Poverty has been a moral issue at the center of philosophical, theological, and social thought for millennia. However, over the last two centuries, much of the world has experienced what Nobel economist Angus Deaton calls “the great escape” from economic deprivation. As a 2013 issue of The Economist explained, one of the main targets of the United Nations Millennium Development Goals (MDG) was to halve extreme poverty between 1990 and 2015. That goal was accomplished years ahead of schedule and the credit largely lies with one thing: “The MDGs may have helped marginally, by creating a yardstick for measuring progress, and by focusing minds on the evil of poverty. Most of the credit, however, must go to capitalism and free trade, for they enable economies to grow—and it was growth, principally, that has eased destitution.”
If this economic narrative is to be believed, then managing well is even more important in the fight against poverty. Research over the last decade finds that management—the day-in, day-out processes of everyday business—matters. As this article will show, economic growth has lifted billions of people worldwide out of extreme poverty via pro-growth policies (especially trade, property rights, and moderate government size). Good management, in turn, plays a significant part in this growth by increasing total factor productivity (TFP) and could therefore be considered a pro-growth policy. In short, those in management positions have the potential to improve the well-being of the global poor by learning to manage well.
I’m sure most of you have heard about the controversial Google Memo making the rounds throughout the media. Social psychologists Sean Stevens and Jonathan Haidt provide an excellent source[ref]Thanks to Megan Conley for linking to this on Facebook.[/ref] for those interested in browsing the academic literature on the subject. They provide both supportive and critical responses[ref]Update: Add this to the critical pile.[/ref] to the memo as well as highlight findings within the research that both agree and disagree with the memo’s assertions. Overall, they conclude,
1. Gender differences in math/science ability, achievement, and performance are small or nil.* (See especially the studies by Hyde; see also this review paper by Spelke, 2005). The one exception to this statement seems to be spatial abilities, such as the ability to rotate 3-dimensional objects in one’s mind. This ability may be relevant in some areas of engineering, but it’s not clear why it would matter for coding. Thus, the large gender gap in coding (and in tech in general) cannot be explained as resulting to any substantial degree from differences in ability between men and women.
2. Gender differences in interest and enjoyment of math, coding, and highly “systemizing” activities are large. The difference on traits related to preferences for “people vs. things” is found consistently and is very large, with some effect sizes exceeding 1.0. (See especially the meta-analyses by Su and her colleagues, and also see this review paper by Ceci & Williams, 2015).
3. Culture and context matter, in complicated ways. Some gender differences have decreased over time as women have achieved greater equality, showing that these differences are responsive to changes in culture and environment. But the cross-national findings sometimes show “paradoxical” effects: progress toward gender equality in rights and opportunities sometimes leads to larger gender differences in some traits and career choices. Nonetheless, it seems that actions taken today by parents, teachers, politicians, and designers of tech products may increase the likelihood that girls will grow up to pursue careers in tech, and this is true whether or not biology plays a role in producing any particular population difference. (See this review paper by Eagly and Wood, 2013).
I was reviewing some old blog posts and such and came across the following. Remember this beautiful exchange?
