The 13 classes of gun policies considered in this research are as follows:
1. background checks 2. bans on the sale of assault weapons and high-capacity magazines 3. stand-your-ground laws 4. prohibitions associated with mental illness 5. lost or stolen firearm reporting requirements 6. licensing and permitting requirements 7. firearm sales reporting and recording requirements 8. child-access prevention laws 9. surrender of firearms by prohibited possessors 10. minimum age requirements 11. concealed-carry laws 12. waiting periods 13. gun-free zones.
The eight outcomes considered in this research are
1. suicide 2. violent crime 3. unintentional injuries and deaths 4. mass shootings 5. officer-involved shootings 6. defensive gun use 7. hunting and recreation 8. gun industry.
They focus on high-quality studies published since 2003. They write:
\”[W]e produced research syntheses that describe the quality and findings of the best available scientific evidence. Each synthesis defines the class of policies being considered; presents and rates the available evidence; and describes what conclusions, if any, can be drawn about the policy’s effects on outcomes. In many cases, we were unable to identify any research that met our criteria for considering a study as providing minimally persuasive evidence for a policy’s effects. Studies were excluded from this review if they offered only correlational evidence for a possible causal effect of the law, such as showing that states with a specific law had lower firearm suicides at a single point in time than states without the law. Correlations like these can occur for many reasons other than the effects of a single law, so this kind of evidence provides little information about the effects attributable to specific laws. We did not exclude studies on the basis of their findings, only on the basis of their methods for isolating causal effects. For studies that met our inclusion criteria, we summarize key findings and methodological weaknesses, when present, and provide our consensus judgment on the overall strength of the available scientific evidence.\”
One main result is that the actual evidence is pretty thin. \”Of more than 100 combinations of policies and outcomes, we found that surprisingly few were the subject of methodologically rigorous investigation.\” For example, evidence on four of the eight outcomes was \”essentially unavailable,\” including defensive gun use, officer-involved shootings, hunting and recreation, and effects on the gun industry. None of the studies of waiting periods and licencing and permitting requirements have reached more than inconclusive results. There are no methodologically sound studies at all on the effects of gun-free zones or requirements for reporting of lost or stolen firearms. I\’ll just list the study\’s overall conclusions here:
Conclusion 1. Available evidence supports the conclusion that child-access prevention laws, or safe storage laws, reduce self-inflicted fatal or nonfatal firearm injuries among youth. There is moderate evidence that these laws reduce firearm suicides among youth and limited evidence that the laws reduce total (i.e., firearm and nonfirearm) suicides among youth.
Conclusion 2. Available evidence supports the conclusion that child-access prevention laws, or safe storage laws, reduce unintentional firearm injuries or unintentional firearm deaths among children. In addition, there is limited evidence that these laws may reduce unintentional firearm injuries among adults. …
Conclusion 3. There is moderate evidence that background checks reduce firearm suicides and firearm homicides, as well as limited evidence that these policies can reduce overall suicide and violent crime rates.
Conclusion 4. There is moderate evidence that stand-your-ground laws may increase state homicide rates and limited evidence that the laws increase firearm homicides in particular.
Conclusion 5. There is moderate evidence that laws prohibiting the purchase or possession of guns by individuals with some forms of mental illness reduce violent crime, and there is limited evidence that such laws reduce homicides in particular. There is also limited evidence these laws may reduce total suicides and firearm suicides. …
Conclusion 6. There is limited evidence that before implementation of a ban on the sale of assault weapons and high-capacity magazines, there is an increase in the sales and prices of the products that the ban will prohibit.
Conclusion 7. There is limited evidence that a minimum age of 21 for purchasing firearms may reduce firearm suicides among youth.
Conclusion 8. No studies meeting our inclusion criteria have examined required reporting of lost or stolen firearms, required reporting and recording of firearm sales, or gun-free zones. …
Conclusion 9. The modest growth in knowledge about the effects of gun policy over the past dozen years reflects, in part, the reluctance of the U.S. government to sponsor work in this area at levels comparable to its investment in other areas of public safety and health, such as transportation safety. …
Conclusion 10. Research examining the effects of gun policies on officer-involved shootings, defensive gun use, hunting and recreation, and the gun industry is virtually nonexistent.
Conclusion 11. The lack of data on gun ownership and availability and on guns in legal and illegal markets severely limits the quality of existing research. …
Conclusion 12. Crime and victimization monitoring systems are incomplete and not yet fulfilling their promise of supporting high-quality gun policy research in the areas we investigated. …
Conclusion 13. The methodological quality of research on firearms can be significantly improved.
Of course, absence of evidence is not evidence of absence–that is, just because there is a lack of evidence on certain policies or outcomes doesn\’t prove that those policies don\’t work. But it does suggest that a degree of humility might be appropriate on all sides. As a hopelessly out-of-touch academic, perhaps there could be bipartisan consensus on building up the data and evidence so that better studies can be done, but maybe this is a situation where neither side wishes to take the risk tha their presuppositions might be rebutted. Or at least when gun control laws are passed, the law could include a specific provision for exactly how those laws will be meaningfully evaluated a few years down the road.
