Month: May 2024

The Minneapolis City Council voted back on March 7 to require that ride-sharing firms like Uber and Lyft needed to increase the pay received by their drivers. Uber and Lyft both responded by saying that they would stop travelling to or from locations in the city of Minneapolis; Uber said that it would leave the state of Minnesota altogether, while Lyft said that it would continue to serve non-Minneapolis destination in the broader metro area.

My extended family and I live in suburbs that border Minneapolis, and one of my adult children lives in Minneapolis. The ride-share services are mostly a convenience for us, but one of my adult children has a disability and it’s a transportation lifeline for him. Thus, I do have a personal stake in this issue.

(For those not familiar with this area, the population of the broader Minneapolis-St. Paul-Bloomington metro area is about 3.6 million. The population of the city of Minneapolis is about 425,000. However, a number of office buildings as well as destinations like theaters, sport venues, and shopping are within the Minneapolis city limits.)

A complexity in this dispute is that Uber and Lyft drivers are not paid by the hour: they are only paid when actually transporting fares. Their pay is determined by a combination of a fee per mile travelled and a fee per minute of driving. Thus, part of the controversy is over what mixture of per-mile and per-minute fees would assure that drivers receive the minimum hourly wage.

The Minneapolis City Council voted on March 7 for Uber and Lyft drivers to be paid 51 cents per minute and $1.40 per mile. Before the vote, the mayor of Minneapolis pointed out that the state Department of Labor and Industry (run by a sympathetic Democratic governor) was scheduled to publish a study literally the next morning with estimates of what mixture of fees would be needed to assure drivers a minimum wage, and asked that the Minneapolis City Council wait for those numbers. But waiting an entire day for data is not a skill possessed by the council, so it went ahead and voted.

The state report on “Transportation Network Company Driver Earnings Analysis and Pay Standard Options” (March 8, 2024) came out the next day. The “study analyzed extensive data provided by Uber and Lyft about more than 18 million Minnesota transportation network company (TNC) trips and driver earnings for all of 2022, and the results of a survey completed by 1,827 Minnesota drivers.” The report determined that the appropriate mix of fees so that the drivers would make minimum wage would be $0.89 per mile and $0.49 per minute.  

The Minnesota state study noted that “a third of all drivers provided more than two-thirds (69 percent) of all trips,” and focused on the situation of those drivers, who drive more than 20 hours per week. It broke down the time of drivers into three categories: “Period 1 or “P1” is the time drivers are logged into the app and waiting to accept a ride; period 2 or “P2” is the time drivers are enroute to pick up a passenger; period 3 or “P3” is the time when a driver is transporting a passenger from the pickup location to the drop off location. For purposes of this report, the sum of P1, P2 and P3 equals the driver’s total working hours.”

Obviously, the hourly compensation for driving will differ on which time category you use. Also, it will differ according to what is included in estimates of vehicle costs and other expenses. The report states:

The analysis of company data indicates that gross hourly earnings per passenger time (P3) for drivers in the seven-county Twin Cities metro area averaged $52.94 in 2022. But drivers had a passenger in the car only 58 percent of the time they were logged into the app and available for a dispatch. As a result, average gross hourly earnings per working hour (P1 + P2 + P3) are 42 percent smaller: $30.27. After factoring in expenses for total miles driven during working time, average net hourly earnings were even smaller: $14.48 (or 27 percent, of gross hourly earnings based on passenger time). … Those amounts are averages; some drivers earn less, some earn more. … Twenty-five percent of drivers had net, after-expense hourly earnings of $10.54 or less, and 25 percent of drivers had net after-expense hourly earnings of $17.51 or more.

The TNC [Transportation Network Company] pay standard options include two components: a per minute component to compensate for the driver’s time, and a per mile component to compensate for vehicle and other necessary expenses, and as explained below, to cover the cost of possible common workplace benefits. … The Minnesota per minute rate is designed to compensate drivers at the equivalent of the minimum wage, plus the employer share of federal Social Security and Medicare payroll tax … The Minnesota base per mile rate provides for the 63.8 cents per mile cost of acquiring, operating, and maintaining a vehicle based on Minnesota-specific costs from early 2024. The respective per minute and per mile pay standard components are applied to the time and distance of a TNC passenger trip; that is, the pay rates are pegged to the passenger (P3) time and miles. In order to pay drivers for the entirety of their on-app time and for all the miles they drive during on-app time, the per minute and per mile rates are scaled up. Scaling up the per minute pay rate involves dividing by the P3 share of on-app time; scaling up the per mile expense rate involves dividing by the P3 share of total miles driven during all three of the time segments for each trip. … The scaled-up 2024 base compensation rates for the Twin Cities metro area are 48.7 cents per minute and 89.0 cents per mile. … Applying the 2024 base rate pay standard per minute and per mile rates to the hours worked and miles driven during 2022 indicates that average pay per trip for Twin Cities drivers would rise by about 10 percent under the base pay standard.”

