Economy Archives - Page 26 of 81 - Progressive Policy Institute

State Drug Price Transparency and Price Gouging Laws: Why They May Raise Health care Costs

Posted on March 13, 2018 by The Progressive Policy Institute

In October 2017, Governor Jerry Brown of California signed a “drug price transparency bill,” requiring pharma and biotech companies to give advance notification of significant price increases and provide specific justifications. Brown hailed the bill as a big step toward holding down spending on health care. “Californians have a right to know why their medical costs are out of control,” said Brown.

Many other states are finding the pharma industry to be a tempting target, especially with all the media attention given to a small number of high-profile price hikes. In Maryland, a new “price-gouging” law restricts generic and off-patent medicines from “excessive and not justified” price increases. Nevada has tackled the cost of diabetes medicines such as insulin, requiring drug makers that have raised list prices by a significant amount to release data about the costs of making and marketing the drugs. Other states like New York, New Hampshire, and Maine are considering legislation that would take various approaches to controlling drug pricing as a solution to rising health care costs.

But a new study by the Progressive Policy Institute suggests that state-level drug price laws potentially harm competition and boost drug costs, while doing very little to slow down the overall growth of health care costs. First, we describe the range of state-level drug price laws – both the ones that have been enacted and the ones that are under consideration.

The Ecommerce Counterfactual

Posted on March 12, 2018September 18, 2024 by The Progressive Policy Institute

I’ve been arguing that the shift to ecommerce has improved the position of workers, by increasing the number of jobs and boosting wage payments. In a nice twitter discussion last week, Jose Azar pointed out that I had not specified a counterfactual, and he was right.

So here I will make up for that omission, at least a bit. Let’s start by laying the groundwork. The direct employment impact of ecommerce primarily shows up in three industries: Retail, couriers and messengers, and warehousing and storage. Most ecommerce fulfillment centers are reported in the warehousing and storage industry, though some are found in the electronic shopping, which is part of retail. The companies that deliver the packages seem to be mostly reported in the couriers and messenger industry. And of course the brick-and-mortar stores hurt by ecommerce are in the retail industry.

Let’s look at the recent employment history of these three industries (see table below). We will focus on hours worked by production and nonsupervisory workers in what we call the “consumer distribution sector,” the combination of retail, couriers and messengers, and warehousing and storage.

The Jobs Impact of Ecommerce
Percentage change, aggregate hours worked, production and nonsupervisory workers
	2014-2017
Retail	3.8%
Couriers and messengers	19.9%
Warehousing and storage	33.5%
Total (consumer distribution sector)	6.3%
All private sector	5.8%

The consumer distribution sector is defined as including retail, couriers and messengers, and warehousing and storage Data: BLS CES

According to BLS CES data, aggregate weekly hours of production and nonsupervisory workers in the warehousing and storage industry are up 34% over the past 3 years, reflecting the rapid expansion of ecommerce fulfillment centers. Aggregate weekly hours of production and nonsupervisory workers in the courier and messenger industry are up 20%, and hours worked in retail are up 4%

Taken together, hours worked in the consumer distribution sector are up 6.3% over the past 3 years. That’s faster than the 5.8% gain in hours worked in the overall private sector of the economy.

How does this gap compare to the historical pattern? We’ll look at the previous two business cycles, 1990-2000 and 2000-2007.

Let’s start with the 1990-2000 business cycle. Even though Amazon was founded in 1994, ecommerce was fairly insignificant for the labor market in this decade. In 2000 Amazon had only 6 fulfillment centers in the United States, and employed a grand total of 9,000 full-time and part-time workers globally. In total, ecommerce amounted to less than 1% of retail sales in 2000.

During this decade, hours worked in the private sector grew at a 2.1% annual pace. By comparison, hours worked in the consumer distribution sector grew at only a 1.6% annual rate.

The next business cycle was terrible for employment. Between 2000 and 2007, private sector hours growth slows to a 0.5% rate, while consumer distribution sector hours rose at only a 0.2% pace.

However, it’s worth noting that the gap between hours growth in the private sector and consumer distribution sector narrowed as ecommerce became more important. By 2007, ecommerce amounted to about 3.5% of retail sales.