Follow-up on 3/13/18: Faithful reader DK reminds me that Congress blocked the public health authorities from doing research into gun control issues back in the 1990s, as the New York Times just reported. I\’m pretty much always in favor of additional research, and I don\’t like research being limited That said, it seems pretty clear to me as someone who has never fired a gun and tends to favor additional gun controls that most public health researchers then and now have been so stridently anti-gun that their research was not trustworthy. I also tend to view gun policy as a social science issue, which is best tackled with the social science research methods like those considered in the RAND report. It\’s not clear to me that public health researchers have the tools or expertise to address it appropriately.
At a political level, the exemptions for Canada and Mexico make sense. As I mentioned in the earlier post, the US has treaty commitments with Canada going back to the 1950s to integrate their defense-related industrial bases, and there is even a North American Technology and Industrial Base Organization (NATIBO). This is part of the reason why Canada is by far the largest source of US aluminum imports (aluminum imports from Canada are about the same as the combined imports from the next 10-largest exporters to the US, combined). Canada is also the largest source of US steel imports, while Mexico is fourth. And of course, the US is part of the North American Free Trade Agreement with Canada and Mexico, too. Even if Trump wants to renegotiate that agreement, it doesn\’t make sense to do it haphazardly.
So now we are imposing import tariffs on steel and aluminum on the basis that they are vital to US national security, but the tariffs don\’t actually affect the main source of steel and aluminum imports, which is Canada.
Moreover, the exemptions for Canada and Mexico make it even less likely that the tariffs can benefit the US economy. Here\’s why:
The entire purpose of import tariffs is to reduce the extent of foreign competition so that domestic producers can charge more and earn higher profits. (Otherwise, there would be no point to enacting them.) Of course, domestic users of steel and aluminum will pay those higher prices. But at least with a tariff imposed against all trading partners, the higher prices paid by US consumers of steel and aluminum go to two places: either higher revenues for US steel and aluminum producers or higher revenue for the US Treasury. Foreign producers don\’t benefit.
With Canada and Mexico now exempted from the tariffs, the higher prices paid by US consumers of steel and aluminum now go three places: 1) higher revenues for US steel and aluminum producers, 2) higher revenues for Canadian and Mexican steel and aluminum producers, who will also benefit from the higher price; and 3) higher revenues for the US Treasury.
To understand how strange this is, imagine that someone in Congress proposed this policy to \”help\” the US steel and aluminum industries. Start by imposing a tax on US domestic users of steel and aluminum, based on how much they used. Then some of the revenues from that tax would be be rebated to US producers of steel and aluminum, some would be sent to Canadian and Mexican producers of steel and aluminum, and the rest would be kept by the federal government.
As I have commented before in the context of tire tariffs imposed by the Obama administration some years ago, this way of trying to assist the US steel and aluminium industry seems literally insane once you spell it out in this way. It\’s hard to imagine that even the steel and aluminum industries would favor it. But it accurately describes the economic effect of steel and aluminum tariffs with a Canada and Mexico exemption.
When it comes to public policies for helping the poor, economists have tended to favor a focus on individuals who are poor, rather than on places that had a higher share of poor people. This seemed like a better way to target scarce public resources. There was some fear that if the focus shifted to places, much of the benefit would flow to homeowners who lived in those places–and thus saw an improvement in property values– or to local building contractors, rather than helping the poor directly. Also, a healthy economy will see a flow of people moving toward destinations that are more attractive, while place-based support of locations that aren\’t doing well would tend to hinder such migration.
\”America’s western frontier may have closed at the end of the 19th century, but there was still a metropolitan frontier where workers from depressed areas could find a more prosperous future. Five facts collectively suggest that this geographic escape valve has tightened: declining geographic mobility, increasingly inelastic housing supplies in high income areas, declining income convergence, increased sorting by skill across space, and persistent pockets of non-employment. Together these facts suggest that even if income differences across space have declined, the remaining economic differences may be a greater source of concern. Consequently, it may be time to target pro-employment policies towards our most distressed areas. …
\”We divide the U.S. into three regions: the prosperous coasts, the western heartland and the eastern heartland, The coasts have high incomes, but the western heartland also benefits from natural resources and high levels of historical education. America’s social problems, including non-employment, disability, opioid-related deaths and rising mortality, are concentrated in America’s eastern heartland, states from Mississippi to Michigan, generally east of the Mississippi and not on the Atlantic coast. The income and employment gaps between three regions are not converging, but instead seem to be hardening …\”
The paper has a bunch of figures showing differences across these three regions. Here are figures on economic growth, the share of prime-age men not working, and mortality rates for men across these three regions.