I won’t spend time here digging into with the underlying assumptions behind this calculation, like how the total expenses of operating a vehicle are calculated, or whether the P1 time (driver logged on) should be treated the same as P2 time (driving toward picking up a fare) and P3 time (actually transporting someone). But notice that the difference in per-minute fees here is small: 51 cents per minute for the Minneapolis City Council, and 49 cents per minute for the state report. The big gap is the per-mile payments: $1.40 per mile vs. 89 cents per mile. I’ll also add that when the bottom line from the state report is “pay would go up 10%,” my working assumption is that one could also tweak the calculations to say that pay is just fine where it is.

The Minnesota state legislation, with a Democratic majority, has now entered the picture. The most recent “compromise” proposal seems to be $1.27 per mile and 49 cents per minute.  This proposed per-mile fee of course, is well above what the state report recommended. Uber and Lyft are still announcing that they will leave the state if this is enacted.

Here, I’ll just offer a couple of thoughts: one about current pay levels for being a ride-share driver, and the other about likely outcomes if the current proposals go into effect–and then Uber and Lyft renege on their oft-repeated promises to leave and instead decide to stay.

The local labor market here is strong. The unemployment rate in the broader Minneapolis metro area has been about 2.5% since 2017–leaving aside the jump and decline in 2020 and 2021 related to the pandemic. The Minnesota state report notes:

In the post-pandemic period, and especially in 2022 and early 2023, the number of such job openings substantially exceeded the number of job seekers. As a result, pay has increased in low-wage jobs, reversing decades of stagnant wages and growing wage inequality. Data from the Minnesota Department of Employment and Economic Development (DEED) indicates pay for the lowest-wage jobs in the seven-county Twin Cities metro area rose nearly twice as fast during the past two years as for the overall private sector workforce, 13.7 percent compared to 7.1 percent.

During this period when jobs were available in the metro area and pay for low-wage jobs was rising, the number of drivers for Uber/Lyft was rising fast. There were apparently about 12,000 drivers for Uber and Lyft early in 2024, and the number increased by 25% from start of 2023 to the start of 2024. Indeed, a market had developed between Hertz and ride-share drivers, in which Uber and Lyft drivers could rent a car for about $335/week. When the Minneapolis City Council started voting to set rules for driver reimbursement, Hertz shut down the program. Apparently, being a ride-share driver looked like a good option, relative to other local job market alternatives.

If new rules for compensating ride-share drivers do go into effect, they will affect both the quantity demanded of rides and the quantity supplied of drivers. The state report offers some general and qualified thoughts about these effects.

The Minnesota state report notes: “Previous studies based on Uber data have found a one percent fare increase lowered demand for rides by 0.33 percent in Los Angeles, 0.52 percent in San Francisco, 0.61 percent in New York City and 0.66 percent in Chicago. The lower estimates are in cities with less dense mass transit alternatives. If Twin Cities rider price sensitivity is roughly in the middle of this range, passenger fares would have to increase significantly to substantially reduce the aggregate number of TNC trips.” Based on these kinds of studies, one might roughly estimate that a 10% rise in fares would reduce ridership by 5%. This drop-off isn’t extreme–but of course, it means that the 95% who continue to ride are paying the higher fares.

The potential adjustment in number of drivers is perhaps more remarkable. The state report notes: “”Nonetheless, it seems likely that the number of drivers will increase as a result of the pay standard. To the extent driver supply increases, forward dispatch and P3 shares will decline. The pay standard could be adjusted to offset these likely responses.” To put this into English, a higher wage could attract more drivers (remember, the number of drivers in this market was rising rapidly), and then the average driver will spend a greater share of time waiting for fares and less time actually transporting passengers.

The per-mile and per-minute fees only apply when actually driving people around, so less time with passengers actually in the vehicle will tend to offset higher per-minute and per-mile fees. This effect is potentially substantial.

Jonathan V. Hall, John J. Horton, and Daniel T. Knoepfle have done a study called “Ride-Sharing Markets Re-Equilibrate” (NBER Working Paper 30883, February 2023). They have data on Uber drivers and trips across 36 US cities from mid-2014 to early 2017. They look at situations where Uber raised the base fare, and find that in the short-run, drivers make more money. But in the medium-run, after a couple of months, the higher fares attract more drivers and then two other effects kick in. One is that with more drivers, it becomes less necessary for Uber to use “surge pricing” to raise fares when demand is high, which reduces revenue for drivers who would otherwise have received those higher surge fares. The other effect is that the larger number of drivers means less time actually spent driving passengers: a fare increase of 10%, after more drivers have entered the market, leads to a drop in utilization of 7%. They write: “After about 8 weeks, there is no clear difference in the driver’s gross average hourly earnings rate compared to before the fare increase.”

(Full disclosure: The authors of this article work for Uber, in the research department. However, the NBER Working Papers is a well-regarded outlet for high-quality publications. Also, the data is what the data is.)

