Week's sad news

In the  quest to understand just how much the administrative state is harming economic activity, there are lots of anecdotes but few overall measures. But we have lots of anectdotes. I thought it would be fun to put together a week's worth from my morning-coffee WSJ reading.

Tuesday: The Labor Department issues a new "persuader rule"

...an employer would likely have to report asking a consultant to study the labor savings of moving to a right-to-work state. An attorney would have to disclose private discussions with an employer over a neutrality agreement to support a union’s organizing campaign...an attorney who advises Employer A about a union organizing campaign will also have to report if he’s conducting, say, a sexual harassment investigation at Employer B. All of this information will be public....The Manhattan Institute estimates the rule will cost about $60 billion over 10 years....The beneficiaries will be unions, which don’t have to report their own persuader activities. 

Wednesday: Judge blocks Staples Merger, and 45 federal programs,

U.S. District Judge Emmet G. Sullivan sided with the Federal Trade Commission, which in a December lawsuit alleged the combination of the office superstores would lead to higher prices for large corporations that buy office supplies in bulk.

Shares of both companies plunged in morning trading in New York. Office Depot stock dropped 37% to $3.82, while Staples fell 19% to $8.41...Staples said Tuesday it will cut another $300 million in annual costs and explore alternatives for its European operations, which include more than 200 stores.

Many of us remember the econ 101 fable of monopoly which needs government protection. Most of the academic IO and antitrust literature has come to disbelieve this classic story. Staples and Office Depot themselves are recent innovations. There is no distinct market for large box office retail stores. Everything in them can be bought elsewhere, and it's pretty easy to enter. In fact, they are in decline facing competition from the internet and other retailers. The idea that they can lock up the market on paper, toner cartriges, off-brand pcs, and raise prices is pretty silly. Especially for "large corporations that buy office supplies in bulk." Please, the point of the federal government is to preserve low prices for "large corporations" to buy paper?

Thursday's editorial on the matter puts it better than I did,

Stuck in a declining market, Staples and Office Depot have been reporting reduced sales. Government lawyers might have noticed that people are using less paper and ink these days. Then there are those little competitors called Amazon, Costco and Wal-Mart. Such competition is why the government couldn’t argue with a straight face that a merged company would force higher prices on individual consumers or small businesses. So the government claimed that the victims of the proposed merger would be huge corporations that buy in bulk...the judge made clear that he thinks the Exxons of the country need government help to get a deal on Post-it notes.  

Also, on the editorial page, 

The auditors at the Government Accountability Office report that there are currently 45 federal programs dedicated to supporting care “from birth through age five,” spread across multiple agencies. The Agriculture Department runs a nursery division, for some reason.

“Administering similar programs in different agencies can create an environment in which programs may not serve children and families as efficiently and effectively as possible,” GAO dryly notes. Parents can also claim five separate child-care tax credits.

Thurdsay A Climate Courtroom Crusade Scorches Due Process.

Read the whole thing, if like me you're not a lawyer. It turns out, back in the day, Attorneys general couldn't, on their own, subpoena all your files, comb through them, and then use the results to file criminal charges.

Mr. Schneiderman and other attorneys general have the power to bring not simply administrative, but criminal, charges on the basis of the information they force out of private parties. They thereby dangerously combine the roles of grand jury and prosecutor.

File it under decline of rule of law, and increasing ability of political officials to silence opponents.

In more classic gumming-up-the-works, Port-Trucking Firms Run Into Labor Dispute.

The nation’s busiest ports are emerging as a key battleground in the legal fight over whether truck drivers should be counted as employees or independent contractors.

Several trucking companies operating at the ports of Long Beach and Los Angeles have filed for bankruptcy protection in recent months, citing mounting costs to settle hundreds of legal claims. 

This is related to the big fight whether Uber drivers are contractors or employees. Independent contractors -- as chosen by the companies and their drivers -- gives us the consumer cheaper services, and allows more freedom to the company and workers. Employee status costs a lot more, makes a few drivers better off, and keeps a lot of potential drivers out of the market.

Friday Tesla Can Build All The Cars It Wants. The Real Challenge Could Be Selling Them

Via Forbes, and a good reminder that so much damaging regulation is state and local. Tesla wants to sell you cars directly, no-haggle, the way you buy computers.

Tesla is prohibited from selling cars directly to consumers in many states, including Texas and Michigan, where laws protect franchised car dealers....its direct-to-consumer sales model has run into a buzz saw of state franchise laws..... In a few states, such as New Jersey, New York, Ohio and Pennsylvania, Tesla won permission to operate a handful of retail locations, and no more. But dealer trade groups are objecting. In some states, they’ve filed suit to block retail licenses granted to Tesla; in others, they’ve proposed legislation that would prevent Tesla from obtaining such licenses.

Lost Jobs in Recessions

The WSJ has a nice article showing just how hard it has been for many people who lost jobs in the recession to get back to work. Their profile is typical of what I have read and not the typical picture of unemployment: Middle age middle managers. The paper by Steve Davis and Till von Wachter is here. They present the fact largely as a puzzle, which it is:  "losses in the model vary little with aggregate conditions at the time of displacement, unlike the pattern in the data."

