Saturday, March 25, 2017

Spring 2017 Brookings Papers on Economic Activity

My guess is that a reasonable proportion of those who read this blog are already familiar with the Brookings Papers on Economic Activity, but for other, it's a venerable journal published twice-a-year, usually with 5-6 papers on high-profile topics. The papers are academic in tone and approach, but typically a lot more readable than what would appear in a technical journal of economics. Versions of all the papers for Spring 2017 are now available, although they are not quite finalized and typeset as yet. The six papers in the issue, with brief descriptions lifted from the Brookings website, include:

"Mortality and morbidity in the 21st century," by Anne Case and Sir Angus Deaton
In "Mortality and morbidity in the 21st century," Princeton Professors Anne Case and Angus Deaton, a Nobel Prize winner, follow-up their groundbreaking 2015 research that documented a dramatic increase in middle-aged white mortality. In their new paper, the authors find that “deaths of despair” (deaths by drugs, alcohol, and suicide) in midlife rose most dramatically for white non-Hispanic Americans with a high school degree or less—a pattern that diverges sharply from overall midlife mortality rates in other rich countries. When combined with a slowdown in progress against mortality from heart disease and cancer—the two largest killers in middle age—the increase in “deaths of despair” since the late 1990s has resulted in midlife mortality rates for white non-Hispanic Americans with a high school degree or less overtaking overall midlife mortality rates of minority groups.
"Along the watchtower: The rise and fall of U.S. low-skilled immigration," by Gordon H. Hanson, Chen Liu, and Craig McIntosh
In "Along the watchtower: The rise and fall of U.S. low-skilled immigration," Gordon Hanson, Chen Liu, and Craig McIntosh of the University of California San Diego project that immigration to the U.S. of young, low-skilled workers from Latin America will continue to slow until it reverses in 2050—even without changes to U.S. immigration and border policy—thanks to weak labor-supply growth in Mexico and other Latin American countries. Furthermore, the population of Latin American-born residents already in the U.S. over age 40 will grow by 82 percent over the next 15 years, presenting a bigger challenge for U.S. policymakers than how to stop or slow low-skilled immigration. “The current U.S. debate about immigration policy has a backward-looking feel to it. The challenge isn’t how to stop large-scale labor inflows, which has largely been achieved, but how to manage a large, settled population of undocumented immigrants. Massive investments in building border barriers or expanding the U.S. Border Patrol are not going to address this challenge," the authors argue.
"The disappointing recovery of output after 2009," by John Fernald, Robert Hall, James Stock, and Mark W. Watson
In "The disappointing recovery of output after 2009," the Federal Reserve Bank of San Francisco's John Fernald, Stanford's Robert Hall, Harvard's James Stock, and Princeton's Mark Watson find that the unexpectedly slow growth since 2009 in output—the economy’s measure of growth—is unlikely to improve because it has been caused by structural, non-cyclical factors and not just the financial crisis and subsequent recession. The authors also find evidence that weak government spending at all levels delayed the recovery. They attribute some of the unusually slow growth early in the recovery to cuts in federal spending from the sequester, the end of the of fiscal stimulus from the American and Reinvestment Recovery Act (ARRA), and changes in state and local level spending due to the recession’s causing home prices to collapse, which in turn impacted property tax receipts.
"Monetary policy in a low interest rate world," by Michael T. Kiley and John M. Roberts
In “Monetary policy in a low interest-rate world,” the Federal Reserve Board’s Michael T. Kiley and John M. Roberts find that rates could hit zero as much as 40 percent of the time—twice as often as predicted in work by others—according to standard economic models of the type used at the Federal Reserve and other central banks. The constraint on monetary policy imposed by frequent episodes of interest rates at zero could make it harder for the Fed to achieve its 2 percent inflation objective and full employment, and the analysis suggests that a monetary policy that tolerates inflation in good times near 3 percent may be necessary to bring inflation to 2 percent on average. As a result, there are a number of steps the Federal Reserve and other central banks can take to help better achieve full employment and price stability in this low interest-rate environment.