Of course, I don’t know if the higher fares proposed by the Minneapolis City Council and the Minnesota state legislature would be 100% offset by these counterbalancing effects of less time with passengers in the car. But there would surely be some offsetting effect.

There’s method of argument called “arguing in the alternative.” It most commonly arises in legal cases. You can imagine a criminal defendant who argues that they weren’t present at the scene of the crime; and if they were present, they didn’t do anything; and if they did do something, it wasn’t intentional; and if it was intentional, it wasn’t harmful; and if it was harmful, there were other contributing factors that caused most of the harm; and so on and so on. In a courtroom, the prosecution needs to offer proof on all of these points, so arguing in the alternative can be a useful strategy. But in real life, the long string of “if” statements sounds evasive and comical.

Thus, I’ve taken a sour amusement in listening to the evolution of arguments among supporter of the higher pay standards for Uber/Lyft drivers, which has gone roughly like this: Don’t worry, Uber and Lyft won’t leave; they are only bluffing. Also, if they do leave, then lots of other ride-share companies will move quickly to enter the market. Also, taxis and other forms of transit can take up the slack. Also, if other ride-share companies don’t enter the market, local entrepreneurs can build their own ride-share apps and enter the market. Of course, if the speaker really believed the first point–that Uber and Lyft won’t leave–the rest of the statements are irrelevant.

In 2023, there were almost 2 million trips per month in the broader Minneapolis metro area via Uber and Lyft. Back in 2015, there were about 1300 cabs licensed in Minneapolis in 2015; by a recent count, there are now 14. Yes, if Uber and Lyft leave Minnesota, there will be a cascade of other adjustments and something will take their place. But the short-term and intermediate disruption are likely to be severe. The costs will fall on those who have come to depend on these services for getting to health care appointments, to work, and even for getting home after overindulging in alcohol. If that happens, I will have an indigestible suspicion that if the state and the Minneapolis City Council had just followed the per-minute and per-mile numbers proposed by the state’s own Department of Labor and Industry , then the stated goal that Uber and Lyft drivers should earn the minimum wage would have been accomplished, and the costs and disruption could have been avoided.

The obvious answer is that policymakers want research that supports their personal and political preferences. Conversely, policymakers don’t want research that might pressure them to change their views.

But with that central truth duly noted, situations often arise where policymakers have an overall goal, but the details of how to achieve that goal, or how to estimate costs and benefits of different approaches, needs to be filled in. Consider this comment from Jed Kolko, who just completed a two-year stint as Under Secretary of Economic Affairs at the US Department of Commerce. Kolko writes:

I’ve spent the majority of my career as an economist in the private sector and at think tanks, producing research that I hoped would be useful for policymakers. But I recently completed two years in the Commerce Department, consuming research that could inform the work of the Biden-Harris Administration and the Commerce Department.

And having now seen this from the other side, more as a consumer than a producer of research, I can tell you that most academic research isn’t helpful for programmatic policymaking — and isn’t designed to be. I can, of course, only speak to the policy areas I worked on at Commerce, but I believe many policymakers would benefit enormously from research that addressed today’s most pressing policy problems.

But the structure of academia just isn’t set up to produce the kind of research many policymakers need. Instead, top academic journal editors and tenure committees reward research that pushes the boundaries of the discipline and makes new theoretical or empirical contributions. And most academic papers presume familiarity with the relevant academic literature, making it difficult for anyone outside of academia to make the best possible use of them.

The most useful research often came instead from regional Federal Reserve banks, non-partisan think-tanks, the corporate sector, and from academics who had the support, freedom, or job security to prioritize policy relevance. It generally fell into three categories:

1. New measures of the economy
2. Broad literature reviews
3. Analyses that directly quantify or simulate policy decisions.

If you’re an economic researcher and you want to do work that is actually helpful for policymakers — and increases economists’ influence in government — aim for one of those three buckets.

The first item of Kolko’s list seems to me most directly relevant to work at Commerce. But the other two points reflect themes that come up in a symposium in the Spring 2024 Journal of Economic Perspectives (where I work as Managing Editor), on the subject of “How Research Informs Policy Analysis.” The four papers are:

• “How Economists Could Help Inform Economic and Budget Analysis Used by the US Congress,” by Staff of the Congressional Budget Office
• “The Economic Constitution of the United States,” by Cass R. Sunstein
• “The Financial Crisis Inquiry Commission and Economic Research,” by Wendy Edelberg and Greg Feldberg
• “Philanthropic Cause Prioritization,” by Emily Oehlsen

Like all papers in JEP, these are freely available online, so I won’t attempt a detailed summary here. But as a quick overview:

The staff of the CBO provide an overview of how it works, but the main focus is on specific questions in seven topic areas where the CBO would like to see additional research: credit and insurance, energy and the environment, health, labor, macroeconomics, national security, and taxes and transfers.