As the story makes clear, the problem is really not unemployment. There are lots of jobs available. The jobs just don't pay much, and don't use the specialized skills that the workers have to offer. The problem is wages at the jobs they can get.

This is a very interesting fact, with many less than obvious interpretations. It strikes me as a good teaching moment for economics classes.

The natural interpretation of all correlations is causal: There are  two identical workers in two identical jobs at two identical companies. One worker happened to lose his or her job in a recession, and so faces a harder climb back. We learn about the difference in job markets over time.

Maybe, but the job of being an economist is to recognize lots of other possibilities for a correlation. So the proposed discussion question: what else might this mean? How does taking averages reflect selection rather than cause?

Perhaps not all workers are the same. The conventional view of recessions is that companies fire people from lack of "aggregate demand," or shocks external to the firm.  In good times, companies fire people when those people aren't very good. Then, you would think, being laid off in a recession is better than being laid off in good times. If you're laid off in good times that is a signal you're not a great worker. In a recession, everybody got laid off, so there is not any particular stigma in it.  Well, so much for that story.

A contrary story is that it's easier to get rid of people in a recession. The head of a large business once told me how useful the last recession was, as he could plead financial problems and finally get rid of the army of unionized workers that were playing solitaire all day. Guido Menzio  and Mikhail Golosov have a model that (I think!) formalizes this story. (Menzio was recently in the news, as an idiot fellow passenger thought he was a terrorist because he was doing algebra on a plane, a different sad commentary on contemporary America.)

Perhaps not all businesses are the same. Businesses and occupations that get hit in recessions are different from those that get hit in booms...

Perhaps times are not the same. Recessions are pretty much by definition a time when different sorts of shocks hit the economy. If recession shocks require bigger changes in specialized human capital than normal-times (more idosyncratic shocks), or people to move industries and cities more, then you'll see this pattern.

And so on. Interesting facts, not so obvious interpretations, averages that don't always mean what you think they mean, that's why economics is so fun.

Update:  Steve Davis writes to explain that job losses in recessions are concentrated in specific industries:

You write: "...If recession shocks require bigger changes in specialized human capital than normal-times (more idiosyncratic shocks), or people to move industries and cities more, then you'll see this pattern.” 

Here’s a modified version of this story that has more promise in my view.  First, an under appreciated empirical observation: The cross-industry (cross-firm, cross-establishment) distribution of employment growth rates becomes more negatively skewed in recessionary periods.  Job loss is also concentrated in industries (firms, establishments) that experience relatively large net and gross job destruction rates.  Taken together, these two observations tell us that, in recessions, a larger share of job losers hail from industries (firms, establishments) that get hit by especially large negative shocks (even compared to the average), reducing the value of skills utilized by workers in those industries (firms, establishments).  I conjecture that negative skewness in the cross-occupation distribution of employment growth rates is also counter cyclical, but I don’t recall any direct and convincing evidence on that score. 

Restating, the setting in which job loss occurs worsens for the average job loser in recessions, because (1) overall economic conditions worsen in recessions, AND (2) conditions worsen especially for industries (occupations, etc.) with a disproportionate share of job loss. Many models consider the effects of (1), but there is little work on (2).  Testing hypotheses and building theories related to (2) requires good measures of the individual-specific “setting” in which individual job losses occur.  One of my PhD students, Claudia Macaluso, is making good progress on that front in her dissertation.

William Carrington and Bruce Fallick have a review paper on why earnings fall with job displacement.

McArdle Nugget

Megan McArdle has produced a timely nugget of wise prose

I would cross income inequality itself off the list of priorities. Far greater concerns include: absolute suffering among those with low incomes; a socioeconomic structure that seems to be ossifying into a hierarchy of professional classes; and a decline in income mobility, which is to say, in equality of opportunity. It doesn’t really matter whether Bill Gates has some incomprehensible sum of money at his disposal. It does matter a great deal whether there are Americans in desperate want. And of course, it matters whether anyone with the aptitude and motivation can become the next Bill Gates, or only a handful of privileged people who are already well off.

I also submit that the importance of the issue is inversely proportionate to the ease of solution. The government is very good at taxing income of some Americans and writing checks to others. (Whether you think it should do this is, of course, a different question.)

[JC: Actually, I'm not so sure the government is very good at this. Our tax code is a mess. Our income transfers largely go to middle class and well connected businesses. Our system of writing checks includes numerous 100% + marginal tax rates and other disincentives. Despite the one of the most progressive tax systems on the planet, there are still schizophrenics on the streets.]

It is very bad at preparing someone to live a solid and fulfilling life of work and community, which is one reason we mostly leave that job to parents.

Government is also not well suited to creating a lot of satisfying and remunerative jobs. It can contribute to productivity and help companies to flourish, for example through basic research and by maintaining a competent legal and regulatory system. And it can directly create a few jobs providing government services; these have been, for many communities at many times, a stepping stone to the middle class.

... For the most part, the best the government can do is to avoid stepping on the creation of satisfying and remunerative jobs; no nation on earth seems to have figured out how to generate “good jobs” for everyone. 

[JC: I think she means no government on earth.. "nations" have figured it out!]