What would place-based policies look like? As the authors point out, such policies can be explicit or implicit. For example, an infrastructure policy like the Tennessee Valley Authority is explicitly aimed at a certain geographic region. However, an infrastructure project like the federal highway system, or a program like flood insurance, will clearly have specific geographic effects for those closer to highways or at higher risk of floods, without actually naming a certain geographic area. After mulling the options, they suggest that targeted employment subsidies may be the best bet. They write:
\”The best case for geographic targeting of policies is that a dollar spent fighting non-employment in a high not working rate area will do more to reduce non-employment than a dollar spent fighting non-employment in a low not working rate area. The empirical evidence for heterogeneous labor supply responses to demand shocks or public interventions is limited, but broadly supportive of the view that reducing the not working rate in some parts of the country is easier than in other parts of the country. … While infrastructure remains an important investment for America, targeting infrastructure spending towards distressed areas risks producing projects with limited value for users. By contrast, enhanced spending on employment subsidies in high not working rate areas, and perhaps the U.S. as a whole, seems like a more plausible means of reducing not working rates.\”
The reason behind the tariffs that President Trump has announced for steel and aluminum is an unusual one. The legal justification for the tariffs is based Section 232 of the Trade Expansion Act of 1962, which gives the President the power to impose tariffs if \”national security\” is at stake.
However, the argument that it might sometimes be necessary to limit imports because of national security has a venerable history. Adam Smith, the intellectual godfather of free trade arguments, listed national defense as an exception in Book IV of the The Wealth of Nations.. Smith wrote:
\”There seem, however, to be two cases in which it will generally be advantageous to lay some burden upon foreign for the encouragement of domestic industry. The first is, when some particular sort of industry is necessary for the defence of the country. The defence of Great Britain, for example, depends very much upon the number of its sailors and shipping. The act of navigation, therefore, very properly endeavours to give the sailors and shipping of Great Britain the monopoly of the trade of their own country in some cases by absolute prohibitions and in others by heavy burdens upon the shipping of foreign countries.\”
By all means, the national security argument deserves serious consideration. And seriously, are the steel and aluminum tariffs actually about national security in the sense of military strength? Or is it \”national security\” in a more generic and rhetorical sense, really meaning that if it\’s good for steel industry profits, then it\’s good for \”national security.\”
(Side note: Of course, this second argument is essentially similar to the line attributed long-ago to to Charles Wilson, a former head of General Motors who was nominated to be Secretary of Defense in 1953. Wilson was widely mocked for saying, \”What\’s good for General Motors is good for the country.\” That\’s not actually what he said, as I explain in \”What\’s Good for General Motors …\” (October 23, 2012). But the sentiment that if corporate profits for favored industries are vital to national security was certainly common enough, then and now.)
As the reports point out, Section 232 allows for a broad definition of \”national security.\” It quotes from a report back in 2001, the last time the national security justification for tariffs was considered (although not ultimately used), to note that“in addition to the satisfaction of national defense requirements, the term “national security” can be interpreted more broadly to include the general security and welfare of certain industries, beyond those necessary to satisfy national defense requirements that are critical to the minimum operations of the economy and government.” These reports have a lot of detail on levels of steel and aluminum imports and the difficulties of US steel and aluminum companies. But the details about just how national security is being affected are harder to find and to pin down. Here, I\’ll first give some details on the steel industry from the US Department of Commerce report, and then turn to the aluminum industry report.
Background on the US Steel Industry
The report sums up its case in this sentence: \”It is these three factors – displacement of domestic steel by excessive imports and the consequent adverse impact on the economic welfare of the domestic steel industry, along with global excess capacity in steel – that the Secretary has concluded create a persistent threat of further plant closures that could leave the United States unable in a national emergency to produce sufficient steel to meet national defense and critical industry needs.\”
How much steel is actually used by the US Department of Defense? The answer is 3% of domestic US production. The report says: \”The U.S. Department of Defense (DoD) has a large and ongoing need for a range of steel products that are used in fabricating weapons and related systems for the nation’s defense. DoD requirements – which currently require about three percent of U.S. steel production – are met by steel companies that also support the requirements for critical infrastructure and commercial industries.\”
What about the \”critical industries\” more broadly? The answer is about half of domestic production. The report says: \’\”[T]here are 16 designated critical infrastructure sectors in the United States, many of which use high volumes of steel (see Appendix I). The 16 sectors include chemical production, communications, dams, energy, food production, nuclear reactors, transportation systems, water, and waste water systems. … The updated analysis in Appendix I shows that 49.1 percent of domestic steel consumption in 2007 was used in critical industries.\”
The report has a LOT to say about steel production in China. But when you look at US imports of steel, this table taken from the report shows that Canada is at the top and China is 11th. US steel imports from 2011 to 2017 are up considerably overall, especially from Brazil, South Korea, Mexico, Russia, Turkey, Germany, and Taiwan. But over that time, US steel imports from China are down by about one-third.
How much is US production capacity dropping off? Here\’s the figure from the report. There\’s a rise before the Great Recession and a fall after, but current steel capacity is about the same as it was in the early 2000s.
Logically speaking, the number of jobs in the US steel industry shouldn\’t be part of the national security argument. After all, steel like pretty much every other industry is continually making more use of automation and robots. But here\’s what the report shows about steel industry jobs: a big drop from about 2000-2003, but not much change since then.
