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Tuesday, January 30, 2018
Prescott on work effort
Why Do Americans Work More Than Europeans?
By EDWARD C. PRESCOTTOctober 21, 2004; Page A18
Last week, The Wall Street Journal published a story describing a new method of measuring a nation's progress – "gross national happiness1." Maybe it's because we're nearing the end of an election season, but one hopes that this indicator does not catch on. Of all the promises that candidates find themselves making, and of all the problems they pledge to fix, one shudders at the notion of pledges to make us happier. The mind reels at the thought of the ill-conceived policies that would be concocted if the stated goal were to increase gross national happiness. It's hard enough to make everybody more prosperous, educated and healthy, but imagine if the government was responsible for keeping you in a good mood. And just think about the data problems.
I mention this not to poke fun at the idea of happiness. Indeed, our Constitution, in its elegant wisdom, allows for individuals to pursue happiness. But individual pursuit is far different from the aggregate management of happiness. This point is at the core of how we should think about many government policies, especially tax policy, which is the subject of this essay.
* * *
Let's begin by considering a commonly held view which says that labor supply is not affected by tax rates. This idea holds that labor participation would remain steady when tax rates are either raised or lowered. If you are a policy maker and you subscribe to this, then you can confidently increase marginal tax rates as high as you like to attain the revenues you desire. Not only that, but you can move those tax rates up and down whenever you like and blithely assume that this will have no effect on output.
But economic theory and data have come together to prove this notion wrong, and we have many different laboratories -- or countries -- in which we can view live experiments. The most useful comparison is between the U.S. and the countries of Europe, because these economies share traits; but the data also hold when we consider other countries (more on those later).
This issue is encapsulated in one question that is currently puzzling policy makers: Why do Americans work so much more than Europeans? The answer is important because it suggests policy proposals that will improve European standards of living (which should give a boost to its gross national happiness, by the way). However, an incorrect answer to that question will result in policies that will only exacerbate Europe's problems and could have implications for other countries that are looking for best practices.
Here's a startling fact: Based on labor market statistics from the Organization for Economic Cooperation and Development, Americans aged 15-64, on a per-person basis, work 50% more than the French. Comparisons between Americans and Germans or Italians are similar. What's going on here? What can possibly account for these large differences in labor supply? It turns out that the answer is not related to cultural differences or institutional factors like unemployment benefits, but that marginal tax rates explain virtually all of this difference. I admit that when I first conducted this analysis I was surprised by this finding, because I fully expected that institutional constraints are playing a bigger role. But this is not the case. (Citations and more complete data can be found in my paper, at www.minneapolisfed.org2.)
Let's take another look at the data. According to the OECD, from 1970-74 France's labor supply exceeded that of the U.S. Also, a review of other industrialized countries shows that their labor supplies either exceeded or were comparable to the U.S. during this period. Jump ahead two decades and you will find that France's labor supply dropped significantly (as did others), and that some countries improved and stayed in line with the U.S. Controlling for other factors, what stands out in these cross-country comparisons is that when European countries and U.S. tax rates are comparable, labor supplies are comparable.
And this insight doesn't just apply to Western industrialized economies. A review of Japanese and Chilean data reveals the same result. This is an important point because some critics of this analysis have suggested that cultural differences explain the difference between European and American labor supplies. The French, for example, prefer leisure more than do Americans or, on the other side of the coin, that Americans like to work more. This is silliness.
Again, I would point you to the data which show that when the French and others were taxed at rates similar to Americans, they supplied roughly the same amount of labor. Other research has shown that at the aggregate level, where idiosyncratic preference differences are averaged out, people are remarkably similar across countries. Further, a recent study has shown that Germans and Americans spend the same amount of time working, but the proportion of taxable market time vs. nontaxable home work time is different. In other words, Germans work just as much, but more of their work is not captured in the taxable market.