Cass Sunstein focuses on OMB Circular A-4, which governs how the federal government does cost-benefit analysis, and which was thoroughly revised in 2023. As he describes it, the revised document includes “new directions on behavioral economics and nudging; on discount rates and effects on future generations; on distributional effects and how to account for them; and on benefits and costs that are hard or impossible to quantify. The revised document leaves numerous open questions, involving (for example) the valuation of human life, the valuation of morbidity effects, and the value of the lives of children.”

Wendy Edelberg and Greg Feldberg led the Financial Crisis Inquiry Commission authorized by Congress in 2009, in the aftermath of the worst events of the Great Recession, which relied in many ways on economic research. For example, they write:

Based on these experiences, we believe that the best way for a researcher to help government staff get up to speed is to be willing to explain not just research that was personally conducted, but more generally explain where the literature is broadly. Government staff need a framework to understand disagreements in the existing literature. A government report is not likely to incorporate the full worldview of a single expert, no matter how compelling. Staff is best-served when researchers can be honest brokers not just for their own research, but also in characterizing where there is and is not consensus and elucidating points of disagreement.

Moreover, for researchers to help staff pursue fruitful avenues for analysis, researchers should be willing to think outside their models. Of course, the real world is far more complicated than theoretical models and even empirical models. Recognizing that, staff is best served when researchers can brainstorm about the relevance of their analysis to the problem at hand. Sometimes, government staff need a number—even while appreciating the enormous uncertainty around that number.

Finally, Emily Oehlsen runs Open Philanthropy, an organization with a task that sounds a little like an undergraduate essay competition: If you had some money to give away, how would you decide–in some more-or-less objective way– where your donation would have the greatest positive effect? The answer relies in part on how you value gains in income and health, and also on the extent to which others may already be focused on a certain topic, or not, which will affect the gains from your particular contribution. As Oehlsen described, Open Philanthropy tries to spell out the reasons for its decision making, often based in available economic research,.

One message from JEP these essays, along with the comments from Jed Kolko, is that the kinds of economic research that are rewarded with publication in top journals and tenure at colleges and universities is often disconnected from the advice that those in the detail-work of policy-making institutions would like to have available. There are various attempts to present research findings in more accessible ways, including my own efforts in editing the Journal of Economic Perspectives and in writing this blog. But ultimately, there’s no substitute for academic economists taking the time and energy, and developing the maturity of judgement, to put their work in the broader context of big questions and other existing research.

There are three “government-sponsored enterprises,” commonly called GSEs, that play a big role in US housing finance: the Federal Home Loan Banks, Fannie Mae, and Freddie Mac. Perhaps the key similarity across all three is that when they borrow money, the financial markets perceive that the federal government is standing behind the loan–and so they can borrow at a lower interest rate. However, the ways in which the GSEs are organized and interact with housing markets is rather different. Most notably, Fannie Mae and Freddie Mac were converted to private companies, with shareholders, which then went broke when housing prices declined in the lead-up to the Great Recession, and have been run by the federal government under a bankruptcy conservatorship since then. However, the Federal Home Loan Banks came through the financial crisis of 2008-09 without requiring any financial support.

For those occasions when it is useful to understand the Federal Home Loan Banks, and how it differs from the other housing-related institutions, the Congressional Budget Office offers some guidance in “The Role of Federal Home Loan Banks in the Financial System (March 2024). From the “At a Glance” overview to the report:

In 1932, lawmakers created a system of Federal Home Loan Banks (FHLBs) as a government-sponsored enterprise (GSE) to support mortgage lending by the banks’ member institutions. The 11 regional FHLBs raise funds by issuing debt and then lend those funds in the form of advances (collateralized loans) to their members—commercial banks, credit unions, insurance companies, and community development financial institutions.

In addition to supporting mortgage lending, FHLBs provide a key source of liquidity, during periods of financial stress, to members that are depository institutions. During such periods, advances can go to institutions with little mortgage lending. Some of those institutions have subsequently failed, but the FHLBs did not bear any of the losses.

FHLBs receive subsidies from two sources because of their GSE status:

• The perception that the federal government backs their debt, often referred to as an implied guarantee, which enhances the perceived credit quality of that debt and thereby reduces FHLBs’ borrowing costs; and
• Regulatory and income tax exemptions that reduce their operating costs.

Federal subsidies to FHLBs are not explicitly appropriated by the Congress in legislation, nor do they appear in the federal budget as outlays. The Congressional Budget Office estimates that in fiscal year 2024, the net government subsidy to the FHLB system will amount to $6.9 billion (the central estimate, with a plausible range of about $5.3 billion to $8.5 billion). That subsidy is net of the FHLBs’ required payments, totaling 10 percent of their net income, to member institutions for affordable housing programs. CBO estimates that in fiscal year 2024, such payments will amount to $350 million.

What is the ownership structure of the FHLB system?

The FHLB system is organized as a cooperative; the individual banks are owned by their members, and FHLBs do not issue publicly traded stock (in contrast to Fannie
Mae and Freddie Mac). One implication is that the system is run for the benefit of its members. The 11 FHLBs are jointly and severally liable for the system’s debt; if any one of them fails, the remaining banks become responsible for its debt.