For me, it\’s hard to look at these kinds of figures and see a national security crisis in the making in the military strength category. The report even notes that while steel prices are low all around the world, \”Notwithstanding these effects, prices for steel in the U.S. remained substantially higher than in any other area. However, relative to prices between 2010 and 2013, prices are still relatively depressed.\”
The report does give a few examples of specific types of steel products that are important for defense production and where there are few domestic suppliers. The report notes:
\”This is not a hypothetical situation. The Department of Defense already finds itself without domestic suppliers for some particular types of steel used in defense products, including tire rod steel used in military vehicles and trucks. … In the case of critical infrastructure, the United States is down to only one remaining producer of electrical steel in the United States (AK Steel – which is highly leveraged). Electrical steel is necessary for power distribution transformers for all types of energy – including solar, nuclear, wind, coal, and natural gas – across the country. If domestic electrical steel production, as well as transformer and generator production, is not maintained in the U.S., the U.S. will become entirely dependent on foreign producers to supply these critical materials and products.\”
The report also notes that steel producers have reduced their capability to ramp up production in a national emergency:
\”[D]omestic steel producers have a shrinking ability to meet national security production requirements in a national emergency. The U.S. Department of Commerce, Census Bureau regularly surveys plant capacity, and has found that steel producers are quickly shedding production capacity that could be used in a national emergency. The Census Bureau defines national emergency production as the “greatest level of production an establishment can expect to sustain for one year or more under national emergency conditions.” From 2011 to 2017, steel producers increased the utilization of the surge capacity they would have during a national emergency from 54.2 percent to 68.2 percent … As steel producers use more of this emergency capacity, there is an increasingly limited ability to ramp up steel production to meet national security needs during a national emergency.\”
As the report notes, ramping up steel production in the patterns that occurred during the Vietnam War or World War II would take time and effort. Of course, the notion that the US steel industry should be continually prepared to ramp up at high speed for the equivalent of World War II is a questionable one. Let\’s pause there for a moment, and turn to the aluminum report.
Background on the US Aluminum Industry
As the aluminium report explains: \”Aluminum originates from bauxite, an ore typically found in the topsoil of various tropical and subtropical regions; the United States is not a significant source of bauxite as it cannot be economically extracted here. Once mined, aluminum within the bauxite ore is chemically extracted in a refinery into alumina, an aluminum oxide compound. In a second step, the alumina is smelted to produce pure aluminum metal.\”
One of the ironies here is that the US is worried about the national security importance of an industry that depends entirely on imported raw materials. However, as the report notes: \”The U.S. Government does not maintain any strategic stockpile of bauxite, alumina, aluminum ingots, billets or any semi-finished aluminum products such aluminum plate.\”
How much aluminum is used by the US Department of Defense? The report blacks out this information. It reads: \”The U.S. Department of Defense (DoD) and its contractors use a small percentage of U.S. aluminum production. The DoD “Top Down” estimate of average annual demand for aluminum during peacetime is XXXXX, or XXXXX percent of total U.S. demand.\” However, later in the discussion in the specific category of high-purity aluminum, the report reads: \”The U.S. manufacturers of products based on aluminum require 250,000 metric tons of high-purity aluminum a year. Approximately 90 percent of this is for commercial aerospace and other applications. Ten percent is used to support the manufacture of defense-related products.\”
As with steel, the main source of US aluminum imports is Canada. In fact, this outcome is the result of long-standing polices. The report notes:
\”The U.S. in 2016 relied on imports for 89 percent of its primary aluminum requirements, up from 64 percent in 2012. Canada, which is highly integrated with the U.S. defense industrial base and considered a reliable supplier, is the leading source of imports. With Canadian smelters operating at near full capacity and with the vast majority of their production already going to customers in the United States, there is limited ability for Canada to replace other suppliers. …
\”The U.S. and Canadian defense industrial bases are integrated. This cooperative relationship has existed since 1956 and is codified in a number of bilateral defense agreements. For example in 1987, DoD (all Services), the Defense Logistics Agency (DLA), the Office of the Secretary of Defense (OSD), and the Canadian Department of National Defence (DND) joined together to form a North American Technology and Industrial Base Organization (NATIBO). NATIBO is chartered to promote a cost effective, healthy technology and industrial base that is responsive to the national and economic security needs of the United States and Canada.\”
How low is the price of aluminum? Here\’s a graph from the report showing aluminum prices since 1998. Prices peaked during the commodity boom in the lead-up to the Great Recession, then crashed, but presently are above where they were in the late 1990s and early 2000s. In other words, it\’s hard to make the case that prices have fallen below their usual historical range, rather than being pretty much in the middle of that range.
Where is the world\’s aluminum produced? The report says: \”Because aluminum production is highly energy intensive, the world’s leading producers are generally the countries with the lowest energy costs (including Canada, Russia, the United Arab Emirates (UAE), and Bahrain). The exception is China, where electricity costs are actually higher than those of the United States ($614 per metric ton of aluminum produced in China versus $532 per metric ton in the United States); China’ overall production costs were equal to that of U.S. producers.\”
What jumps out at me from the previous table is the US capacity utilization rate in aluminum production is so very low.