From 2007 to 2017, the share of ecommerce rose to roughly 9%. At the same time, hours growth in the consumer distribution sector accelerated to an 0.6% annual pace. The gap with the private sector narrowed even further, to less than 0.1 percentage points.

And when we focus on the last three years–the period of the supposed retail apocalypse–we see that hours growth in the consumer distribution sector is now outpacing private sector hours growth, even as Amazon and other online retailers have opened up ecommerce fulfillment centers all over the country.

How can this be? The short answer is that ecommerce is sucking unpaid hours out of the household sector. In effect, consumers are paying workers do their picking, packing, and driving for them. Ecommerce is hours-creating, rather than hours-destroying.

This analysis is indicative rather than conclusive, of course. But it suggests that ecommerce has had a positive effect on hours growth in the consumer distribution sector, relative to private sector hours overall.

Soaring Real Wages for Ecommerce Workers

Posted on March 9, 2018September 18, 2024 by The Progressive Policy Institute

There’s a lot of talk about labor monopsony these days. But at least in ecommerce, the labor market seems to be working the old-fashioned way—booming demand for fulfillment center workers and package delivery workers is leading to sharply rising real wages. Over the past year, employment of production and nonsupervisory workers in the warehousing industry has risen by 5%, while employment of production and nonsupervisory workers in the courier and messenger industry has soared by a striking 8.7% (all figures in this post are 3-month averages).

At the same time, real hourly earnings for production and nonsupervisory workers in the warehousing industry are up by 6% over the past year, while real hourly earnings for production and nonsupervisory workers in the courier and messenger industry are up by 2.6%. Meanwhile the private sector as a whole showed no real wage gain at all.

Can we expect this to continue? There’s no reason why not. There’s no great surge of unemployed workers coming out of retail to hold down wages. Indeed, the number of production and nonsupervisory workers in retail is up 76K in February over a year earlier.

At least for now, ecommerce is the place to be.

Gerwin for The Hill, “‘Go-it-alone’ trade strategies are neither wise nor effective”

Posted on March 8, 2018 by The Progressive Policy Institute

On March 1, after weeks of “absolute chaos” within his administration, Trump held a hastily arranged “listening session” with metals executives.

Trump announced — to the surprise of his staff — that he’d be imposing import tariffs of 25 percent on steel and 10 percent on aluminum, and that these tariffs would last “a long period of time.” Trump reportedly chose 25 percent duties because a round number “sounds better.”

Reaction to Trump’s informal announcement was swift, widespread — and harsh. The stock market, which Trump cites as confirmation of his economic genius, plunged 420 points. The Wall Street Journal called the tariffs the “biggest policy blunder” of Trump’s presidency.

Continue reading at The Hill.

Senate Democrats’ Deficit-Neutral Infrastructure Plan Clarifies the Cost of Tax Cuts

Posted on March 8, 2018September 18, 2024 by The Progressive Policy Institute

Senate Democrats yesterday unveiled an ambitious $1 trillion infrastructure proposal that would invest in everything from roads and railways to hospitals and high-speed broadband. And in sharp contrast to recent proposals by the Trump administration, this new Democratic proposal includes a plan to fully pay for itself.

The proposal calls for repealing three elements of the recently-enacted Republican tax bill that almost exclusively benefit the wealthiest taxpayers, as well as closing the “carried interest loophole” that allows certain earnings on Wall Street to be taxed at a lower rate than other compensation. It would also raise the top corporate tax rate from 21 percent to 25 percent – the average rate among OECD countries and the level originally proposed by House Ways and Means Chairman David Camp (R-MI) back in 2014.

Spending in the new proposal is broken down into 19 different categories, each with its own budget and parameters for implementation. The package as a whole includes additional guidelines, such as encouraging the adoption of innovative technologies and long-term financing mechanisms, to accompany proposed spending. If fully implemented, the proposal’s authors believe it would create 15 million good-paying jobs.

Compare that to the proposal offered last month by the Trump administration, which claims to increase infrastructure investment by $1.5 trillion even though the administration’s budget provided no additional funding for it. The Trump proposal would also privatize a wide variety of physical assets, such as waterways and interstate highways, that the Democratic proposal would retain for public use.