In dollar terms, what’s the shape of the FHLB system?

As of December 31, 2022, the FHLBs reported assets of $1,247 billion, liabilities of $1,179 billion, and capital (the difference between assets and liabilities) of
$68 billion. Assets included $819 billion in advances, $204 billion of investments, and a $56 billion mortgage portfolio. Liabilities included $1,161 billion of debt.
For calendar year 2022, FHLBs reported net income of $3.2 billion and paid members $1.4 billion in cash and stock dividends. FHLBs’ affordable housing payments that year amounted to $0.4 billion.

What makes the FHLB system so safe, so that it sailed through even the 2008-09 Great Recession?

FHLBs require borrowing members to pledge specific collateral against advances, thus giving the FHLBs priority in receivership over other creditors, including the FDIC [Federal Deposit Insurance Corporation]. Such lending therefore limits the
assets that the FDIC has access to when resolving a failed commercial bank. Moreover, if a commercial bank that is a member institution fails, FHLBs’ advances are paid before the FDIC is paid because the FHLB has a priority claim on collateral. The FDIC is thus exposed to more losses, whereas FHLBs are fully protected. … However, FHLBs face interest rate risk, which is the risk that changes in rates will affect the value of bonds and other securities. FHLBs attempt to limit that risk by
matching the maturities of their assets and liabilities and through other types of hedging. Interest rate risk stemming from mortgage portfolios has contributed to losses by some banks in the past.

How is the FHLB system different from Fannie Mae and Freddie Mac?

[A] large secondary (or resale) mortgage market has developed in which Fannie Mae and Freddie Mac, two other housing GSEs that are now in federal conservatorship, play dominant roles … Fannie Mae and Freddie Mac purchase mortgages from lenders (including members of the regional FHLBs) and
package the loans into mortgage-backed securities that they guarantee and then sell to investors … Today, the primary business of FHLBs still is making
advances to their members.

Why is the FHLB system referred to as the “lender of next-to-last resort”?

During financial crises and other periods of market stress, FHLBs also provide liquidity to member institutions, including those in financial distress. Providing liquidity is one way to protect the financial system from liquidity-driven bank failures. In normal times, however, FHLBs aim to increase the availability of, and lower the rates of, residential mortgages by serving as a source of subsidized funds for financial institutions originating those mortgages. … FHLBs are a “lender of next-to-last resort.” (Banks turn to them before accessing the Federal Reserve’s discount window because borrowing from the window signals that a bank is under stress.)

If we were reinventing the housing finance system today, it seems unlikely to me that we would create the Federal Home Loan Bank system. It’s a long time since 1932. Today, the financing for more than half of all home mortgages doesn’t originate from banks, but instead from “nonbank” financial institutions. But that said, the FHLB system doesn’t cost the government anything directly, it’s part of the network of housing-related finance, and it provides a layer of extra protection as the lender of next-to-last resort for banks under stress. Given that the institution already exists, it feels as if unwinding the $1 trillion-plus in assets would be a substantial task, with limited benefits.

The “15-minute city” is getting some attention from urban planners. The idea is that everyone should be able to access the key destinations in their day-to-day life–work, food, schools, recreation–within a 15-minute walk, bike ride, or mass transit ride of their residence. Cars would then be unnecessary for many daily tasks. Most Americans do not live with the experience of a 15-minute city: for example, the average commute to work, typically by car, is about 25 minutes each way. Here, I’ll sidestep the potential environmental or exercise-related benefits, and instead turn to an interview with Edward Glaeser by the McKinsey Global Institute (“What’s the future for cities in the postpandemic world?” April 17, 2024). When asked about the 15-minute city, Ed responds:

I do, in fact, have views on the 15-minute city. And I certainly applaud the idea that we’re going to have land-use regulations that are such that it’s easy to put residences, and workplaces, and cafés, and stores all in the same neighborhood. There are wonderful things about the 15-minute city, a vision of neighborhoods being full of lots of different amenities. It’s great. The ability for us to have access to lots of things without driving a car, that’s fantastic. But the view that we should basically see ourselves as being citizens of a sort of small neighborhood, rather than citizens of an entire metropolis, that feels deeply dangerous to me, especially in America, with its history of profound racial and income segregation.

Together with Carlo Ratti and a series of other coauthors, we put together a paper looking at, essentially, mobility using cellphones and the 15-minute city. And what we find in the US is actually the more that rich people, elites, live within their 15-minute area, they actually integrate more. So in an elite setting, it’s not a terrible thing. If you’re coming from a poorer area, if you’re an African American, the 15-minute-city experience is one that involves just much more experience segregation for them. And so if you want a city that’s integrated, you want to eschew the 15-minute city. You want to embrace a metropolis-wide vision of the city, not one that focuses on small little neighborhoods.