I would add another data set for certain countries, especially Italy, and that is nontaxable market time or the underground economy. Many Italians, for example, aren't necessarily working any less than Americans -- they are simply not being taxed for some of their labor. Indeed, the Italian government increases its measured output by nearly 25% to capture the output of the underground sector. Change the tax laws and you will notice a change in behavior: These people won't start working more, they will simply engage in more taxable market labor, and will produce more per hour worked.
This analysis has important implications for policy -- and not just for Europeans, but for the U.S. as well. For example, much has been made during this election season about whether the current administration's tax cuts were good or bad for the economy, but that is more a political question than a policy consideration and it misses the point. The real issue is about whether it is better to tweak the economy with short-lived stimulus plans or to establish an efficient tax system with low tax rates that do not change with the political climate.
What does this mean for U.S. tax policy? It means that we should stop focusing our attention on the recent tax cuts and, instead, start thinking about tax rates. And that means that we should roll back the 1993 tax rate increases and re-establish those from the 1986 Tax Reform Act. Just as they did in the late 1980s, and just as they would in Europe, these lower rates would increase the labor supply, output would grow and tax revenues would increase.
Now, might there be a small increase in debt as we move to a better tax system? Sure, but remember that the most important measure of debt is privately owned government debt as a percent of gross national income, which has been flat over the past three years. Also, there is a sure-fire way to handle this increase in debt, and that would be to cut expenditures. Actually, there is another way to handle it, and that would be to pray to the Gods for another high-tech boom and the debt would go "poof," and we'll praise whoever is president for being fiscally responsible.
Some say that the 1993 tax-rate hike was responsible for erasing this country's debt problems because it increased government revenues. This is false. The ratio of U.S. debt to gross national income continued to increase in the years following those rate hikes and did not fall until the fortuitous boom that occurred in the late '90s. The high-tech boom meant that people worked more, output increased, incomes climbed and tax revenues followed suit. You cannot tax your way to that sort of prosperity. Imagine the outcome of the late-'90s boom if tax rates had been lower. And by the way, lower tax rates are good for all taxpayers. We're barking up the wrong tree if we think that "taxing the rich" will solve all our problems. You know who these rich people are? They're often families with two professional wage-earners. If you tax that family too much, one wage-earner will drop out, and that's not only bad for the income of that family but also for the output of the whole economy -- and will result in lower tax revenues.
Also, we need to get away from thinking of the rich as some sort of permanent class. Many of the individuals who show up on annual millionaire lists, for example, are people who happened to have a good year and who may never appear on that list again. Consider people who worked hard for many years and built a successful business that finally goes public. The big capital gain they realize that year is really compensation for the uncompensated effort they put into building the business. They should not be penalized for their vision and tenacity. If we establish rules that punish the winners, entrepreneurs will take fewer risks and we will have less innovation, less output, less job growth. The whole economy suffers under such a scenario -- not just those few individuals who are taxed at a higher rate. And this doesn't just involve the Googles and Apples and Microsofts, but countless other companies that start small and end up making large contributions to the economy.
The important thing to remember is that the labor supply is not fixed. People, be they European or American, respond to taxes on their income. Just one more example: In 1998, Spain flattened its tax rates in similar fashion to the U.S. rate cuts of 1986, and the Spanish labor supply increased by 12%. In addition, Spanish tax revenues also increased by a few percent.
And that brings us back to our framing question about the labor supplies of the U.S. and Europe: The bottom line is that a thorough analysis of historical data in the U.S. and Europe indicates that, given similar incentives, people make similar choices about labor and leisure. Free European workers from their tax bondage and you will see an increase in gross domestic product (oh, and you might see a pretty significant increase in gross national happiness, too). The same holds true for Americans.
Mr. Prescott is co-winner of the 2004 Nobel Prize in Economics, senior monetary adviser at the Federal Reserve Bank of Minneapolis and professor of economics at Arizona State University.