Another advantage of the Democratic proposal is that it makes clear to voters the true cost of the Republican tax cut enacted last year – something PPI has been urging Democrats to do since before passage of the bill. For less than half the cost of this terrible tax cut, voters could have gotten a robust 21^st century infrastructure that would benefit our economy for generations to come. That message could be a powerful one heading into the midterm elections, especially if paired with a credible and comprehensive Democratic framework for “repealing and replacing” the GOP tax bill.

Senate Democrats should be commended for including suggested funding mechanisms in their proposal. Whereas Republicans added over $2 trillion of tax cuts to the national debt, the Democrats’ infrastructure proposal would be fully funded and deficit-neutral. If implemented in a timely and cost-effective way, their proposal might even reduce budget deficits because of the high economic returns on well-targeted infrastructure investment. The stark contrast between these two approaches to fiscal policy is just further evidence that only one of the two political parties in Washington is making any attempt to pay for its proposed policies.

But when they find themselves in a position to implement these policies, Democrats should keep in mind that simply paying for their new proposals isn’t sufficient.

The federal government is now spending $1 trillion more than it raises in revenue every year – a gap that is projected to more than double over the next decade. It will be impossible to sustain social programs as they’re currently structured, let alone fund new ones, without major reforms to both existing spending and the tax code. The government cannot afford to commit every dollar of additional revenue to new promises until it finds a way to pay for the ones we’ve already made.

For these reasons, Democrats would be wise to use yesterday’s proposal as merely the starting point for crafting a complete fiscal policy: one that sustainably finances both public investments and a strong social safety net without placing an undue burden on young Americans. A fiscally responsible public agenda along these lines is what the Democratic Party needs, and it’s what our country deserves.

New Analysis Highlights Dire Fiscal Situation

Posted on March 5, 2018September 18, 2024 by The Progressive Policy Institute

New projections from the non-partisan Committee for a Responsible Federal Budget show that Donald Trump and the Republican-controlled Congress have plunged the United States back into trillion-dollar deficits at a time when most economists believe we should be whittling them down.

According to CRFB’s estimates, which are based on a methodology similar to the one used by official scorekeepers at the Congressional Budget Office, the policy changes made since last fall will likely result in $6 trillion being added to the national debt over the next decade if they’re allowed to remain in place. This is in addition to $10 trillion of new debt that was already projected to accumulate under the law as it was previously written.

If the government continues on this trajectory, our national debt will be more than double the level it was when Donald Trump took office by the end of the decade. Annual budget deficits will triple. Annual spending on interest payments will quadruple. And economic growth won’t be able to keep up with any of it.

Many of the fiscal challenges facing the United States predate the current administration. But whereas CBO previously projected annual budget deficits to exceed $1 trillion beginning in 2022, CRFB’s analysis warns that we now face trillion-dollar deficits this year. By 2028, the budget deficit will swell to 2.4 trillion, which would be over 8 percent of gross domestic product – a level not seen outside of the Great Recession since World War II.

The primary contributors to this deteriorating fiscal situation are the Republican tax bill (formerly known as the Tax Cuts and Jobs Act) and the February budget deal (the Bipartisan Budget Act of 2018), which together account for over half of the additional borrowing expected over the coming decade. Funding for disaster relief, overseas military engagements, and other “emergencies,” as well as policies that were supposed to expire last year but were nonetheless extended without being offset, were expected to add another trillion dollars to the debt. Finally, Republican efforts to undermine the Affordable Care Act by defunding cost-sharing reductions would further grow government debt by increasing the cost of health care.

The CRFB report notes that when President Obama left office, “paying for new legislation and securing the solvency of various trust funds would have been sufficient to prevent debt from rising rapidly as a share of GDP.” Since then, legislation spearheaded by Republicans has “turned a dismal fiscal situation into a dire one.”

Most of the blame belongs to the GOP, but Democrats are not completely innocent either. Many supported the February budget deal that not only reversed harmful sequestration but also busted through less restrictive spending caps originally intended to be a down payment on fiscal discipline, as well as some of the other policy changes mentioned above that were adopted without offsets. Both parties now have their hands on the shovel being used to dig our fiscal hole deeper and, as this new analysis makes clear, they need to put it down.