The report does note two particular issues that seem to me potentially relevant to national security in the military sense. One is the particular area of \”high-purity aluminum:
\”The U.S. currently has five [aluminum] smelters remaining, only two smelters that are operating at full capacity. Only one of these five smelters produces high-purity aluminum required for critical infrastructure and defense aerospace applications, including types of high performance armor plate and aircraft-grade aluminum products used in upgrading F-18, F-35, and C-17 aircraft. Should this one U.S. smelter close, the U.S. would be left without an adequate domestic supplier for key national security needs. The only other high-volume producers of high-purity aluminum are located in the UAE and China (internal use only).\”
A somewhat related issue is that many of the high-tech uses of aluminum involve research into new alloys and their properties. But aluminum industry R&D seems to have died off:
\”At this time most aluminum companies cannot afford to fund research. The importance of research in this industry is clear, however. More than 90 percent of all alloys currently used in the aerospace industry were developed through Alcoa’s research. … Of the three remaining companies with U.S. smelting operations in 2016, Alcoa is the only company to report spending on Research and Development over the past five years in its financial statements; Century Aluminum and Noranda reported zero spending on R&D since 2012.\”
Some Thoughts about the National Security Argument for Protection
Imagine for a moment that you were firmly convinced that the US faced a national security problem with steel and aluminum–and I mean in the specific sense of being related to military and critical industry needs, not in the generic sense of just thinking some industries should have bigger profits. What would you propose? Here are some ideas:
Focus on the specific areas where the dependence on imports of steel and aluminum is most concerning, like the areas of steel tire rods, electrical steel, and high-purity aluminum mentioned in the reports.
Undertake a crash R&D program to find ways of substituting for steel and aluminum in various applications, and also to reuse and recycle existing steel and aluminum where possi le
Stockpile bauxite and other raw materials, so as not to be vulnerable to import disruptions.
Take all the subsidies that are proposed or enacted for favored noncarbon energy sources like solar and wind, and adapt them to apply to steel and aluminum: maybe tax cuts for these industries; or government guarantees that these companies could borrow large sums at subsidized or zero interest rates; or the Department of Defense and other government purchasers would buy purchase steel and aluminum from US producers at above-market prices; or government could pay steel companies to keep unused excess capacity that could be ramped up quickly.
Make contingency plans that would redirect steel and aluminum from noncritical uses to national security uses, if needed.
Avoid undercutting Canada, which is both a key US ally and the largest outside supplier of steel and aluminum.
Just to be clear, I\’m not advocating everything on this list of ideas. I\’m saying that someone who is seriously concerned that the domestic production of steel and aluminum raises national security concerns should be considering all of these ideas, and advocating for at least some of them.
If the response to national security concerns over steel and aluminum is just \”slap on tariffs, help domestic industry earn higher profits, and just kinda sorta hope that domestic industry uses those profits to build up capacity and specialized products and R&D\”–well, that response doesn\’t actually seem like a serious concern over national security to me. If the national security concerns are legitimate, seems like a remarkably sloppy and unserious way to address them.
Speaking of being serious, one frustration for any economist reading these reports is that at no point do they acknowledge that imports tariffs or quotas have any costs to consumers and other industrial users of these products. After all, the key mechanism by which import restrictions benefit domestic firms is by allowing them to charge higher prices to buyers.
I care a considerable amount about national security. But waving the words \”national security\” should not exempt anyone from an actual consideration of actual costs, benefits, and alternative strategies.
There is zero question in the mind of any economist that import tariffs will offer short-run benefits to the domestic steel and aluminum industries. Whether it benefits the country overall–either in the military or the economic sense of \”national security\”– is considerably more dubious. The inevitable trade retaliation from other countries will only worsen these tradeoffs.
Finally, one sometimes hears the argument that these steel and aluminum tariffs are just an opening bid in the renegotiation of trade agreements. In this telling, the steel and aluminum tariffs could be bartered away for concessions in other parts of trade agreements. Maybe this is true. But if the tariffs are now bargained away or discarded so, I would conclude that the national security justification for their existence was not made sincerely in the first place.
\”In the making of the wages contract the individual laborer is at a disadvantage. He has something which he must sell and which his employer is not obliged to take, since he [that is, the employer] can reject single men with impunity. … A period of idleness may increase this disability to any extent. The vender of anything which must be sold at once is like a starving man pawning his coat—he must take whatever is offered.\”
In an overview essay, \”How Declining Dynamism Affects Wages,\” Jay Shambaugh, Ryan Nunn, and Patrick Liu point out that labor markets have come less dynamic. A dynamic market is always experiencing gross creation of jobs and gross losses of jobs, which together make up net job creation. But gross job creation is down. So is employer-to-employer movement. So are the levels of start-up firms, which are often a source of productivity growth and new job hires.
I found several of the chapters about improving worker bargaining power to be especially interesting.