Awww, yes. The “evil corporations” trope, i.e. the “confusion between abstract categories and flesh-and-blood human beings.”[ref]Thomas Sowell, Economic Facts and Fallacies, 2nd ed. (New York: Basic Books, 2011), 153.[/ref] Explaining the fallacious nature of this thinking, Thomas Sowell writes,
Abstract people can be aggregated into statistical categories such as households, families, and income brackets, without the slightest concern for whether those statistical categories contain similar people, or even the same number of people, or people who differ substantially in age, much less in such finer distinctions as whether or not they are working or whether they are the same people in the same categories over time. Abstract people have an immortality which flesh-and-blood people have yet to achieve.[ref]Thomas Sowell, Intellectuals and Society (New York: Basic Books, 2009), 112-113.[/ref]
What Romney’s hecklers (affiliates of Iowa Citizens for Community Improvement) and critics seem to have missed is the abstract nature of “greedy corporations.” The rhetoric invoked by these individuals often describes corporations as quasi-personal, transcendent entities that exist above and beyond flesh-and-blood people. As one writer notes, “Romney doesn’t mean that corporations are entitled to some of the legal rights of people in the Citizens United sense. He means it in the sense that the money made by corporations flows in and out of human hands—or pockets, in the language of the heckler who hoisted himself on his own metaphorical petard.” The abstractions of “corporations” and “the rich” are frequently linked, if not synonymous. Yet, empirical evidence suggests that corporate taxes negatively impact actual people. And not the rich ones you would hope for.[ref]See Matthew H. Jensen, Aparna Mathur, “Corporate Tax Burden on Labor: Theory and Evidence,” Tax Notes (June 6, 2011) for a nice rundown of the literature.[/ref]
A 2010 working paper explored international tax rates and manufacturing wages across 65 countries over 25 years. It suggests that a 1 percent increase in corporate tax rates decreases wage rates by 0.5-0.6 percent. “These results also hold for effective marginal and average tax rates” (pg. 22). A 2012 study[ref]Ungated working paper version here.[/ref] looked at over 55,000 companies in 9 European countries between 1996 and 2003. It found that every $1 increase in tax liability leads to a $0.49 decline in wages. This suggests that about 50% of the increased tax burden is passed on to the labor force over the long run. A 2007 Kansas City Fed working paper used cross-country data between 1979 and 2002 to find that a 1 percentage point increase in the average corporate tax rate led to a 0.7% decrease in annual gross wages; a decrease that was more than 4 times the amount of the corporate tax revenue collected. Furthermore, the “burden of the corporate tax on wages is shared equally across skill-level, suggesting that the corporate tax may not be as progressive as many politicians assume. Also, as the economy becomes more global, raising the corporate tax may result in lower than predicted corporate revenue increases due to the ability of firms to avoid taxes more effectively” (pg. 22). Another 2007 paper looked at a panel of U.S. multinationals across 50 countries over a 15-year period. The authors found that 45-75% of the corporate tax is shouldered by labor, with the rest falling on capital. Similarly, a 2013 study finds that a $1 increase in corporate tax liability leads to decreases in wages by about $0.60. The authors conclude,
Our findings suggest that labor shares a significant part of the burden of corporate income taxes. A direct calculation of the mean marginal effect of the corporate income tax from our estimates suggests that a 10 percent increase in the tax rate would decrease the average wage rate by 0.28–0.38 percent. Labor shares at least 42 percent of the burden of the corporate tax and possibly more. The average labor share of the corporate tax burden is around 60–80 percent (pg. 233).
A 2016 study[ref]Earlier, ungated version here.[/ref] of state corporate tax rates concluded that 25-30% fell on landowners and 30-35% fell on workers. A 2016 paper for the Federal Reserve looked at 131 tax increases and 140 tax cuts across 45 states going back to 1969. It found that “a one percentage-point increase in the top marginal corporate income tax rate reduces employment by between 0.3% and 0.5% and income by between 0.3% and 0.6%, measured relative to neighboring counties on the other side of the state border. These estimates are remarkably stable: they remain essentially unchanged regardless of local characteristics such as the flexibility of local labor markets, income levels, population density, or the prevalence of small businesses in a county. They are also stable across the business cycle and little changed when we control for localized industry-level shocks by comparing employment and income in bordering counties within the same industry” (pg. 3). A 2009 study by economist Robert Carroll found that across state lines “a one percent drop in the average tax rate leads to a 0.014 percent rise in real wages five years later.” In other words, wages rise $2.50 for every dollar reduction in the state-local corporate income taxes. The opposite also occurs: every dollar increase in tax rates leads to a $2.50 loss in wages. Drawing on recent research, Carroll suggests that “the least mobile factor of production is likely to bear the burden of a tax. In an increasingly global economy, labor is the least mobile because capital can flow freely across borders…When workers have more capital to work with, their labor productivity and wages will rise” (pg. 1). An abstraction is unable to pay its demanded “fair share” and instead places the economic burden on individuals. “After all, businesses are merely convenient ways of organizing economic activity,” writes Carroll, “so while businesses write checks to pay the corporate tax (and other taxes), the burden of those taxes falls ultimately on the individuals who depend on the corporations, in their roles as investors, workers, or consumers” (pg. 2). This is why Carroll finds numerous benefits to cutting corporate taxes, including higher long-term growth, higher wages and living standards, lowered tax burdens on low-income taxpayers and seniors, and boosted entrepreneurship, investment, and productivity.
