February 16, 2014

Political Science Critics: Digging in the Wrong Place?

By now, most observers who care about political science have surely come across, and commented about, Nicholas Kristof’s column bemoaning the cloistered nature of political scientists. I won’t try to rehash what's already been done by Steve Saideman, MonkeyCage, and other notable scholars who are regularly engaging in public discourse. Instead, I’ll try to touch on a few things that haven’t received much attention in the debate.

In the original Indiana Jones movie, there comes a point where the heroes realize that the bad guys are “digging in the wrong place” for the Ark. They haven’t done their homework. I’m not saying Kristof is a bad guy (he’s not), but he is definitely digging in the wrong place.

February 13, 2014

Picturing Income Inequality, Part 1

With the increased emphasis on income inequality in both Washington and the media, we are certain to be bombarded with competing partisan and ideological claims about the nature and severity of that inequality. As a political scientist, I'd like to focus on what the data say and in that way hopefully contribute to the civic discourse on the issue. This installment uses data available from the Census Bureau's Current Population Survey (CPS)—one of the key sources of information on income inequality. (For the truly wonkish, I discuss these data in more detail at the end of the post.)

The Bottom Line

The evidence from the CPS data supports the following claims:
  • The richest households have a greater share of income today than they did in 1967; everyone else has seen their share go down.
  • Average household income has increased across the board, but the growth has been unequal and tilted toward the richest households.
  • The top 5% have enjoyed the greatest increase in both share of income and average household income.
  • Consequently, there is greater income inequality in the US today than there was in 1967.

The Evidence

Figure 1 graphs the share of income from 1967 to 2012 for American households grouped into five equally-sized groups (quintiles). Two things are apparent in the figure. First, there is a fair amount of income inequality across those years.* Second, the bottom 80% of American households have seen their share of income decrease, while the richest 20% have seen their share go up.

A more intuitive way to understand income shares is to imagine 100 people who together earned $100. We could divide those 100 people into five groups of 20 (income quintiles). An equal distribution of income would result in each group having $20. The data show, however, that in 2012 the top 20 people had $51 collectively, the middle 20 (middle class) had $14, and the bottom 20 had only $3.

February 8, 2014

The Russian Ruble Goes for Gold

The following is a guest post from Blake Hall, a senior majoring in Political Science-Economics at Anderson University. He is preparing to begin graduate study in business. His research interests include global finance, global political economy, investment strategy, and emerging markets. You can follow him on Twitter @SBHall765.

Lights. Camera. Action. The Sochi Winter Games began Thursday with the opening ceremony scheduled for Friday evening. What a spectacle for Russia and my key player is the Russian Ruble, will it be able to achieve gold as direct result of the games or will it be another drag/bust on the already ailing economy?

January 31, 2014

More Evidence on the Minimum Wage

In my last post, I offered a quick summary of the evidence regarding the impact raising the minimum wage would have on jobs, poverty, and economic growth. Naturally, President Obama's focus on the minimum wage this week has generated a lot of discussion in the blogosphere. Here's a quick summary of four particularly noteworthy posts.

Alan Manning at the London School of Economics has two excellent posts on the minimum wage. The first points out that the weight of current empirical research indicates that raising the minimum wage won't cost jobs. So why hasn't this conclusion sunk in? 
In spite of this accumulating weight of empirical evidence, it is still very common to find economists falling back on the argument that a minimum wage must cost jobs because demand curves for labor inevitably slope downward. Faced with a conflict between the evidence and 20th-century economic models, they reject the evidence rather than the theory – not an ideal template for scientific endeavor. But there are, in fact, uncomplicated theoretical reasons why the minimum wage set at the levels seen in the United States has little or no effect on employment. Hence the problem may be with the economics all too often taught as dogma. [emphasis added]
His second post offers a concise history of the minimum wage and points out that it is low relative to other OECD nations.

Jared Bernstein at the Center for Budget and Policy Priorities covers much of the same ground I did in my earlier post. His key point:
The question of whether raising the minimum wage reduces employment for low-wage workers is one of the most extensively studied issues in empirical economics.  The weight of the evidence is that (1) for minimum wage levels in the range now being discussed, such impacts are small, and (2) minimum-wage increases of the size enacted in the past, and under the proposals now being discussed, are a net benefit to low-wage workers as a group.  Raising the minimum wage also would modestly lower poverty and help push back against rising inequality.
Finally, John Patty has a post at the Math of Politics that clears up misconceptions about the number of workers who would be affected by a minimum wage increase. Not only would workers making $7.25 or less benefit; those making $7.26 to $10.09 would also see a wage increase. How many people is that?
The Occupational Employment Statistics Query System, provided by the U.S. Bureau of Labor Statistics, provides a different picture of how many people would be impacted by a change in the federal minimum wage to $10.10/hr.