Good News: FCC Proposes to Streamline 5G Small-Cell Siting Process

Posted on March 5, 2018September 18, 2024 by The Progressive Policy Institute

PPI has repeatedly made the economic case that accelerating the deployment of 5G is essential for boosting growth. For example, in a 2016 report, we estimated that next generation wireless could add 0.7 percentage points annually to economic growth.* Moreover, as we noted in a January 2018 report, 5G networks can play a key role in reviving manufacturing and other physical industries, and enabling what we call the “Internet of Goods.”**

For these reasons, we strongly support the FCC’s new proposal to streamline the deployment of next generation wireless facilities by reducing the federal regulatory burden for establishing new sites, to be voted on at their March 22 meeting. The FCC says that their revised approach to small cells “could cut the regulatory costs of deployment by 80 percent, trim months off of deployment timelines, and incentivize thousands of new wireless deployments—thus expanding the reach of 5G and other advanced wireless technologies to more Americans.”

In our view, the FCC is making a significant contribution to economic growth by proposing policies that that encourage the rapid deployment of 5G networks. The revival of local manufacturing, and other physical industries that are part of the Internet of Goods, requires high speed mobile broadband to be as pervasive as possible. Regulations that delay or depress the build-out of these networks are standing in the way of higher living standards for Americans.

*”Long-term U.S. Productivity Growth and Mobile Broadband: The Road Ahead,” March 2016

**”The Internet of Goods and a Revitalized Economy: Upstate New York as a Template“, January 2018

The Case for Online Vision Tests

Posted on March 1, 2018 by The Progressive Policy Institute

Healthcare faces three major issues: access, cost, and productivity. Telemedicine — the use of technology to help treat patients remotely – can help address all three. Broadband allows many underserved rural and minority communities that previously had limited access to medical services to remotely access high-quality medical care. Telemedicine reduces the need for expensive real estate and enables providers to better leverage their current medical personnel to provide improved care to more people.

But, despite its benefits, there is an ongoing struggle about how to regulate telemedicine: who can practice it, what services can be delivered via telemedicine, and how it should be reimbursed. As is the case with any innovation, policymakers are looking to find the right balance between encouraging new technologies and protecting the health of patients. These are real issues. In too many cases, however, state and local legislators have erred on the side of too many restrictions on telemedicine, driving up prices and “protecting” patients from cheaper, better care.

In particular, online vision tests have come under attack in some states. Online vision tests use your computer and smartphone to assess your near and distance vision. When used correctly, they complement rather than substitute for in-person eye exams. Their main benefit is that they make it easier and less costly to get prescriptions for glasses or contacts. That’s especially helpful in states with large rural or poor urban communities. Indeed, more than 800 counties nationally have no optometrist offices or optical goods stores, according to figures from the Bureau of Labor Statistics. That’s fully one-quarter of the counties in the country.

In this report, we provide background on the health and economic benefits of telemedicine, analyze recent legislation proposed regarding online vision tests, and illustrate the impact online vision tests have on poor and rural communities.

Bledsoe for The Hill, “Solar case shows climate protection requires globalized economy”

Posted on February 20, 2018 by The Progressive Policy Institute

Responses to President Trump’s imposition of tariffs on Chinese solar panels fall into two general camps.

One holds that Chinese solar manufacturing subsidies are so egregious as to require U.S. tariffs to deter additional subsidies by Beijing. Others believe the action is really just free-trade political posturing by Trump, and in practice, amounts only to a self-inflicted wound on the rapidly growing U.S. solar installation sector.

Neither perspective accounts, however, for the recent history of U.S. and Chinese solar subsidies, or indeed new subsidies for carbon capture and other clean energy sources that became law in the recent budget agreement.

Continue reading at The Hill.

Wage Winners in 2017: Ecommerce and Retail?

Posted on February 16, 2018September 18, 2024 by The Progressive Policy Institute

Overall, 2017 was still a weak year for wage growth. In the private sector, real hourly wages for production and nonsupervisory workers rose only 0.2% in 2017, the slowest rate since 2012.

However, production and nonsupervisory workers did do significantly better in some industries. The table below lists the top 2017 increases in real hourly wages for large industries, defined as 3-digit industries with more than 500K production and nonsupervisory workers.