"Safety, liquidity, and the natural rate of interest," by Marco Del Negro, Domenico Giannone, and Marc P. Giannoni
In “Safety, liquidity, and the natural rate of interest,” Marco Del Negro, Domenico Giannone, Marc P. Giannoni, and Andrea Tambalotti of the Federal Reserve Bank of New York argue that the secular decline in the natural rate of interest (the real rate of return that prevails when the economy is at its potential) in the U.S. is primarily due to the strong demand for safe and liquid assets, and especially U.S. Treasury securities, provoked in part by foreign and domestic crises over the past 20 years. The analysis suggests the natural rate could rebound in the near future. The authors also note that the “decline in interest rates poses important challenges for monetary policy, but it also matters for fiscal policy and for our understanding of the nature of business cycles.”
"Is Europe an optimal political area?" by Alberto Alesina, Guido Tabellini, and Francesco Trebbi
"In “Is Europe an optimal political area?” Harvard University’s Alberto Alesina, Bocconi University’s Guido Tabellini and University of British Columbia’s Francesco Trebbi analyze cultural indicators across 15 EU countries and Norway from 1980-2009 to determine if the so-called European political project was “too ambitious.” The authors find cultural differences among Europeans are increasing and nationalism is on the rise despite several decades of economic and political integration. The authors believe the EU is at a crossroads: It must choose between the benefit of economies of scale for environmental protection, immigration, terrorism, foreign policy, and promoting research and innovation versus the cost of rising nationalism. While a majority of Europeans seems to favor more EU-level decision-making, they seem dissatisfied with how those policies are being implemented and they disagree along national lines.

Friday, March 24, 2017

Global Productivity Growth: Diminishing Convergence

"Productivity is a gift for rising living standards, perhaps the greatest gift. It is not, however, one that always keeps on giving ..." So said Andrew G. Haldane, the chief economist at the Bank of England, in his talk on "Productivity Puzzles" delivered at the London School of Economics on March 20, 2017. Some of the talk focuses on UK experience in particular: here, I want to focus on Haldane's broader perspective on global productivity growth, and on his intriguing argument that from a global perspective, most of the productivity slowdown can be attributed to a failure of innovation to diffuse across countries as rapidly as in the past.

Here's a figure showing the pattern of productivity growth worldwide since the 1950s, and then a figure showing the same productivity data divided into advanced and emerging economies.

Haldane summarizes overall patterns in the productivity figures in this way (footnotes omitted):
First, the slowdown of productivity growth has clearly been a global phenomenon, not a UK-specific one. From 1950 to 1970, median global productivity growth averaged 1.9% per year. Since 1980, it has averaged 0.3% per year. Whatever is driving the productivity puzzle, it has global rather than local roots.
Second, this global productivity slowdown is clearly not a recent phenomenon. It appears to have started in many advanced countries in the 1970s. Certainly, the productivity puzzle is not something which has emerged since the global financial crisis, though it seems the crisis has amplified pre-existing trends. Explanations for the productivity puzzle based on crisis-related scarring are likely to be, at best, partial.
Third, the productivity slowdown has been experienced by both advanced and emerging economies. The slowdown in median productivity growth after the 1970s among both advanced and emerging market economies is around 1¾ percentage points (Chart 8). Indeed, looking at country-specific trends, it is striking just how generalised the productivity slowdown has been ...
Haldane then turns to the economic arguments about convergence, which suggest that countries which are lagging behind in productivity and per capita GDP should have a natural opportunity to grow more quickly, by taking advantage of flows of technology and expertise from the countries on the technology frontier (for some additional discussion of convergence, see my post on "Will Convergence Occur?" November 25, 2015). As he says:
"Growth theory would predict that, over time, technological diffusion should lead to catch-up between frontier and non-frontier countries. And the greater the distance to the frontier, the faster these rates of catch-up are likely to be. So what explains the 1¾ percentage point slowdown in global productivity growth since the 1970s – slower innovation at the frontier or slower diffusion to the periphery? If the frontier country is taken to be the United States, then slowing innovation can only account for a small fraction of the global slowing, not least because the US only has about a 20% weight in world GDP. In other words, the lion’s share of the slowing in global productivity is the result of slower diffusion of innovation from frontier to non-frontier countries.
"To illustrate that, Chart 10 plots the distribution of levels of productivity across countries over a set of sample periods, where productivity is measured relative to a frontier country (the United States) indexed to one. Comparing the distributions in the 1950s and 1970s, there is a clear rightward shift. Cross-country productivity convergence or catch-up was underway, as the Classical growth model would suggest. In recent decades, however, that pattern has changed. Comparing the 1970s with the 1990s, there is a small leftward shift in the probability mass. And in the period since the global financial crisis, there has been a further leftward shift in the distribution and a widening of its range. Today, non-frontier countries are about as far from the technological frontier as they were in the 1950s."