URL for this article:http://online.wsj.com/article/0,,SB109830788286551061,00.html
Hyperlinks in this Article:(1) http://online.wsj.com/article/0,,SB109716629151639303,00.html (2) http://www.minneapolisfed.org
By EDWARD C. PRESCOTTOctober 21, 2004; Page A18
Last week, The Wall Street Journal published a story describing a new method of measuring a nation's progress – "gross national happiness1." Maybe it's because we're nearing the end of an election season, but one hopes that this indicator does not catch on. Of all the promises that candidates find themselves making, and of all the problems they pledge to fix, one shudders at the notion of pledges to make us happier. The mind reels at the thought of the ill-conceived policies that would be concocted if the stated goal were to increase gross national happiness. It's hard enough to make everybody more prosperous, educated and healthy, but imagine if the government was responsible for keeping you in a good mood. And just think about the data problems.
I mention this not to poke fun at the idea of happiness. Indeed, our Constitution, in its elegant wisdom, allows for individuals to pursue happiness. But individual pursuit is far different from the aggregate management of happiness. This point is at the core of how we should think about many government policies, especially tax policy, which is the subject of this essay.
* * *
Let's begin by considering a commonly held view which says that labor supply is not affected by tax rates. This idea holds that labor participation would remain steady when tax rates are either raised or lowered. If you are a policy maker and you subscribe to this, then you can confidently increase marginal tax rates as high as you like to attain the revenues you desire. Not only that, but you can move those tax rates up and down whenever you like and blithely assume that this will have no effect on output.
But economic theory and data have come together to prove this notion wrong, and we have many different laboratories -- or countries -- in which we can view live experiments. The most useful comparison is between the U.S. and the countries of Europe, because these economies share traits; but the data also hold when we consider other countries (more on those later).
This issue is encapsulated in one question that is currently puzzling policy makers: Why do Americans work so much more than Europeans? The answer is important because it suggests policy proposals that will improve European standards of living (which should give a boost to its gross national happiness, by the way). However, an incorrect answer to that question will result in policies that will only exacerbate Europe's problems and could have implications for other countries that are looking for best practices.
Here's a startling fact: Based on labor market statistics from the Organization for Economic Cooperation and Development, Americans aged 15-64, on a per-person basis, work 50% more than the French. Comparisons between Americans and Germans or Italians are similar. What's going on here? What can possibly account for these large differences in labor supply? It turns out that the answer is not related to cultural differences or institutional factors like unemployment benefits, but that marginal tax rates explain virtually all of this difference. I admit that when I first conducted this analysis I was surprised by this finding, because I fully expected that institutional constraints are playing a bigger role. But this is not the case. (Citations and more complete data can be found in my paper, at www.minneapolisfed.org2.)
Let's take another look at the data. According to the OECD, from 1970-74 France's labor supply exceeded that of the U.S. Also, a review of other industrialized countries shows that their labor supplies either exceeded or were comparable to the U.S. during this period. Jump ahead two decades and you will find that France's labor supply dropped significantly (as did others), and that some countries improved and stayed in line with the U.S. Controlling for other factors, what stands out in these cross-country comparisons is that when European countries and U.S. tax rates are comparable, labor supplies are comparable.
And this insight doesn't just apply to Western industrialized economies. A review of Japanese and Chilean data reveals the same result. This is an important point because some critics of this analysis have suggested that cultural differences explain the difference between European and American labor supplies. The French, for example, prefer leisure more than do Americans or, on the other side of the coin, that Americans like to work more. This is silliness.
Again, I would point you to the data which show that when the French and others were taxed at rates similar to Americans, they supplied roughly the same amount of labor. Other research has shown that at the aggregate level, where idiosyncratic preference differences are averaged out, people are remarkably similar across countries. Further, a recent study has shown that Germans and Americans spend the same amount of time working, but the proportion of taxable market time vs. nontaxable home work time is different. In other words, Germans work just as much, but more of their work is not captured in the taxable market.