The top large industry for real wage growth in 2017 was warehousing, where a 4.9% gain in real hourly wages for production and nonsupervisory workers was likely driven by the growth in ecommerce fulfillment center employment.

Other big winners were some retail industries and restaurants. These gains in part reflect increases in minimum wages for 21 states in 2017. But the other driving force is the need for brick-and-mortar retailers to upskill their workers to better compete with ecommerce.

2017 Wage Leaders for Large Industries*
Real hourly wage gain for production and nonsupervisory workers, 2017

Warehousing and storage	4.9%
Chemical/pharma manufacturing	4.7%
Sporting goods, hobby, music, and book	2.8%
Food services and drinking places	2.5%
General merchandise stores	2.5%
Heavy and civil engineering construction	2.2%
Repair and maintenance	2.2%
Clothing and clothing accessory stores	2.1%
Personal and laundry services	2.0%
Building material and garden supply stores	2.0%
Health and personal care stores	1.6%

*3-digit industries with more than 500K production and nonsupervisory workers
Data: BLS

If we just focus on warehousing for a moment, we see that real hourly wages in the industry started to rise after 2013, just as employment started to soar from the big expansion of ecommerce fulfillment centers. The left hand axis (red line) is real hourly wages for production and nonsupervisory workers, in 2017$, and the right hand axis (blue line) is employment of production and nonsupervisory workers.

Six Charts That Reveal the Absurdity of the Trump Budget

Posted on February 14, 2018September 18, 2024 by The Progressive Policy Institute

The president’s budget proposal – the official document that lays out his administration’s tax and spending wish list – usually contains a mix of dubious economic assumptions and ambitious policy ideas that are dead on arrival in Congress. But while the president’s budget is usually somewhat estranged from reality, Donald Trump’s Fiscal Year 2019 Budget is utterly divorced from it. The budget proposal also guts critical public investments such as infrastructure and scientific research, slashes the social safety net, and – even under the most charitable economic assumptions – still proposes to run budget deficits significantly larger than they would have been under President Obama’s final budget proposal.

Gutting Public Investment

The delusion starts with a proposal for discretionary spending levels far below those in the budget deal passed just last week. That deal set spending caps for non-defense (domestic) discretionary programs to $579 billion in FY2018, which is just under 2.9 percent of gross domestic product. This represented a significant increase over the caps imposed by the Budget Control Act of 2011 but would still result in domestic spending below its historical average.

The Trump budget, by contrast, would radically lower these caps at a time when Congress seems more inclined to increase them. As this chart shows, the domestic discretionary caps proposed in the Trump budget would fall to less than half the levels – both in dollars and as a share of the economy – that they would be if Congress continued growing spending at the rate they did in last week’s deal. While Trump’s budget did include an addendum to reflect the higher spending levels, it is still noteworthy that he would have proposed a budget so divorced from the political realities in Congress – especially when that Congress is controlled by members of his own party.

Trump’s desire for sharp cuts to domestic discretionary spending are deeply problematic when one considers the programs it funds. Discretionary spending is the part of the budget that Congress has the flexibility to appropriate annually, and the non-defense portion includes critical public investments such as infrastructure and scientific research that contribute to the long-term health of our economy. The next chart depicts the Trump budget’s steep cuts to these investments, slashing the share of spending for non-military research to just over half its historical average by 2023.

It is not surprising that the Trump administration – the most anti-science in recent memory – would propose deep cuts to scientific research. What should be surprising, however, is that even the kinds of domestic public investment that Trump ostensibly supports would suffer under his budget proposal.

Trump’s budget was accompanied by a “$1.5 trillion” proposal to boost investment in infrastructure over the next ten years. The details, however, reveal that this “plan” amounts to little more than empty Trump bluster. The administration suggested using $200 billion in federal investment to somehow leverage an additional $1.3 trillion from cash-strapped state and local governments, as well as the private sector. But where exactly would this $200 billion come from? Cuts to existing infrastructure programs.

Transportation spending, for example, would fall under the Trump budget over the next 5 years. And to be clear: the issue isn’t just that it would fall as a percentage of the economy, or that it wouldn’t keep up with inflation – the following chart shows that the Trump budget actually proposes a reduction in nominal dollars spent on transportation infrastructure. The expectation that billions of dollars in hard cuts to federal investment will spur trillions of dollars in outside spending is outlandish.