Haldan also offers a graph showing productivity level relative to the US: again, emerging market economies show convergence toward the US level of productivity from the 1950s up through the 1970s, but then shows a divergence in much of the 1980s and 1990s--with no particular convergence or divergence since about 2000.

As Haldane puts it:
"One of the key determinants of international technology transfer has been found to be cross-border flows of goods and services, people and money and capital. While they have waxed and waned historically, all of these have tended to rise rapidly since the middle of the 20th century. Other things equal, that would have been expected to increase the speed of diffusion of innovation across countries over that period. In practice, the opposite appears to have occurred.

"Taken at face value, these patterns are both striking and puzzling. Not only do they sit oddly with Classical growth theory. They are also at odds with the evidence of history, which has been that rates of technological diffusion have been rising rather than falling over time, and with secular trends in international flows of factors of production. At the very time we would have expected it to be firing on all cylinders, the technological diffusion engine globally has been misfiring. This adds to the productivity puzzle.
I'll only add that any view of the US productivity slowdown is likely to be incomplete if it doesn't take into account that it's a long-term issue, with a global dimension, and that a decline in the diffusion of productivity seems to be involved.

Thursday, March 23, 2017

Interview with Jonathan A. Parker

Aaron Steelman has a broad-ranging "Interview" with Jonathan A. Parker in the most recent issue of Econ Focus from the Federal Reserve Bank of Richmond (Third/Fourth Quarter 2016, pp. 22-26). Here are a few tidbits that caught my eye:

Increased volatility for high-income households
"[I]n work with Annette Vissing-Jorgensen we have looked at how the labor income of high-income households has changed significantly. What we zoomed in on is that high-income households used to live a relatively quiet life in the sense that the top 1 percent would earn a relatively stable income, more stable than the average income. When the average income dropped by 1 percent, the incomes of the top 1 percent would drop by about only six-tenths of a percent. In the early 1980s that switched, so that in a recession if aggregate income dropped by 1 percent, the incomes of the top 1 percent dropped more like 2.5 percent — quadrupling the previous cyclicality. So now they're much more exposed to aggregate fluctuations than the typical income. We also show that decade by decade, as the top income share increased, so did its exposure to the business cycle in the 1980s, 1990s, and 2000s. And as you go further and further up the income distribution, that top share — not just the top 1 percent, but the top 10th of a percent, and the top 100th of a percent — there's also been a bigger increase in inequality and a bigger increase in the exposure to the business cycle. ... 
"First, starting around the end of the 1980s, we see the adoption of incentive-based pay for CEOs and other highly placed managers. Incentive compensation over this time rises, and it happens to be that the incentive compensation is not based on relative performance, which would therefore difference out what goes on in the macroeconomy, but instead is based on absolute performance. And in the U.S. case, that could partly be due to simply what counts legally as incentive-based compensation and so is not subject to corporate profits tax. Pay in the form of stock options, for example, counts as incentive-based compensation. Pure salary does not and so is taxed as corporate profits above $1 million.
"The other possibility is that ... new information and communication technologies allow the best managers to manage more people, to run bigger companies, and therefore to earn more; the best investment managers to manage more money and to make more for themselves; the best entertainers and performers to reach more people and therefore earn a larger share of the spending on entertainment goods. High earners have become small businesses. ... We do know that increased cyclicality in income among high earners can't come simply from the financial sector. That sector just isn't quantitatively big enough, and you see the increase in earnings share and in cyclicality across industries and occupations. It's not the case that just the top hedge fund managers have become the high earners and they're very cyclical; Oprah is also."
Why don't households smooth consumption?
"I use Nielsen Consumer Panel data to design and run my own survey on households to measure the effect of what was then the second of these large randomized experiments run by the U.S. government, the economic stimulus program of 2008. The key feature of that program was that the timing of the distribution of payments was determined by the last two digits of the Social Security number of the taxpayer, numbers that are essentially randomly assigned. So the government effectively ran a $100 billion natural experiment in 2008, distributing money randomly across time to people, and this policy provides a way to measure quite cleanly how people respond to infusions of liquidity. ...
"The first thing I found out is that illiquidity is still a tremendous predictor of who spends more when a predictable payment arrives. But it's not only liquidity. People with low income have a very high propensity to spend, and not just people who have low income today, as would be associated with the standard buffer-stock model. You can imagine a situation where you've had a bad income shock, you happen to have low liquidity, and you spend a lot. But illiquidity one or even two years prior to the payment is just as strongly associated with a propensity to spend out of liquidity, as illiquidity at the time of the payment. This same set of people who have persistently high propensities to consume are also the people who characterize themselves as the type of people who spend for today rather than save for tomorrow when I asked them specifically about their type, not their situation. They are also the people who report that they have not sat down and made financial plans. ... Low liquidity, or low financial wealth, is a very persistent state across households, suggesting the propensity to spend is not purely situational. A lot of it is closer to an individual-specific permanent effect than something transient due to temporary income shocks. ... 
"So the question is how many people are influenced by constraints in practice. Is their marginal propensity to consume noticeably influenced by the fact that they might be constrained next month or in six months? I would say that's quantitatively important for roughly half of the population. ... I don't think there's a lot of transition between the people who would consistently hit these constraints or be concerned about them and the people for whom they're not that relevant."
Tradeoffs in the coming revisions in the Consumer Expenditure Survey