The point of this review is to remind us that policy is complicated and often counterintuitive. We need to look at the empirical evidence. And if there isn’t much, perhaps we should wait until there is. The effects are real and they impact real people. The problem is that rarely will you achieve a utopian outcome. As I’m fond of saying, “There are no solutions; there are only trade-offs.”[ref]Sowell, The Vision of the Anointed: Self-Congratulation as a Basis for Social Policy(New York: Basic Books, 1995), 142.[/ref]
What is the science of diversity and creativity? According to an article in Harvard Business Review, it may be slightly surprising given how much of a buzzword “diversity” has become:
Generating vs. implementing ideas:Studies suggest that diversity is useful in generating ideas, but actually a hindrance when it comes to selecting and implementing them. “It would therefore make sense for organizations to increase diversity in teams that are focused on exploration or idea generation, and use more-homogeneous teams to curate and implement those ideas. This distinction mirrors the psychological competencies associated with the creative process: divergent thinking, openness to experience, and mind wandering are needed to produce a large number of original ideas, but unless they are followed by convergent thinking, expertise, and effective project management, those ideas will never become actual innovations. For all the talk about the importance of creativity, the critical piece is really innovation.”
Good leadership:Effective leadership can mitigate diversity-induced conflict. “It is the psychological process that enables individuals to set aside their selfish agendas to cooperate with others for the common benefit of the team, articulating the natural tension between our desire to get ahead of others and our need to get along with others.”
Moderate diversity is better: “recent evidence suggests that a moderate degree of diversity is more beneficial than a higher dose. This finding is consistent with the too-much-of-a-good-thing paradigm in management science, which provides compelling evidence for the idea that even the most desirable qualities have a dark side if taken to the extreme.”
Personality vs. demographic differences: “Most discussions about diversity focus on demographic variables (e.g., gender, age, and race). However, the most interesting and influential aspects of diversity are psychological (e.g., personality, values, and abilities), also known as deep-level diversity. Indeed, there are several advantages to focusing on deep-level variables as opposed to demographic factors. First, whereas demographic variables perpetuate stereotypical and prejudiced characterizations, deep-level diversity focuses on the individual, allowing a much more granular understanding of human diversity.”
Knowledge flows: Diversity doesn’t matter unless there is “a culture of sharing knowledge. Studies mapping the social networks of organizations have found higher levels of creativity in groups that are more interconnected, particularly when creative and intrapreneurial individuals are a central node in those networks.”
Skeptics: “diversity training is most effective with individuals who are skeptical of it. This is encouraging, though the challenge, of course, is to ensure that people who are cynical about diversity actually enroll in these training programs.”[ref]Diversity training has to be done properly to be effective.[/ref]
Non-diversity factors matter (and matter more): “As a seminal meta-analysis of 30 years of research showed, support for innovation, vision, task orientation, and external communication is the strongest determinant of creativity and innovation; most input variables, including team composition and structure, have much weaker effects. Likewise, developing expertise, assigning people to tasks that are meaningful and interesting, and improving creative thinking skills will produce higher gains in both individual and team creativity than focusing on diversity will.” Selecting employees based on their creativity also enhances overall creativity.
The article concludes, “In short, there are probably much better reasons for creating a diverse team and organization than boosting creativity. And if your actual goal is to enhance creativity, there are simpler, more effective solutions than boosting diversity.”
Ready for the second minimum wage paper in a row today? A new working paper looks at the Danish experience, where the minimum wage increases drastically when individuals turn 18 years old. So what happens when individuals become adults? “Danish minimum wages cause an increase in average wages of 40 percent when workers reach age 18. This increase in wages causes a 33 percent decrease in employment when workers turn 18, almost all of which comes from job loss” (pgs. 30-31).