Glaeser always has interesting comments on the history of urban areas and where they are headed, and I recommend the interview as a whole. Here’s one other thought from him about how segregation within cities, by income and by race, varies between adults and children.

Residential segregation feels like it’s really important in lots of ways. And I think it is very important for children. Segregation has a very powerful effect in explaining differential outcomes for whites and African American kids. But as recent work using cellphone data, by Susan Athey and Matthew Gentzkow and their coauthors have shown, experience segregation for adults can be very different than residential segregation.

In most American cities, you get up in the morning, you leave your segregated neighborhood. You go to an integrated firm. You interact with lots of different people. And so the neighborhood doesn’t matter. But it does matter for kids. Because the kids actually don’t go to work in an integrated company. They go to a segregated school. They play on a segregated street corner. Understanding this feels important to me. I have new work with Cody Cook and Lindsey Currier that tries to differentially look at them, the cellphone mobility patterns of poor kids and rich kids, and just documents how much more of a life that is disconnected from the marvels of urban areas that the kids of poverty experience, even in wealthy cities.

Of course, Glaeser’s argument is not a dispositive or unanswerable argument against the idea of a 15-minute city. But it can be a thin line between the idea that it would be nice if more people could aim to work and carry of many aspects of day-to-day living in walkable neighborhoods around our residences, and the argument that people really should mostly stay in their own 15-minute zones, rather than mixing more widely across our urban areas.

I have been the Managing Editor of the Journal of Economic Perspectives since the first issue in Summer 1987. The JEP is published by the American Economic Association, which decided back in 2011–to my delight–that the journal would be freely available online, from the current issue all the way back to the first issue. You can download individual articles or entire issues, and it is available in various e-reader formats, too. Here, I’ll start with the Table of Contents for the just-released Spring 2024 issue, which in the Taylor household is known as issue #148. Below that are abstracts and direct links for all of the papers. I will probably blog more specifically about some of the papers in the few weeks, as well.

__________

Symposium: How Research Informs Policy Analysis

“How Economists Could Help Inform Economic and Budget Analysis Used by the US Congress,” Staff of the Congressional Budget Office

The US Congress uses economic and budgetary projections, cost estimates for proposed legislation, and other analyses provided by the Congressional Budget Office (CBO) as part of its legislative process. CBO makes assessments based on an understanding of federal programs and revenue sources, reading the relevant research literature, analysis of data, and consultation with outside experts—and often relies on economic research. This article begins with a discussion of the role of the Congressional Budget Office and then discusses how economists could conduct research that would help inform the Congress by improving the quality of the analysis and parameter estimates that CBO uses. It gives overall context and specific examples in seven areas: credit and insurance, energy and the environment, health, labor, macroeconomics, national security, and taxes and transfers.

Full-Text Access | Supplementary Materials

“The Economic Constitution of the United States,” by Cass R. Sunstein

The United States has an Economic Constitution, governing federal regulation, and explaining how to conduct regulatory impact analysis, with reference to quantification and monetization of the costs and benefits of proposed and final regulations. Known as OMB Circular A-4, the Economic Constitution of the United States was thoroughly revised in 2023, with new directions on behavioral economics and nudging; on discount rates and effects on future generations; on distributional effects and how to account for them; and on benefits and costs that are hard or impossible to quantify. The revised document leaves numerous open questions, involving (for example) the valuation of human life, the valuation of morbidity effects, and the value of the lives of children.

Full-Text Access | Supplementary Materials

“The Financial Crisis Inquiry Commission and Economic Research,” by Wendy Edelberg and Greg Feldberg

Researchers and economic research were essential to the success of the Financial Crisis Inquiry Commission. For example, researchers submitted testimony, briefed commissioners, and spoke with our staff in recorded interviews. They also provided access to key data sources and helped us use them. Although we started our investigation barely one year after the height of the crisis, there was already a strong core of early, empirical research grappling with many of our key questions, such as why investors ran certain markets, why incentive problems pervaded securitization markets, and why risk management failed at so many large companies. We also benefited from the wealth of research exploring developments in financial markets leading up to the crisis. The process to build the research staff on a tight deadline was chaotic, and we needed people willing to work long hours, work on a team, and follow the evidence wherever it took us.

Full-Text Access | Supplementary Materials

“Philanthropic Cause Prioritization,” by Emily Oehlsen

Many foundations decide how much and where to give based on their founders’ personal precommitments to specific issues, geographies, and/or institutions. If a grantmaking organization instead wanted to select problems based on a general measure of impact per dollar spent, how should it approach this goal? What tools could it use to identify promising cause areas (climate change, education, or health, for example) or to compare grants that achieve different results? This paper focuses on an approach followed by the grantmaking organization Open Philanthropy for its “Global Health and Wellbeing” portfolio, with an emphasis on two key frameworks: equalizing marginal philanthropic returns, as well as importance, neglectedness, and tractability. It describes measurement and comparability under the first framework, and then applies the second framework to the example of reducing exposure to lead. It concludes by considering critiques and areas for improvement.