These cuts to domestic discretionary spending should be considered in the context of what the budget proposes for mandatory spending as well. Mandatory spending is the part of the budget that that grows on autopilot because spending is determined by previously established formulas. Unlike discretionary spending, some mandatory programs are projected to grow much faster than the economy under current law and are greatly in need of reform if they are going to be sustainable over the long-term. Unfortunately, most of the reforms proposed in the Trump budget are precisely the wrong ones.

Slashing the Safety Net While Deepening Deficits

The two largest – and fastest growing – mandatory spending programs are Social Security and Medicare. Demographic pressures caused by the aging of the baby boomer generation are resulting in program spending that grows faster than the dedicated revenue needed to finance it. There have been many proposals with bipartisan support to curb the growth of these programs without impacting vulnerable beneficiaries who depend on them most. Unfortunately, the Trump administration eschewed any major Social Security reforms and included only modest proposals to rein in the growth of Medicare.

The mandatory reforms the Trump budget did propose take the form of deep cuts to vital safety net programs that serve the most vulnerable in our society. Spending on the Temporary Assistance for Needy Families and Supplemental Nutrition Assistance Programs would be cut by 13 and 31 percent, respectively. Other programs, including many that assist lower- and middle-income Americans with housing costs, are eliminated entirely. Altogether, the Trump budget proposes to cut spending on safety net programs by over $1 trillion throughout the next decade – at least two-thirds of which would come from cuts to Medicaid and the Affordable Care Act that Congress rejected several times last year.

Trump’s approach is particularly wrong-headed given that mandatory spending outside of Social Security and Medicare is growing at roughly the same rate as the economy under current law. The Trump administration is avoiding addressing the real drivers of our deficit – demographic changes and his administration’s reckless tax cuts – and instead using it as a pretext for deep cuts in critical public investments and vital safety net programs. The result is that Trump’s latest budget, in his own OMB’s assessment, leads to significantly larger budget deficits over the next five years than those proposed in President Obama’s final budget over the same period (2019-2023).

This comparison, however, assumes OMB’s economic projections are correct. The final, and perhaps most, absurd aspect of the Trump budget is its economic assumptions. The budget projects real economic growth that is nearly 50% higher than those of other independent experts. Unreasonably high growth projections mask deficits by depicting higher tax revenues, lower spending on safety net programs, and a bigger GDP estimate that makes the deficit look smaller as a percentage.

OMB also understates the impact of deficits under the Trump budget proposal with its interest rate projections. OMB estimates the average interest rate on a 10-year Treasury Note in 2018 will be 2.6 percent. But the rate on this form of government debt already exceeds 2.9 percent and is continuing to rise rapidly following the passage of Trump’s budget-busting tax bill. This is exactly what economists would expect in a healthy economy such as the one we face today, as large budget deficits force the government to increasingly compete with the private sector for capital.

Under more realistic assumptions, the budget deficits in Republican Donald Trump’s budget proposal could be more than double those in the final one offered by Democratic President Barack Obama. When that budget was released, Republicans including House Speaker Paul Ryan rejected it while saying: “We need to tackle our fiscal problems before they tackle us.” Two years later, the only thing this absurd Trump budget tackles is any pretense that those concerns were sincere.

Billy Stampfl contributed to this post. This post has been edited to remove an extrapolation based on recent interest rate spikes.

Thoughts About A Pro-Worker, Pro-Consumer, Pro-Growth Competition Policy

Posted on February 13, 2018September 18, 2024 by The Progressive Policy Institute

In light of the FTC confirmation hearings tomorrow, we’ve been thinking about competition policy. We would like to propose a different approach to competition policy, one that goes far beyond Chicago-style antitrust analysis.