"The BLS [Bureau of Economic Statistics] is revising the CE Survey now. It's called the Gemini Project, and I have been involved a little with advising how to revamp it. Surveys in general have been experiencing problems with participation and reporting. The CE is suffering from these problems, and so the Gemini Project is trying to address them. The CE has the huge benefit of being a nationally representative survey done by the Census Bureau; almost all of the alternative datasets that we're using from administrative sources that are not strictly survey datasets are less representative. So reducing the CE's problems with participation and reporting could potentially have a very large payoff. Of course, the cost of the change is that the CE Survey as it stands now is a very long panel dataset that has had the same format throughout the whole time. So we're going to break that and no longer be adding new time periods to an intertemporally comparable dataset. But I think that's probably a cost worth paying at this point.
"What the BLS is planning is to change dramatically the way the CE Survey is conducted. They're going to gather data in quite different ways than they have in the past, including some spending categories that will almost have so-called administrative sources. What I have been pushing for is maintaining some panel dimension in the new version of the CE Survey. If you don't have a panel dimension, then for lots of macro-type questions, you can track people only at the group level. And since groups are usually affected differently by other things going on in the world, you lose a lot of ability to identify stuff that might be interesting — tracking someone who had a specific policy exposure in one period and seeing how they're doing a month or a year later. If the BLS eliminates the panel dimension, researchers couldn't do anything like I did with my tax rebates work, nor any other work that looks at treatments that are happening at the individual level. But I'm hoping that the new, state-of-the-art version of the CE Survey will last another 35 years and be just as good."

Wednesday, March 22, 2017

India: What's Needed for Sustained Growth?

India has been experiencing episodes of rapid growth since the 1980s, but the growth always seem accompanied by a question mark. Thus, V. Anantha Nageswaran and Gulzar Natarajan write in their report Can India Grow? Challenges, Opportunities, and the Way Forward (published by Carnegie India, November 2016): 
"Indeed, in the past twenty-five years, every time India achieved a slightly higher economic growth rate, it was followed by some combination of an external financing deficit, a rise in nonperforming assets in the banking system, a high rate of inflation with consequent currency overvaluation, and other problems. This was the case at the end of the 1970s, at the end of the 1980s, and again in 2012–2013."
A main theme of the report the problems that India needs to overcome to lay a firm foundation for sustained economic growth into the future. While the report often takes a moderately optimistic glass-half-full tone, discussing what policies are being undertaken, I found that I was more struck by the glass-half-empty interpretation--that is, the depth and severity of many of these issues. Here are some examples (with footnotes omitted throughout for readability).