Full-Text Access | Supplementary Materials

The Labor Market and Macroeconomics

“The Shifting Reasons for Beveridge Curve Shifts,” by Gadi Barlevy, R. Jason Faberman, Bart Hobijn and Ayşegül Şahin

We discuss how the relative importance of factors that contribute to movements of the US Beveridge curve has changed from 1959 to 2023. We review these factors in the context of a simple flow analogy used to capture the main insights of search and matching theories of the labor market. Changes in inflow rates, related to demographics, accounted for Beveridge curve shifts between 1959 and 2000. A reduction in matching efficiency, that depressed unemployment outflows, shifted the curve outwards in the wake of the Great Recession. In contrast, the most recent shifts in the Beveridge curve appear driven by changes in the eagerness of workers to switch jobs. Finally, we argue that, while the Beveridge curve is a useful tool for relating unemployment and job openings to inflation, the link between these labor market indicators and inflation depends on whether and why the Beveridge curve shifted. Therefore, a careful examination of the factors underlying movements in the Beveridge curve is essential for drawing policy conclusions from the joint behavior of unemployment and job openings.

Full-Text Access | Supplementary Materials

“Perspectives on the Labor Share,” by Loukas Karabarbounis

As of 2022, the share of US income accruing to labor is at its lowest level since the Great Depression. Updating previous studies with more recent observations, I document the continuing decline of the labor share for the United States, other countries, and various industries. I discuss how changes in technology and product, labor, and capital markets affect the trend of the labor share. I also examine its relationship with other macroeconomic trends, such as rising markups, higher concentration of economic activity, and globalization. I conclude by offering some perspectives on the economic and policy implications of the labor share decline.

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“Why Labor Supply Matters for Macroeconomics,” by Richard Rogerson

Benchmark models taught in undergraduate macro do not attribute any role for labor supply as an important determinant of macroeconomic outcomes. The first part of this paper documents three facts. First, differences in hours of work across OECD economies are large and imply large differences in GDP per capita. Second, there are large differences in the size of tax and transfer programs across countries, as proxied by differences in government revenues relative to the GDP. Third, these two outcomes are strongly negatively correlated. Taken together, these facts suggest an important role for labor supply in affecting macroeconomic outcomes. I conjecture that the reason why macro textbooks do not include a discussion of labor supply stems from a belief that labor supply elasticities are sufficiently small that even large differences in work incentives do not generate important macroeconomic effects. The second part of this paper argues that this belief is based on incorrect inference linking small elasticities for prime age male to small aggregate labor supply elasticities. The role of labor supply at the extensive margin plays a critical role in understanding this mistake in this inference.

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“How Cyclical Is the User Cost of Labor?” by Marianna Kudlyak

In employment relationships, a wage is an installment payment on an implicit long-term agreement between a worker and a firm. The price of labor that impacts firm’s hiring decisions, instead, reflects the hiring wage as well as the impact of economic conditions at the time of hiring on future wages. Measured by the labor’s user cost, the price of labor is substantially more pro-cyclical than the new-hire wage or the average wage. The strong procyclicality of the price of labor calls for other forces for cyclical labor demand to explain employment fluctuations.

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Privacy Protection and Government Data

“Government Data of the People, by the People, for the People: Navigating Citizen Privacy Concerns,” by Claire McKay Bowen

The data privacy community generally agrees that government data should be more widely accessible, especially being of the people (data collected about them), by the people (collected and supported using taxpayer dollars), and for the people (providing public and social good). But what to protect in that data and how to do so are highly and intensely debated. This paper discusses the fundamental tradeoff between data privacy and data usefulness—and how determining an appropriate balance can be difficult. The paper also provides thoughts on what must be addressed to help shape the future of data privacy, make meaningful contributions to its policy debates, and ensure the responsible representation of people in data.

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“When Privacy Protection Goes Wrong: How and Why the 2020 Census Confidentiality Program Failed,” by Steven Ruggles

The US Census Bureau implemented a new disclosure control strategy for the 2020 Census that adds deliberate error to every population statistic for every geographic unit smaller than a state, including metropolitan areas, cities, and counties. This article traces the evolving rationale for the new procedures and assesses the impact of the 2020 disclosure control on data quality. The Census Bureau argues that the traditional disclosure controls used for the 2010 and earlier censuses revealed the confidential responses of millions of Americans. I argue that this claim is unsupported, and that there is no evidence that anyone’s responses were compromised. The new disclosure control strategies introduce unnecessary error with no clear benefit; in fact, the new procedures may actually be less effective for protecting confidentiality than the procedures they replaced. I conclude with recommendations for minimizing disclosure risk while maximizing data utility in future censuses.