There’s little doubt that recent research has conclusively demonstrated increased concentration across almost every sector of the US economy over the past thirty years. Using data from 1982 to 2012, MIT economist David Autor and a group of distinguished colleagues (2017) find a “remarkably upward consistent trend in concentration” across manufacturing, finance, retail trade, wholesale trade, utilities and transportation, and services. Furman (2016) noted that evidence for rising concentration has been found in such diverse industries as agriculture and hospitals. Somewhat less pessimistically, White and Yang (2017) notes there has been a “moderate but continued increase in aggregate concentration since the mid 1990s.“

Researchers have linked this rise in concentration to declining economic performance across a wide variety of measures. A 2016 report from the Council of Economic Advisers (2016) argued that “monopolists may be less rigorous in pursuing efficient cost reductions” implying that concentration may lead to weaker productivity growth. Loeckery and Eeckhout (2017) find a rise in average markups from 18% above marginal cost in 1980 to 67% today. That’s consistent with the idea that concentration leads to higher prices, as theory suggests.

Economists have also looked for evidence that concentration has helped hold down wages. Autor et al (2017) link the increase in concentration to a fall in the share of labor. Azar, Marinescu, and Steinbaum (2017) argue that an increase in employer concentration on the local level reduces pay levels significantly.

So the question is: What should the government do about increased concentration across a wide range of industries? Like a bulldozer, competition policy is a powerful tool. It can be used to reduce market power and clear a way for innovation and growth. Or it can be used to turn beneficial industries into rubble.

Before applying the bulldozer of competition policy, we need to have a systematic framework for identifying which industries are most harmful to workers, consumers, and growth. To that end, we propose that antitrust regulators assess the performance of industries across a wide range of measures. Potential measures we’ve been analyzing include:

Job growth of college-educated workers
Job growth of non-college-educated workers
Change in the share of industry income going to labor
Change in prices charged (adjusted for productivity growth)
Multifactor productivity growth

A pro-worker, pro-consumer, pro-growth competition policy would focus on industries that fare poorly on these measures.

In our initial analysis, legal services, air transportation, paper products, and the securities industry fare poorly on these measures. Conversely, warehousing and storage does well on these measures, reflecting the rapid growth of ecommerce jobs for workers without a college education, as does the industry that includes data processing, internet publishing, and other information services.

This analysis is far from complete. We are still considering the appropriate measures and how to weight them. But we think worker-oriented measures such as job growth and change in the labor share, consumer-oriented measures such as price changes, and growth-oriented measures as productivity growth, should be important considerations for competition regulators. We need a consistent and systematic framework for applying competition policy.

References

David Autor, David Dorn, Lawrence F. Katz, Christina Patterson and John Van Reenen. “Concentrating on the Fall of the Labor Share,” American Economic Review: Papers & Proceedings 2017, 107(5): 180–185.

José Azar, Ioana Marinescu, and Marshall Steinbaum. “Labor Market Concentration,” December 2017.

Council of Economic Advisers. “Benefits Of Competition And Indicators Of Market Power,” May 2016.

Jason Furman. “Beyond Antitrust: The Role of Competition Policy in Promoting Inclusive Growth,” Searle Center Conference on Antitrust Economics and Competition Policy, September 16, 2016.

Jan De Loeckery and Jan Eeckhout, “The Rise of Market Power and the Macroeconomic Implications,” August 24, 2017.

Lawrence White and Jasper Yang, “What Has Been Happening to Aggregate Concentration in the U.S. Economy in the 21st Century?”, New York University, draft, March 2017.

Don’t Help GOP Budget Busters

Posted on February 8, 2018September 18, 2024 by The Progressive Policy Institute

The Republican Party, led by self-proclaimed “King of Debt” Donald Trump, is embracing fiscal profligacy on an epic scale. First, the Trump Republicans broke their promise of “revenue-neutral tax reform” and instead rammed through a bill that will grow deficits by at least $1.5 trillion last December. Now they’ve struck a deal with Senate Democrats that, combined with the tax bill, would add more than $3 trillion to the deficit over the next decade. It’s a one-two gut punch to fiscal responsibility.

It’s regrettable that Senate Democrats have made themselves complicit in the Republican raid on the U.S. Treasury. Yes, this deal would avoid a federal shutdown, which is a good thing. But the pricetag is simply too steep. We support funding disaster relief, health care programs and other critical public investments, and we support adequate defense spending as well. But we’re against unnecessary borrowing to pay for it, which represents an abdication of Congress’s core Constitutional responsibility: paying for government without passing the bill to the next generation.