For example, Matt Marx argues for \”Reforming Non-Competes to Support Workers.\”
\”Today, non-competes are widely used in a variety of occupations, especially among knowledge workers and executives. Prescott, Bishara, and Starr (2016) estimate that 18 percent of respondents to an online survey across a broad set of occupations had signed a non-compete for their current job. Looking specifically at engineers, Marx (2011) finds that 43 percent of workers had signed a non-compete in the past 10 years. Executives were even more likely to have signed: Garmaise (2011) finds that at least 70 percent of senior executives in public companies were bound by a non-compete. …
\”Perhaps the most well-established effect in the non-compete literature is that such employment agreements discourage workers from changing jobs. … If non-compete agreements discourage workers from changing jobs, this restriction circumscribes the effective market for their skills. With fewer firms to bid for their labor, they might receive fewer and less-attractive job offers. … To date, the only published paper to investigate the impact of non-compete agreements on wages is Garmaise (2011). He finds that executives are paid less in states that have adopted stricter noncompete policies. ..[T]alent flows less within states with tighter non-compete laws. Researchers have also examined labor flows across states. Marx, Singh, and Fleming (2015) find that Michigan’s rule change providing for enforcement of non-compete agreements resulted in a brain drain of talent out of the state. Specifically, technical workers left for other states with less-strict enforcement of non-competes. Worse, this brain drain due to non-compete agreements is greater for the most highly skilled workers.. … Non-competes act as a brake on entrepreneurial activity, both by blocking the emergence of new companies and by making it harder for them to grow. … Non-competes not only make it more difficult to start a company, but also make it harder to grow a start-up.\”
In \”A Proposal for Protecting Low‑Income Workers from Monopsony and Collusion,\” Alan B. Krueger and Eric A. Posner argue:
\”New evidence that labor markets are being rendered uncompetitive by large employers suggests that the time has come to strengthen legal protections for workers. Labor market collusion or monopsonization—the exercise of employer market power in labor markets—may contribute to wage stagnation, rising inequality, and declining productivity in the American economy, trends which have hit low-income workers especially hard. To address these problems, we propose three reforms. First, the federal government should enhance scrutiny of mergers for adverse labor market effects. Second, state governments should ban non-compete covenants that bind low-wage workers. Third, no-poaching arrangements among establishments that belong to a single franchise company should be prohibited.\”
Benjamin Harris writes on the theme: \”Information Is Power Fostering Labor Market Competition through Transparent Wages:\”
\”In the U.S. labor market, information on wages and compensation is decidedly asymmetric. Employees frequently do not know how their pay compares to comparable workers, either within or outside their firm, and are reluctant to seek this knowledge out of fear of retaliation, social norms, or general inertia. In stark contrast, many employers use compensation surveys to know precisely where their workers fall in the distribution of wages. In other markets characterized by asymmetric information, the entity with more complete information maintains a distinct advantage (Hart and Holmström 1987); the U.S. labor market is likely no different. …
\”This paper puts forth an aggressive agenda to promote better wage transparency through a five-part proposal. … The first pillar of the proposal advocates for states to adopt comprehensive laws, such as those found in Michigan, both to protect workers from employer retaliation for discussing wages, and to discourage employers from asking workers to waive their right to disclose pay. … The second pillar of the proposal addresses the interrupted progress of a 2016 action by the EEOC that would require large companies to more comprehensively report their compensation data. The action … would have required companies with more than 100 workers to report aggregated wage data by demographic characteristics. … The third pillar … would reform the safe harbor guidelines, which protect firms from claims of wage collusion, to require that companies share any commissioned compensation survey data with workers. … The fourth pillar explicitly prohibits employers from asking about prior pay levels during the hiring process unless they provide data on the pay of comparable workers. … The fifth pillar ,,, calls for Congress to appropriate a small amount of funds for the U.S. Department of Labor (DOL) to study the impact of wage transparency on compensation levels.\”
___________________________ Here\’s the full Table of Contents:
Introduction by Jay Shambaugh, Ryan Nunn, and Becca Portman
Section I: Understanding Wage Stagnation and Its Policy Solutions
Chapter 1: How Declining Dynamism Affects Wages by Jay Shambaugh, Ryan Nunn, and Patrick Liu
Chapter 2: Returning to Education: The Hamilton Project on Human Capital and Wages by Jay Shambaugh, Lauren Bauer, and Audrey Breitwieser
Section II: Policies to Boost Wages through Enhanced Productivity
Chapter 3: Stagnation in Lifetime Incomes: An Overview of Trends and Potential Causes by Fatih Guvenen
Chapter 4: Coming and Going: Encouraging Geographic Mobility at College Entry and Exit to Lift Wages by Abigail Wozniak
Chapter 5: The Importance of Strong Labor Demand by Jared Bernstein
Section III: Policies to Boost Wages through Strengthened Worker Bargaining Power
Chapter 6: Reforming Non-Competes to Support Workers by Matt Marx
Chapter 7: A Proposal for Protecting Low-Income Workers from Monopsony and Collusion by Alan Krueger and Eric Posner
Chapter 8: Information is Power: Fostering Labor Market Competition through Transparent Wages by Benjamin Harris
Chapter 9: Strengthening Labor Market Standards and Institutions to Promote Wage Growth by Heidi Shierholz
Earlier this week, the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution hosted \”A Fed duet: Janet Yellen in conversation with Ben Bernanke\” (February 27, 2018). Video, audio and a transcript are all available here. I\’ll focus here on a few of Yellen\’s comments that caught my eye.