I would add another data set for certain countries, especially Italy, and that is nontaxable market time or the underground economy. Many Italians, for example, aren't necessarily working any less than Americans -- they are simply not being taxed for some of their labor. Indeed, the Italian government increases its measured output by nearly 25% to capture the output of the underground sector. Change the tax laws and you will notice a change in behavior: These people won't start working more, they will simply engage in more taxable market labor, and will produce more per hour worked.
This analysis has important implications for policy -- and not just for Europeans, but for the U.S. as well. For example, much has been made during this election season about whether the current administration's tax cuts were good or bad for the economy, but that is more a political question than a policy consideration and it misses the point. The real issue is about whether it is better to tweak the economy with short-lived stimulus plans or to establish an efficient tax system with low tax rates that do not change with the political climate.
What does this mean for U.S. tax policy? It means that we should stop focusing our attention on the recent tax cuts and, instead, start thinking about tax rates. And that means that we should roll back the 1993 tax rate increases and re-establish those from the 1986 Tax Reform Act. Just as they did in the late 1980s, and just as they would in Europe, these lower rates would increase the labor supply, output would grow and tax revenues would increase.
Now, might there be a small increase in debt as we move to a better tax system? Sure, but remember that the most important measure of debt is privately owned government debt as a percent of gross national income, which has been flat over the past three years. Also, there is a sure-fire way to handle this increase in debt, and that would be to cut expenditures. Actually, there is another way to handle it, and that would be to pray to the Gods for another high-tech boom and the debt would go "poof," and we'll praise whoever is president for being fiscally responsible.
Some say that the 1993 tax-rate hike was responsible for erasing this country's debt problems because it increased government revenues. This is false. The ratio of U.S. debt to gross national income continued to increase in the years following those rate hikes and did not fall until the fortuitous boom that occurred in the late '90s. The high-tech boom meant that people worked more, output increased, incomes climbed and tax revenues followed suit. You cannot tax your way to that sort of prosperity. Imagine the outcome of the late-'90s boom if tax rates had been lower. And by the way, lower tax rates are good for all taxpayers. We're barking up the wrong tree if we think that "taxing the rich" will solve all our problems. You know who these rich people are? They're often families with two professional wage-earners. If you tax that family too much, one wage-earner will drop out, and that's not only bad for the income of that family but also for the output of the whole economy -- and will result in lower tax revenues.
Also, we need to get away from thinking of the rich as some sort of permanent class. Many of the individuals who show up on annual millionaire lists, for example, are people who happened to have a good year and who may never appear on that list again. Consider people who worked hard for many years and built a successful business that finally goes public. The big capital gain they realize that year is really compensation for the uncompensated effort they put into building the business. They should not be penalized for their vision and tenacity. If we establish rules that punish the winners, entrepreneurs will take fewer risks and we will have less innovation, less output, less job growth. The whole economy suffers under such a scenario -- not just those few individuals who are taxed at a higher rate. And this doesn't just involve the Googles and Apples and Microsofts, but countless other companies that start small and end up making large contributions to the economy.
The important thing to remember is that the labor supply is not fixed. People, be they European or American, respond to taxes on their income. Just one more example: In 1998, Spain flattened its tax rates in similar fashion to the U.S. rate cuts of 1986, and the Spanish labor supply increased by 12%. In addition, Spanish tax revenues also increased by a few percent.
And that brings us back to our framing question about the labor supplies of the U.S. and Europe: The bottom line is that a thorough analysis of historical data in the U.S. and Europe indicates that, given similar incentives, people make similar choices about labor and leisure. Free European workers from their tax bondage and you will see an increase in gross domestic product (oh, and you might see a pretty significant increase in gross national happiness, too). The same holds true for Americans.
Mr. Prescott is co-winner of the 2004 Nobel Prize in Economics, senior monetary adviser at the Federal Reserve Bank of Minneapolis and professor of economics at Arizona State University.