From the Brownback debacle in Kansas to the tax bill and this latest budget deal, Republicans are proving to be the most reckless and incompetent managers of public finances. All their fiscal posturing and brinksmanship during the Obama years stands exposed as rank hypocrisy. But Democrats can’t effectively make that case to voters if they join in a bipartisan conspiracy against fiscal discipline in Washington.

It would be one thing if this budget deal merely repealed the sequester, which was never meant to take effect and has hamstrung important investments in both defense and domestic initiatives. The Senate budget deal, however, would raise spending above the original levels agreed to by both parties in the Budget Control Act of 2011. It would also cut taxes for corporations by an additional $17 billion and repeal important cost-control measures imposed by the Affordable Care Act – all without paying for them.

If policymakers are going to abandon the BCA, they need to replace it with another plan for controlling America’s massive public debt. The Senate deal places America on the fast track to trillion-dollar deficits as far as the eye can see. That’s the opposite of the fiscal policy our country needs today. When the economy is expanding, we should be unwinding the debt, not using the threat of a government shutdown to make it worse. Otherwise, young Americans will face higher tax and debt payment burdens, and the federal government will have little “fiscal reserve” to tap the next time the economy goes into recession.

The Amazon Jobs Effect: Kenosha County, Wisconsin

Posted on February 1, 2018September 18, 2024 by The Progressive Policy Institute

Amazon is the fastest US company–and perhaps the fastest company anywhere–to 300,000 workers. Its rapid expansion is creating tech-enabled work in virtually every corner of the country, with our estimates showing that fulfillment center jobs pay 31% more, on average, than brick-and-mortar retail jobs in the same area.

Now, there are all sorts of interesting questions about what happens next. Some people have worried that the fulfillment center jobs will fade away as the operations get increasingly roboticized. By contrast, our view is that fulfillment centers will become critical hubs for the new “Internet of Goods“: By lowering the cost of shipping and creating a pool of tech-enabled workers, areas with ecommerce fulfillment centers will have a head start in attracting the next wave of manufacturing startups.

The answers to these questions, of course, bear on the important debates about the value of tax and other public incentives for Amazon fulfillment centers and the company’s HQ2. I haven’t gotten involved in these discussions directly, because they really are about the shape of the future economy. If you think that robots are going to eat all of our jobs, then tax incentives never make sense. If you think that we are just at the beginning of the transformation of physical industries and the creation of a new wave of tech-enabled jobs in physical industries such as distribution, manufacturing, and agriculture, then offering tax incentives to get a piece of the future is far-sighted thinking.

However, in the midst of all of these very interesting discussions, I really must address a new study from the Economic Policy Institute which purports to show no employment gains from the opening of an Amazon fulfillment center. More precisely, “[t]wo years after an Amazon fulfillment center opens in a county, overall private-sector employment in the county has not increased.”

Really? This result does not pass the smell test. You can raise all sorts of long-term questions. But in the short-term, if you build a giant new fulfillment center, first you get construction jobs in the years before the center opens. Then you get the workers themselves. There’s no plausible mechanism by which those jobs can crowd out other jobs in the samecounty in the short-term.

And I’m not sure about their sample of counties. I look on their list of ‘Amazon’ counties (Appendix Table 3), and it doesn’t include Kenosha, Wisconsin, where the construction of an Amazon fulfillment center in 2013 and 2014, and its opening in June 2015, added thousands of jobs into the local economy.

The chart below plots private sector jobs in Kenosha County against private sector jobs in all of Wisconsin.

You can see that right around the time that Amazon arrives in Kenosha, county employment turns up, driven in large part by the increase in warehouse jobs.

Indeed, Kenosha County is effectively becoming a tech-enabled distribution-manufacturing hub. After Amazon opened its doors, the county attracted companies like Haribo, the German candy giant (and originator of gummy bears), which is building its first North American factory in Kenosha.

Ecommerce Job Growth, 2016-17

	Change in jobs, 2016-17
	(thousands)
Brick-and mortar retail	13
Ecommerce	133
Electronic shopping	29
Couriers and messengers	38
Warehousing	66

Data: BLS

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Ecommerce Job Growth, 2016-17