India's education system has gotten children into school, but is failing to teach them

"If education were only about schools, about physical infrastructure, materials, and ensuring universal enrollment, then India has succeeded spectacularly. Every large population center has a school; most schools have buildings and teachers assigned; and students have study materials. It was hoped or assumed that once the schooling inputs were in place, education and learning outcomes would somehow follow automatically. But this has proved not to be the case. Lant Pritchett, an education researcher with Harvard’s Kennedy School of Government, has evocatively described the situation as `schooling ain’t learning.' And schooling without learning leads to very poor educational outcomes, a finding supported by the 2014 Annual Status of Education Report, the largest nongovernmental household survey undertaken in rural India:
"`51.9% of Class 5 children in rural India cannot read a Class 2 text; only 25% of children in Class 5 and 46.8% in Class 8 could read simple English sentences; just 25.3% of Class 3 children could do a two-digit subtraction, 26.1% of Class 5 children and 44.1% of Class 8 students could do division. ...'
"A 2010 study by the Tata Institute of Social Sciences in Mumbai found that only 10 percent of new graduates and 25 percent of graduates of engineering and MBA programs had adequate skills to be employable. Numerous other surveys have confirmed the results."

Female labor force participation in India is strikingly low
"A ... major labor market deficiency is the country’s shockingly low female workforce participation rate. At 24 percent in 2014, it was comparable to levels in the Middle East and North Africa, and just half that in Indonesia. A 2015 report from the McKinsey Global Institute showed that the female contribution to India’s GDP, at 17 percent, is the lowest in the world among a sample constituted of countries and regions, and less than half the global female share of GDP at 37 percent. The report estimates that if India did as well as the best-performing country in South Asia on this metric, by 2025 its incremental output would be higher by 16 percent, or $700 billion. But this would require, even more than enabling public policies, a social transformation on a scale equivalent to that which led to the weakening of caste barriers in Indian society in the latter part of nineteenth century and the early twentieth century."
India has a small number of large firms, a huge number of tiny firms, and little in the middle

"The number and proportion of small and microenterprises are staggeringly high. Their contribution to output and employment is infinitesimally small. Yet romanticism in policy circles with micro and small has endured far longer than is justified by their economic value added. Small has not been beautiful, as the capital and labor locked up in these unproductive enterprises represent lost economic opportunity. Furthermore, most such enterprises are informal and operate beneath the radar of tax
authorities and other regulators. ... India’s industrial base has a gaping hole in the middle. Specifically, India has a preponderance of microenterprises and a tiny set of large enterprises. It has neither small nor medium-sized enterprises."

The size of of farms is small and declining, making investment and economies of scale 

A striking high share of India's workers are in the informal economy
"A statistical update on employment in the informal economy published by the International Labor Organization in 2012 showed that India has one of the world’s largest informal sectors. At 83.6 percent, the share of informal employment in  the country’s overall nonagricultural employment total is the highest in the world. Furthermore, India’s labor force participation rate is one of the lowest in the world. Only Egypt and Honduras fare worse."
Domestic savings and capital accumulation in India have been low
"The economic historian Robert Allen has documented India’s capital accumulation shortfall. He writes, “Between 1860 and 1990, it [India] accumulated little capital and achieved little growth. Its capital-labor ratio in 1990 ($1,946) and labor productivity ($3,235) were like Britain’s in 1820 ($1,841 and $4,408, respectively).” Comparing the development trajectories of seventeen countries in the 1820–1990 period, he argues that developing countries such as India “need to accumulate capital in the massive way that  East Asian economies have done since 1960 in order to close the gap with the West.” That gap is a huge one to close. Unfortunately, India is constrained by its low savings rate and narrow capital base, both of which constrain it from generating the capital required to sustain a high economic growth rate for a sufficiently long period."
India's government depends on a narrow slice of the population for its tax base
"The narrow industrial base and limited pool of middle-class taxpayers is nowhere reflected more starkly than in the country’s very low tax-to-GDP ratio. India has one of the lowest ratios among the G20 countries—far lower than Brazil’s, for example. Despite India’s large population, the country’s income tax base is comparable to that of a small European country. In 2012–2013 there were just 31.19 million assessees, or less than 3 percent of the 1.2 billion population, in contrast to 147 million assessees in 2013 among 316 million people in the United States."
India's public spending on infrastucture has been falling as a share of GDP