URL for this article:http://online.wsj.com/article/0,,SB109830788286551061,00.html
Hyperlinks in this Article:(1) http://online.wsj.com/article/0,,SB109716629151639303,00.html (2) http://www.minneapolisfed.org
Twelve things economists need to remember to be helpful journalistic sources
http://www.niemanwatchdog.org/index.cfm?fuseaction=background.view&backgroundid=0094
see also
http://www.niemanwatchdog.org/index.cfm?fuseaction=background.view&backgroundid=0093
see also
http://www.niemanwatchdog.org/index.cfm?fuseaction=background.view&backgroundid=0093
Saturday, January 27, 2018
Katie Sobczyk Player: The impact of personal income tax rates on the employment decisions of small business
Abstract
Small businesses file taxes in accordance with the personal income tax code because they are considered flow-through entities. Thus, personal income tax reforms directly affect the incentives small business owners face regarding employment and operations. I use the changes in personal income-tax rates during the 1993 and 2001-2003 reforms and micro-level data to estimate the effect of statutory tax-rate changes on small-business employment decisions. I add two contributions to the current literature: first, I allow for intertemporal tax planning and secondly, I allow the firm's decision to employ labor to be correlated with the firm's wage bill decision. Estimation of a Heckman selection model for wage bills shows that the probability that a business will employ labor is 1.18 % higher when current tax rates increase by one percentage point and 0.70 % lower when future rates are expected to increase by one percentage point. Among firms that already employ labor, the median wage bill elasticity with respect to current tax rates is-0.64. These estimates are larger than those reported in previous research because my model includes future taxes and allows for correlation between the firm’s employment and wage bill decisions. Omitting the intertemporal tax responses biases the estimates of previous researchers upwards, whereas assuming the two firm decisions are independent biases estimates towards zero
Read more at http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.231.6093
Sunday, January 14, 2018
Saturday, January 13, 2018
Even the big boys make mistakes: Economist err compiling "Doing Business Index"
From today's WSJ:
The World Bank repeatedly changed the methodology of one of its flagship economic reports over several years in ways it now says were unfair and misleading.
The World Bank’s chief economist, Paul Romer, told The Wall Street Journal on Friday he would correct and recalculate national rankings of business competitiveness in the report called “Doing Business” going back at least four years.
The revisions could be particularly relevant to Chile, whose standings in the rankings have been especially volatile in recent years and potentially tainted by the political motivations of World Bank staff, Mr. Romer said.
The World Bank repeatedly changed the methodology of one of its flagship economic reports over several years in ways it now says were unfair and misleading.
The World Bank’s chief economist, Paul Romer, told The Wall Street Journal on Friday he would correct and recalculate national rankings of business competitiveness in the report called “Doing Business” going back at least four years.
The revisions could be particularly relevant to Chile, whose standings in the rankings have been especially volatile in recent years and potentially tainted by the political motivations of World Bank staff, Mr. Romer said.
Friday, January 12, 2018
Monday, January 01, 2018
Friday, November 24, 2017
Python Importing syntax
https://www.pythonprogramming.net/module-imAport-syntax-python-3-tutorial/?completed=/statistics-python-3-module-mean-standard-deviation/
Python Programming Installing Modules
https://www.pythonprogramming.net/installing-modules-python-3/?completed=/global-local-variables/
and
and
How to download and install Python Packages and Modules with Pip
https://www.pythonprogramming.net/using-pip-install-for-python-modules/?completed=/installing-modules-python-3/
http://www.lfd.uci.edu/~gohlke/pythonlibs/
Python FAQ
https://www.pythonprogramming.net/frequently-asked-questions-python-3/?completed=/classes-python-3-basics-tutorial/
Tuesday, October 24, 2017
Monday, October 23, 2017
How to Create a Dashboard Using Pivot Tables and Charts in Excel (Part 3)
A very useful tutorial on Excel Pivot Tables
Friday, October 20, 2017
Tuesday, March 28, 2017
"I took multivitamins every day for a decade. Then I found out they're useless."