The most recent data, from May 2012, is displayed at the end of this post.  The points I’d like to quickly point out are as follows:
  • In Food Preparation and Serving Related Occupations, 50% of 11,546,880 workers receive less than $9.10/hr, and 75% receive less than $11.11/hr.  Thus, somewhere around 62.5% of these workers, or about 5.75 million people would receive a higher wage.
  • In Sales and Related Occupations, 25% of 13,835,090 workers receive less than $9.12/hr, and 50% receive less than $12.08/hr.  So, conservatively, about 3.5 million people would receive a higher wage.
  • In Transportation and Material Moving Occupations, 25% of 8,771,690 workers receive less than $10.06/hr.  Thus, over 2.1 million people would receive a higher wage.
  • In Healthcare Support Occupations, 25% of 3,915,460 workers receive less than $10.03/hr.  That’s nearly a million people who would receive a higher wage.
  • Overall, 10% of all workers (across all industries) receive an hourly wage lower than $8.70/hr, and 25% of all workers receive an hourly wage lower than $10.81/hr.  A rough estimate, then, is that at least one out of every six workers would receive a higher hourly wage if the federal minimum wage were raised to $10.10/hr. To put that in absolute terms:
Over 21,500,000 Americans would receive a higher wage.

January 29, 2014

Misunderstanding the Minimum Wage

In his State of the Union address last night, President Obama called for raising the minimum wage to $10.10 by 2015, reiterating a theme from a speech last December. Moreover, the President said he would bypass Congress by executive order to do just that for federal contract workers.

This seemed like a good time to address questions and concerns that many have by reviewing the most recent evidence regarding the minimum wage. My review indicates that arguments against raising the minimum wage aren't supported by the evidence and that the benefits from doing so seem to outweigh the costs.

First, some historical perspective. The minimum wage today in real terms (controlling for inflation, which is necessary when comparing dollar amounts over time) is less than it was at its peak in 1968 ($10.77), but greater than it was when first implemented in 1938 ($4.08).

Below I provide a brief summary (with extensive quotes) of a review done last December by Laura D. Tyson, a Professor of Business Administration and Economics at the University of California, Berkeley, and a former chair of the Council of Economic Advisers for President Clinton. Another excellent review making many of the same points can be found in the January 24, 2014 issue of CQ Researcher (gated).

The evidence:
  • Raising the minimum wage won't increase unemployment. According to Tyson, "The weight of the evidence consistently finds no significant effects on employment when the minimum wage increases in reasonable increments."

January 10, 2014

Why Chris Christie's Traffic Jam Matters

File this under the category of "past performance predicts future behavior."

During a lengthy press conference yesterday, New Jersey Governor Chris Christie announced he had fired his deputy chief of staff and removed a top political adviser for their roles in creating traffic jams on the George Washington Bridge for four days last September, presumably as a way to punish the Democratic mayor of Fort Lee. (You can find excellent background information here, watch the press conference here, or read the transcript here.) Because Gov. Christie is one of the leading candidates for the Republican presidential nomination in 2016, much of the reporting has focused on the damage this scandal may have on his chances. And both John Sides at The Monkey Cage and Johnathan Bernstein at Bloomberg discuss the impact the scandal may have on the invisible primary—Christie's ability to raise money and secure key endorsements that make or break a nomination.

Although it's natural to consider how this incident affects his chances for the Republican nomination, I'm more interested in what it reveals about a potential Chris Christie presidency. For example, we knew during the 1992 campaign that Bill Clinton was a womanizer (see Gennifer Flowers), so it's not surprising that as President he continued that behavior with Monica Lewinsky. And we knew during the 2008 campaign that Barack Obama lacked executive experience (see 3AM Phone Call), so it's not surprising that we've witnessed a botched rollout of Obamacare. It's in this light that we should consider Gov. Christie's press conference yesterday.

Ruchir Sharma's "Breakout Nations"

As someone who teaches regularly on global economic interconnection, trying to find meaningful, book-length treatments of contemporary markets that are written for a broad audience is important to me. Even when there is a lot to be critiqued in a work, the efforts are valuable. Among the more popular examples of such a work is Fareed Zakaria’s Post-American World, which discussed the "rise of the rest" relative to the developed economies, and even made a brief cameo as a debate point in the 2012 presidential campaign.

I am pleased to report that Ruchir Sharma’s Breakout Nations is a worthy successor to Zakaria’s snapshot of the state of the global economy. Despite some notable flaws, Sharma’s work is ambitious and informed. It has much to critique precisely because it is so ambitious. Sharma’s major conclusions are spot on, though I still have unanswered questions.