India's government and government-run programs are often dysfunctional

"The inability to implement government programs is pervasive and dominates the public’s perception of weak governance. India’s government-run schools are noteworthy for neglect and apathy. Teacher absenteeism is rampant; learning levels are abysmal; toilets, where available, are mostly nonfunctional; and so on. In healthcare, doctor and nurse absenteeism is very high, and the quality of primary care services is unacceptable. Even when resources and personnel are made available, most large government-run hospitals remain badly managed. In both sectors, well-designed national programs with adequate implementation flexibility have fallen far short of expectations when subjected to the field test of implementation.
"Inordinate delays in fixing a leaking pipeline or repairing potholes, let alone building new roads or drilling wells, and slow garbage collection are frustrations familiar to most Indians. The execution of small panchayat (the unit of administration at the village level) works, even when contracted and the money made available, takes months to years. And despite the existence of progressive and comprehensive legislation on social protection, atrocities against lower castes, children, and women continue unabated.
"Supervisory systems, even when not compromised, struggle to enforce regulations. The commanding sectors of modern India, infrastructure and urban facilities, are marred by the same malaise. The capacity to design and document projects, manage procurements, mobilize financial resources, finalize contracts, and manage the execution effectively is sorely lacking even at the highest levels of state and national government. It is no surprise that contracting corruption, execution delays, and renegotiations have become quotidian in these sectors."
The pathway to export-led growth through low-wage manufacturing seems to be less available
"One of the defining features of successful economic growth over long periods in the recent past has been the central role of exports. The most prominent example is that of East Asia, where long periods of economic growth were sustained by strong export growth, in particular driven by the manufacturing sector. India clearly exports a far smaller share of its output than did any of the East Asian economies during their high-growth periods. The prospects for the manufacturing sector becoming the engine of India’s growth do not appear promising, owing to the structural shifts taking place in the global economy and the concomitant trend of premature deindustrialization. More worryingly, the prospect of exports becoming a main driver of economic growth also looks bleak."
These issues mostly suggest their own solutions, but implementation isn't easy or straightforward. The bottom line of the report is that India's economy has enough strong areas that 4-5% annual GDP growth remains quite possible. But it's worth remembering that when it comes to per capita GDP, India ranks 150th among the countries of the world, at a level similar to Nigeria and Congo. Annual growth rates of 4-5% would mean that India barely keeps pace with other emerging market economies like China, or gradually falls behind.

For another recent post on India's economy, see my overview of the most recent Economic Survey from India's Ministry of Finance in "The Economic Vision for Precocious, Cleavaged India" (February 16, 2017).

Tuesday, March 21, 2017

Available: My Principles Text, Fourth Edition

Here at the Conversable Economist blog, we (that would be me) interrupt the usual parade of economics articles, report, graphs, and figures to bring you a commercial message.

The fourth edition of my Principles of Economics textbook is now available. It is mainstream in content, well-written, and fairly priced. It offered me a chance for me to unpack my personal toolkit of how to explain this material: that is, my preferred order for the material, step-by-step conceptual explanations, metaphors,  historical and modern examples, evocative graphs and tables, quotations, parables, and more. If you're actively looking at possible textbooks for next fall, or perhaps just keeping track of what's out there, I commend it to your attention. Here's are shots of the front and back covers, which includes a few nice comments from current users.

Monday, March 20, 2017

What's the Value of US Household Production?

The value of household production has never been included in GDP. But although this is sometimes interpreted as a knock against those who do most of household production, it's really just a matter of accounting. To be included in GDP, there needs to be a market transaction. Even back in 1934, when Simon Kuznets was reporting the first estimates of "national income" to the US Congress, he was careful to note: "A student of social affairs who is interested in the total productivity  of the nation, including those efforts which, like housewives' services,  do not appear on the market, can therefore use our measures only  with some qualifications."

However, the US Bureau of Economic Analysis and statistical agencies in other countries now often use  "satellite accounts" to calculate the value of household production, which is currently equal to about 23% of US GDP--and has been declining over time. Here's a bit of broader context for the comment from Kuznets in  his 1934 report, National Income, 1929-1932 : Letter from the Acting Secretary of Commerce Transmitting in Response to Senate Resolution No. 220 (72nd Cong.) a Report on National Income, 1929-32, and then some information on the current estimates of the size of household production in the US and elsewhere.

