since the 1970s is the rise of the inequality of labor earnings, itself due to a mixture of rising inequality in access to skills and higher education, and of exploding top managerial compensation (itself probably stimulated by large cuts in top tax rates), So this indeed has little to do with r>g.”

And he did indeed write e.g.:

“In short, two distinct phenomena have been at work in recent decades. First, the wage gap between college graduates and those who go no further than high school has increased, as Goldin and Katz showed. In addition, the top 1 percent (and even more the top 0.1 percent) have seen their remuneration take off. This is a very specific phenomenon, which occurs within the group of college graduates and in many cases separates individuals who have pursued their studies at elite universities for many years. Quantitatively, the second phenomenon is more important than the first. In particular, as shown in the previous chapter, the overperformance of the top centile explains most (nearly three quarters) of the increase in the top decile’s share of US national income since 1970. (p. 315)”

So why did the IGM ask this question in the first place? And why have so many economists been concerned with it? It is of course possible that they have not read the book. However it might also be the case that Piketty must take some of the blame and that in general it was not so clear in the book. At least the back cover text (on Amazon) is pretty ambiguous (though I hope the critics read more than that).

I should maybe disclose at this point that I have not read  Capital in the Twenty-First Century either, although now I might have to.

 

Should there be more and smaller states? (including Scotland?)

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Writer Charles Stross says yes. I do not have an opinion on what to vote in the Scottish independence referendum tomorrow, but I enjoyed Stross’ long-term perspective:

95% of the discussion in the referendum debates and on the street has been about short term issues that can be resolved one way or the other in the coming days and months (occasionally, months or single-digit years).
[…]
In making my mind up, I looked at the long term prospects.
[…]
My feeling is that we’d be better served by a group of much smaller nations working in a loose confederation or treaty structure. Their job should be to handle local issues (yes, this is localism) while compartmentalizing failure modes: the failure modes of a gigantic imperial power are almost always far worse than those of a smaller nation (compare the disintegration of the Soviet Union with that of Czecheslovakia).

 

“The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.”

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“The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.” Anatole France, 1894.

Tyler Cowen refers to the great great quote by Anatole France in a discussion of “anti-homeless spikes” in the UK. It is highly relevant also in Norway, as the government recently struck a deal in parliament to ban begging, and also here we are trying the “raise the cost of being homeless” approach to homelessness.

The benefits of a surveillance state

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Surveillance gets a bad rap these days, but here is another perspective, stated clearly for once: Stuart Armstrong writing in the Aeon magazine spells out what the benefits of total surveillance might be.  Summary: less crime, fewer resources spent on police and military, prevent pandemics and terrorists, help disaster response, provide data for research, practical applications, more global trust. (And he duly notes: “these potential benefits aren’t the whole story on mass surveillance.”)

The persistent effect of affirmative action

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Conrad Miller from MIT finds in his job market paper that US affirmative action regulation introduced from 1979 onwards had substantial effect on the black share of employees, also after deregulation. The exogenous variation comes from “changes in employers’ status as a federal contractor” and the fact that it was only federal contractors who were subject to these regulations. To get at the full dynamic effect of the regulation, Miller does not stop at comparing employers when they switch contractor status, but exploits also variation in when the firms are contractors for the first or the last time. In this way he can estimate whether there is a (persistent) causal effect also after a firm has lost his status as a federal contractor (has become “deregulated”). 

The event study results are striking: Miller2014Persistenteffectsofaffermativeactionfigure2eventstudies

Figure 2 Event studies, from Miller 2014 The persistent effect of temporary affirmative action

The effect is quite small – becoming a contractor on average increases an establishment’s black share of around 0.15 percentage points per year – but the key point is that it persists, even when the firm is no longer is a contractor. There is much more in the paper, including a proposed explanation in terms of employers being induced to improve their screening procedures for potential employees.

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How the decentralization of technology work against a “surveillance state dystopia”

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The coming of a sureveillance state dystopia has been predicted for some time. Ramez Naam writes a guest post at Charles Stross’ blog, and claims that the decentralization of technology has been responsible for the postponement. E.g., getting away with photoshopping images is a lot harder today than in Stalin’s time.

Naam spells out three technological trends that will help the little man even further: 1. Cheap cameras for self-protection. “[Camera] technology, when expensive benefits the big players. The technology getting cheaper becomes distributed, benefiting the citizenry.” “2. Crypto and Anonymity Blunt Surveillance Tools.” If someone is not looking for you in particular, anonomity tools are quite effective. 3. Information is becoming easier to spread. Naam ends by emphasizing that these trends will be no panacea, we will still need the law and proper oversight.

Cybersecurity

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Confused about debates about cybersecurity? A series of posts by Henry Farrell at the Monkey Cage blog seems a good place to start. First out, the importance of recognising that the two main sides have different points of view on what “security” means:

[C]ybersecurity is riven by disagreements over what security is in the first place. Is it a technical problem (which could be solved by computer system administrators, working alone or quietly coordinating with each other)? Or is it a national security problem (which requires a large scale collective effort, organized by the U.S. government, to defend against existential threats to the homeland)?