Read and weep.
Though the FDA says on its vitamins information page that there "are many good reasons toconsider taking supplements," it indicates vitamins only "may be usefulwhen they fill a specific identified nutrient gap that cannot or is not otherwise being met by the individuals' intake of food." The CDC estimated in 2014 that "nine out of 10 people in the U.S. are indeed getting enough of some important vitamins and nutrients."
So why are so many Americans still taking multivitamins? Steven Salzberg, a medicine professor at Johns Hopkins, told NPR multivitamins are "a great example of how our intuition leads usastray." "It seems reasonable that if a little bit of something is good
for you, then more should be better for you. It's not true," Salzberg said. "Supplementation with extra vitamins or micronutrients doesn't really benefit you if you don't have a deficiency."
Americans' abysmally bad diets also give vitamin companies some marketing ammunition. When the average American is eating just one ortwo servings of fruits and veggies a day (experts recommend as many as 10 servings of fruits and veggies a day for maximum benefits), a little boost of vitamins might seem like a good idea. But popping a pill isn't going to make up for all those lost servings. "Food contains thousands of phyto-chemicals, fiber, and more that work together to promote goodhealth that cannot be duplicated with a pill," said nutritionist Karen Ansel.I expect people to say that this is all a plot by BigPharma.
Wednesday, January 25, 2017
Sunday, November 20, 2016
Allan Holdsworth quartet
Music for a Sunday morning. One of my favorite guitarists: A. Holdsworth. Never plays a tune in his repertoire the same way.
Ten Years After - Good Morning Little School Girl - 8/4/1975 - Winterland
Who digs the late Alvin Lee of TYA these days? Unfortunately not many!
Saturday, November 19, 2016
Led Zeppelin: No Quarter 5/24/1975 HD
I never get bored of this interplay between John Paul Jones and Jimmy Page! Ah to be a teenager in #EastBoston again!
[04] Jeff Beck Band - "A Day in the Life" HD
The masterful Jeff Beck interprets Lennon-McCartney so brilliantly.
Thursday, October 27, 2016
Tuesday, July 19, 2016
Saturday, July 09, 2016
"Is Britain becoming too diverse to sustain the mutual obligations behind a good society and the welfare state?"
Thoughts about post-Brexit Britain. The anxiety was noted back in 2004, by David Goodhart
The diversity, individualism and mobility that characterise developed economies – especially in the era of globalisation – mean that more of our lives is spent among strangers. Ever since the invention of agriculture 10,000 years ago, humans have been used to dealing with people from beyond their own extended kin groups. The difference now in a developed country like Britain is that we not only live among stranger citizens but we must share with them. We share public services and parts of our income in the welfare state, we share public spaces in towns and cities where we are squashed together on buses, trains and tubes, and we share in a democratic conversation – filtered by the media – about the collective choices we wish to make. All such acts of sharing are more smoothly and generously negotiated if we can take for granted a limited set of common values and assumptions. But as Britain becomes more diverse that common culture is being eroded.Read more.
Friday, July 08, 2016
Saturday, June 04, 2016
Baker signs public access law
https://t.co/woRkKej1F6 via @sharethis @Daviddarcangelo as a candidate for SecState in '14 called for more access to public records #MAPoli
— Frank Conte (@EBDotCom) June 4, 2016
Saturday, February 06, 2016
Sunday, December 06, 2015
Monday, July 20, 2015
Thursday, February 19, 2015
Friday, July 04, 2014
Saturday, January 18, 2014
Wednesday, December 25, 2013
In 2013 we lost Alvin Lee, R.I.P. guitar hero
In the mid-seventies my first rock concert was a headliner by Ten Years After at the Boston Garden. Alvin Lee toiled in the spotlight and on the margins. He will be missed.
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