For those not familiar with her career, Janet Yellen was a well-known UC-Berkeley economist in the 1980s and into the 1990s, when her career took a turn toward government roles. She was a member of the Federal Reserve Board of Governors from 1994-97; Chair of Clinton\’s Council of Economic Advisers from 1997-99; President of the Federal Reserve Bank of San Francisco from 2004-2010; Vice-Chair of the Fed from 2010-2014, and then Chair of the Fed from 2014-2018. In short, she\’s had a front-row seat for US economic policy-making for most of the last quarter-century.
Building Consensus as the chair of the Fed. The Federal Open Market Committee, the policy-making part of the Federal Reserve, doesn\’t literally operate by consensus. But there has traditionally been an effort to try to build at least a rough consensus, and members have often been willing to coalesce behind a policy option that they found acceptable, even if it wasn\’t necessarily their first choice. Yellen describes her process of managing these meetings in this way:
\”And initially, at meetings we would have a lot of options on the table and there would be go-arounds and people would express their views. The options–there were people who would favor options that didn’t get a lot of support and they would tend to see that. You know, I love Option Number 9, but I was pretty much alone in doing that. And what I found was it was great. Over time people who favored options for which there wasn’t a lot of support tended to shift their support to options where there was greater support. And gradually, we narrowed things down to one and got complete agreement.
\”So I guess what I do is I often compare the job of managing the committee to the issue a designer would have to face who is trying to decide what’s the right color to paint a room. You have 19 people around the table, and you want to come up with a decision we can all live with on what color to paint the room. And we’d go around the table. Ben, what would you like? You think baby blue is just absolutely ideal. David, what do you think? Chartreuse you think is a lovely color. (Laughter) And we go around the room like that. And the question is, are we ever going to converge?
\”I would feel my job is get everybody to see that off-white is not a bad alternative. (Laughter) As brilliant as your choice was, maybe you could live with off-white, and it’s not so bad. And we can converge on that and it’s going to function just fine and maybe we can agree. So I felt I was often trying to get the committee to coalesce and decide. We’d come up with a good option that we could all agree on.\”
The zero lower bound is likely to be a repeated problem in the future. The current policy of the Fed is to aim at an inflation rate of 2%. The current projections for the federal funds interest rate in the future is that it will be 2.75%. Thus, the next time the Fed wants to cut interest rates, it is going to have negative real rates very quickly, and run into the zero lower bound quite soon.
\”[T]here is a problem and it’s a problem that I think I didn’t recognize when we chose 2 percent as a target [for inflation], how serious it would be. There had been only one country at that time, Japan, that hit the zero lower bound. That seemed like a rare circumstance. And since then, many advanced countries have faced the zero lower bound. There’s now growing agreement that somehow the new normal going forward is a world where productivity growth has been low. Perhaps we’ll be lucky and it’ll rise, but it has been low. We have aging populations and a strong demand for safe assets. It looks like interest rates, long and short, had generally been trending down among advanced countries even before the financial crisis. And I think there is now reason to believe that the new normal for the U.S. and many advanced economies will be on a lower average level of short-term rates.
\”The FOMC in their December projections projected the longer than normal level of the fund’s rate at 2.75, which is just three-quarters of a percent in real terms. And if that’s right and there are estimates of the equilibrium real rate that are even lower than that, zero bound episodes can be much more frequent. This means that for monetary policy, at least short-term rates have much less scope to be used to stabilize the economy. And I think the first thing is to recognize is that this really is a problem. It behooves policymakers and researchers more generally to think about are there changes we can make to the monetary policy framework that would be helpful in dealing with that?\”
\”Our supervisory folks that I met with were alerting me to underwriting practices that were a huge concern. They were telling me about low-doc and no-doc loans, about the rising prevalence of ninja loans, no income/no jobs/no asset-type loans. We supervised Countrywide for a while and looked at their mortgage business which was growing enormously. I met pretty regularly with Angelo Mozilo. And the San Francisco Fed was quite concerned about what was going on. We tried to insist on tighter risk controls.