Kuznets wrote in 1934:
"The volume of services rendered by housewives and other members of the  household toward the satisfaction of wants must be imposing indeed,  when totaled for the 30 million families comprising the population of  this country; and the item is thus large enough to affect materially any estimate of national income. But the organization of these services  render them an integral part of family life at large, rather than of the specifically business life of the nation. Such services are, therefore, quite removed from those which gainfully occupied groups undertake to perform in return for wages, salaries, or profits. It was considered  best to omit this large group of services from national income, especially  since no reliable basis is available for estimating their value. This  omission, unavoidable though it is, lowers the value of national income  measurements as indexes of the nation's productivity in conditions  of recent years when the contraction of the market economy was accompanied by an expansion of activity within the family. ... Thus, the estimates submitted in the present study define income in such a way as to cover primarily only  efforts whose results appear on the market place of our economy.  A student of social affairs who is interested in the total productivity  of the nation, including those efforts which, like housewives' services,  do not appear on the market, can therefore use our measures only with some qualifications." 
Back in the Depression, as Kuznets noted, there was a shift from the market-paid work that was part of GDP to household services that were not counted in GDP. But in more recent decades, the shift has tended to go the other direction, as people have tended to shift away from household production and instead to purchase a larger share of these services in the market. Benjamin Bridgman at the US Bureau of Economic Analysis offers an overview of how these calculations are done and the trends over time in "Accounting for Household Production in the National Accounts: An Update, 1965–2014," in the February 2016 issue of Survey of Current Business.

The starting point is to use surveys of time use, like the American Time Use Survey (ATUS) and the Multinational Time Use Survey (MTUS). The categories and reporting in these surveys have varied over time, and thus the results should be interpreted with a degree of caution, but broadly, there are seven categories of household production "housework, cooking, odd jobs, gardening, shopping, child care, and domestic travel." Then the hours spent on these tasks are multiplied by the wage commonly paid in the market for those doing these domestic tasks.

The value of household services was equal to about 37% of GDP in 1965, but is currently equal to about 23% of GDP. As Bridgeman writes:
"Household production has declined in importance over time as more women engage in market work. ... Including household production in 2014 would increase national output by 23 percent, less than the 26 percent in 2008. Since much of the decline in market work was driven by men, who spend relatively little time in home production, the shift is not enough to counteract the general decline of the household sector. The gap between working and nonworking men is also relatively small, so moving a man from the market to the home does not increase his hours much. Working men spent an average of 16.2 hours per week in household production, only slightly less than the 21.2 for nonemployed men. In contrast, the movement of women into market work had a big impact since there is a significant difference in hours that employed and nonemployed women devote to home production. Working women devoted 23.2 hours of household production compared with 33.2 hours for nonworking women in 2014." 

Saturday, March 18, 2017

American Leisure: TV and a Bit of Socializing

The most fundamental tradeoff that individuals face is time: no matter your income, education level, gender, ethnicity, we all get precisely 1,440 minutes each day, and 168 hours each week. The American Time Use Survey, conducted by the Census Bureau, surveys a nationally representative group Americans on their use of time. Here are some patterns of American leisure.

Americans average about five hours of leisure time each day, and they spend 55% of that time watching television. 
Leisure time on an average day

In the April/May issue of 1843 magazine (published by The Economist), James Tozer digs down into the American Time Use Survey data a little further, in a short "What the numbers say"  article on "Leisure time." For example, here's a breakdown of total leisure per day, in minutes, by demographic categories. Men, the less educated, and the elderly tend to have more leisure time.

Tozer also looks at how leisure time changes between 2006 and 2015. In this figure, the size of the circles is proportional to how much time was spent on leisure time just on weekends and holidays. The different colors show age groups. The axis on the right-hand side shows how time spent in these categories shifted from 2006-2015. Thus, older folks are watching more TV and spending less time on reading and thinking. Younger folks are spending a little less time watching TV, a lot less time socializing, and a lot more time on their computers and phones.

As I wrote about five years ago on this website:
Economists sometimes quote the old proverb: "De gustibus non est disputandum." There's no arguing over taste. We tend to accept consumer tastes and preferences as given, and proceed from there. I suppose that those of us who blog, and then hope for readers, can't really complain about those who spend time looking at a screen. I certainly have my own personal time-wasters, like reading an inordinate number of mysteries. I assume that for many people the television is on in the background of other activities. But at some deep level, I just don't understand averaging 8 hours of television per day [per household]. I always remember the long-ago jibe from the old radio comedian Fred Allen:"Television is a medium because anything well done is rare."