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Articles

“Gabriel Zucman: Winner of the 2023 Clark Medal,” by Emmanuel Saez

The 2023 John Bates Clark Medal of the American Economic Association was awarded to Gabriel Zucman, associate professor of economics at the University of California, Berkeley for his fundamental contributions to the study of inequality and taxation. Through meticulous empirical work and creative methodological approaches, he has revealed key trends about the concentration of global wealth, the size and distribution of tax evasion, and the tax-saving strategies of multinational companies. These findings have had a profound impact on the academic literature and on global policy debates. He has shifted the way economic research is done by showing that measurement can have a large impact in our field and on the world, inspiring many younger scholars to follow in his footsteps.

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Features

“Recommendations for Further Reading,” by Timothy Taylor

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Lawsuits are still pending, but the current schedule if for a congestion pricing scheme to begin in Manhattan on June 30. An online issue of Vital City published on May 1 has a group of short and readable explainer articles on aspects of the plan.

In the opening essay, Josh Greenman lays out the basics this way:

The congestion pricing plan has twin, closely related objectives: to reduce stubbornly high automobile traffic in Manhattan, and to raise at least $1 billion, and ideally more, in capital funding annually to support public transit. MTA officials expect the plan to reduce the number of vehicles entering the central business district by 17%. The program’s final details go like this: Cars will pay $15 to enter Manhattan at 61st Street and below during daytime hours (5 a.m. to 9 p.m.), and $3.75 during off-peak hours (9 p.m.-5 a.m. on weekdays, and 9 p.m. to 9 a.m. on weekends). At peak times, motorcycles will pay $7.50; small trucks and charter buses, $24; and large trucks and tour buses, $36. Ubers, Lyfts and for-hire vehicles will charge $2.50 per ride, and yellow taxis, $1.25 per ride. There will be no tollbooths: Automated license-plate-reading cameras at 110 locations will photograph vehicles’ license plates

There are of course a bunch of little exceptions, and if you want to dig deeper into details, read Greenman’s article. Here, I want to mention some of the issues that come up in other articles.

On Day 1 of the program, there will be extra charges and probably all kinds of practical problems, while any benefits of additional funds for mass transit will take time. This may not be a politically sustainable equilibrium. Howard Yaruss suggests offering an immediate carrot: as one example, make all of New York City mass transit free on Sundays.

At best, the congestion charge is only going to take a moderate bite out of Manhattan traffic. Sam Schwartz notes that in the decade up to 2019, the number of cars entering Manhattan’s central business district declined–and traffic congestion got worse. A substantial part of the problem was the rise in ride-share traffic, and if autonomous vehicles arrive in Manhattan, the congestion could worsen further.

New York has been using cameras that take a picture of license plates to enforce speeding laws, and there has been a large rise in the number of cars with license plates that are unreadable for many possible reasons: Buy a fake plate on eBay? Buy a legitimate paper license plate in states that allow it? Hang a bike rack over the license plate? For $100, buy an electronic gizmo that makes your plate unreadable to the camera? Use certain coatings or covers that makes a plate unreadable? Just slop some mud on the plate? Drive without a license plate? Reading license plates to collect the congestion toll will have problems, too.

The projected additional funding for NYC mass transit will increase its capital budget by a little less than 10%. More broadly, as funds become available from the congestion toll, what parts of the NYC mass transit system will see noticeable short-term benefits?

Traffic will reroute in creative ways to minimize or avoid the toll, creating new bottlenecks and issues. As one example, people may commute to upper Manhattan (outside the toll zone) or to other parts of New York City, avoid paying the toll, and then take mass transit the rest of the way. If cars are discouraged from commuting into Manhattan, it may be that trucks find it easier to drive into Manhattan. Fewer cars may also open up opportunities for lanes dedicated to buses, or to expanded walking and bike paths, or allow restaurants to keep serving outdoors.

Henry Grabar points to the interaction of congestion pricing and the rules that govern parking. In describing New York City, he writes:

The City manages 19,000 lane miles and 3 million parking spaces; streets make up an astounding 36% of Manhattan. The unthinking allocation of most of that space to private cars — those in motion, but in particular, those that are parked — has long presented one of the city’s greatest opportunities for improvement. … The city can resolve that issue by borrowing a technique from Vancouver: Issue low-cost permits to current car-owning residents, and give them and low-income households an option to renew at that rate in perpetuity. But after that initial period, start charging applicants a market price for a limited number of permits. Gradually, old-timers move away and the system transitions into one where street space is appropriately priced, and the city can easily weigh the distribution of new permits against other curb priorities in terms of space and money. It’s hard to take away parking privileges, but it’s easy not to grant them in the first place. 

Congestion pricing is a bundle of complexities, and a bundle of winners and losers. I don’t live in or near New York, so I’m delighted to watch the experiment play out from a distance. In addition, I’m not hearing a lot of other ideas that offer the possibility of reducing congestion and increasing mass transit in the city. But it also seems like the kind of idea that could be tripped up by practicalities.

For more on congestion pricing, see:

• “What if the Argument Was About Whether to Remove Congestion Pricing?” (May 24, 2019)
• “The Stockholm Congestion Charge” (May 2, 2018)
• “The Pricing Answer to Traffic Congestion” (July 17, 2017)