\”And one day Angelo came up and we had our regular quarterly meeting and he said to me, Janet, I have to tell you, it’s been terrific to be supervised by you. You guys are really on top of your game and we really appreciate all of the valuable advice that you’ve given us. But, you know, we’ve realized that we don’t actually need to be a bank holding company. We realized it would be okay to be a thrift holding company. And so we’re changing our charter. And indeed they did so and decided it would be nice to be supervised by the Office of Thrift Supervision that is no more. So that kind of gave me a sense of what was happening. …. \”I think what I failed to appreciate was, what if housing prices began to fall? I just really did not understand how vulnerable the financial system and particularly the shadow banking system was, how leveraged it was, how much maturity transformation there was, how much of this risk that we thought was being disbursed through the economy was really remaining on the books of these institutions. So I wrongly thought if housing prices fell a medium amount it would do damage to the economy and the outlook, but it would not destroy the core of the financial system. And I think that was a failure to appreciate the weaknesses.\”
Fiscal Austerity as a Stimulus Program. One of President Clinton\’s first steps after taking office in 1993 was a deficit reduction act. It involved raising taxes, and literally every Republican in Congress voted against it. But the US economy did well in the rest of the 1990s, and Yellen gives the deficit reduction plan a portion of the credit. From the transcript:
\”One is that Clinton’s first steps, first economic policies, put in place a plan that would lower budget deficits. There had been great concern about out-of-control budget deficits, and it was reflected in high long-term interest rates. But the Clinton administration was, rightly I think, very concerned that tightening fiscal policy when we had an economy that was just recovering. Unemployment remained high, and they were worried about the negative impacts of fiscal tightening on the economy.
\”So let me just say at the outset: in general, the view that tight fiscal policy tends to depress employment and economic activity—I believe to be correct, and I’m not questioning that. But the Clinton policy was one that phased in very slowly over time a tightening of fiscal policy, so it wasn’t a tightening in day one or year one that was dramatic. I believe it was a very credible multiyear commitment, which served to quickly bring down long-term interest rates dramatically. So in point of fact, I think for at least some several years this was a fiscal tightening that actually was expansionary because the decline in spending or increase in taxes didn’t occur immediately and long-term rates came down very quickly. The economy continued to recover. So the notion that a very well-designed fiscal tightening policy need not have adverse impact on economic activity was one lesson we took away.\”
\”Almost a decade after the onset of the global financial crisis, national debt in advanced economies remains near its highest level since World War II, averaging 104 percent of GDP. In Japan, the ratio is 240 percent and in Greece almost 185 percent. In Italy and Portugal, debt exceeds 120 percent of GDP. Without measures either to cut spending or increase revenue, the situation will only get worse. As central banks abandon the extraordinary monetary measures they adopted to battle the crisis, interest rates will inevitably rise from historic lows. That means interest payments will eat up a growing share of government spending, leaving less money to deliver public services or take steps to ensure long-term economic growth, such as investing in infrastructure and education. …
\”Which policies are more likely to result in a lower ratio of debt to GDP? A number of papers have addressed this question since at least the early 1990s (Alesina and Ardagna 2013 summarizes the early literature). We decided to take another look at the issue using new methodology and a much richer set of data covering 16 of the 35 countries belonging to the Organisation for Economic Co-operation and Development between 1981 and 2014, including Canada, Japan, the United States, and most of Europe, excluding postcommunist nations. Our analysis focused on some 3,500 policy changes geared toward reducing deficits either by raising taxes or by cutting spending. …
\”More specifically, we found that on average, expenditure-based plans were associated with very small downturns in growth: a plan worth 1 percent of GDP implied a loss of about half a percentage point relative to the average GDP growth of the country. The loss in output typically lasted less than two years. Moreover, if an expenditure-based plan was launched during a period of economic growth, the output costs were zero, on average. This means that some expenditure-based fiscal plans were associated with small downturns, while others were associated with almost immediate surges in growth, a phenomenon sometimes known as “expansionary austerity” that was first identified by Giavazzi and Pagano (1990). By contrast, tax-based fiscal corrections were associated with large and long-lasting recessions. A tax-based plan amounting to 1 percent of GDP was followed, on average, by a 2 percent decline in GDP relative to its pre-austerity path. This large recessionary effect tends to last several years.
\”Our second finding is that reductions in entitlement programs and other government transfers were less harmful to growth than tax increases. Such cuts were accompanied by mild and short-lived economic downturns, probably because taxpayers perceived them as permanent and so expected that the taxes needed to fund the programs would be lower in the future. Thus, the data suggest that reforms of social security rules aimed at reducing government spending are more like normal spending cuts than tax increases. Because social security reforms tend to be persistent, especially in countries with aging populations, they entail some of the smallest costs in terms of lost output.
In more detailed analysis, the authors consider various explanations and compare them to the data. For example, the advantages of cutting debt/GDP ratios with spending, rather than taxes, don\’t seem to be associated with corresponding changes in monetary policy, exchange rates, or simultaneous packages of other economic reforms. The big difference seems to be that tackling the debt/GDP ratio with spending based tools is associated with a rise in private investment, while tacking it with tax increases is not.
I\’m not someone who agonizes over finding short-term ways to cut budget deficits. But it does seem to me that the US economy has evolved in an uncomfortable direction of making future promises without providing financing for them, including not just government programs like Social Security and Medicare, but a number of private pensions as well. I\’d like to see discussion of reforms that would either explicitly scale back on these future promises, or identify a stream of funds to finance them, or some combination of both.