In a section of the paper that adds important new evidence to the debate, the authors look at the consequence of losing a job at age 18. One year after separation only 40% of the separated workers are employed but 75% of the non-separated workers are employed. Different interpretations of this are possible. The separated workers will tend to be of lower quality than the non-separated and maybe this is correlated with less desire to have a job. Without discounting that story entirely, however, the straightforward explanation seems to me to be the most likely. Namely, the minimum wage knocks low-skill workers off the job ladder and it’s difficult to get back on until their skills improve.
the Seattle Minimum Wage Ordinance caused hours worked by low-skilled workers (i.e., those earning under $19 per hour) to fall by 9.4% during the three quarters when the minimum wage was $13 per hour, resulting in a loss of 3.5 million hours worked per calendar quarter. Alternative estimates show the number of low-wage jobs declined by 6.8%, which represents a loss of more than 5,000 jobs. These estimates are robust to cutoffs other than $19. A 3.1% increase in wages in jobs that paid less than $19 coupled with a 9.4% loss in hours yields a labor demand elasticity of roughly -3.0, and this large elasticity estimate is robust to other cutoffs.
…Importantly, the lost income associated with the hours reductions exceeds the gain associated with the net wage increase of 3.1%…[W]e compute that the average low-wage employee was paid $1,897 per month. The reduction in hours would cost the average employee $179 per month, while the wage increase would recoup only $54 of this loss, leaving a net loss of $125 per month (6.6%), which is sizable for a low-wage worker (pgs. 35-36).
According to The Washington Post, economist David Autor described the study as one “that is likely to influence people,” calling it “very credible” and “sufficiently compelling in its design and statistical power that it can change minds.”
Given how past evidence has been ignored, I doubt it.
Last year, the World Bank revised its position on conflict – upgrading it from being one of many drivers of suffering and poverty, to being the primary driver. In Somalia, despite some political progress, the conflict has put more than half the population in need of assistance, with 363,000 children suffering acute malnutrition. In Nigeria, conflict with Boko Haram in the country’s northeast has left 1.8 million people still displaced, farmers unable to grow crops, and 4.8 million people in need of food assistance. In Yemen, an escalation in conflict since 2015 has worsened a situation already made dire by poor governance, poverty and weak rule of law. Now more than 14 million people need food aid.
Only if we understand conflict can we understand these hunger crises…Across the places we work, where people are facing starvation, the pattern is the same. Hunger is not some freak environmental event; it is human-made, the result of a deadly mix of conflict, marginalization, and weak governance…In South Sudan, as in Somalia, Nigeria and Yemen it is not generally a lack of food that has caused famine-like conditions to occur. The crises exist because of violence and conflict. They don’t need more food, they need investment into conflict prevention and the stability that brings.
Who do they turn to to help stabilize these conflict-prone regions? Businesses:
The World Economic Forum’s Global Agenda Council on Fragility, Violence and Conflict found that corporate partners can foster stable, inclusive and prosperous societies that respect the rule of law and benefit from accountable governance. Both local and multinational businesses can play an important role, often working alongside each other to support and grow local and national economies and, in the process, help support efforts undertaken by others to reduce fragility and conflict.
The WE Forum has highlighted the way businesses can foster peace before.[ref]You can find the referenced study here.[/ref] Business leaders should take note.
but for a working person, work styles in the workplace are an important factor. For example, if workers have to put in long hours, have little discretion over their work, or get few opportunities to change assignments or workplaces, this adds to their stress and increases the likelihood of deteriorating mental health.
On the other hand, there has been little research on mental health problems in the field of labour economics, which focuses on analysing work styles in the workplace. As for Japanese work styles, we see moves everywhere to try to change from so-called ‘Japanese employment’ practices. New aspects now include reducing long working hours, seeking a better work/life balance, diversity management, and encouraging women to be more involved in the workplace. These moves suggest that work styles under conventional Japanese employment practices create some kind of difficulty for workers. In other words, there are concerns that work styles under Japanese employment practices are a major factor in causing mental health to deteriorate.
In Yamamoto’s view, there are at least two economic approaches that could be utilized regarding mental health research:
“The first approach is to reveal the characteristics of work styles, based on labour supply-and-demand mechanisms and internal labour market models, and use those characteristics to explain the impact that work styles have on workers’ mental health and the role of the business in mental health.”
“The other approach is to reveal work style factors that impact mental health from observed data (controlling for heterogeneities between individual employees and businesses, and other noise), and to show how mental health affects objective indicators such as business productivity and profitability.”
Using findings from the Labor Market Analysis Using Matched Employer-Employee Panel Data research project, Yamamoto provides the following insights:
First, the research shows that factors affecting employees’ mental health include long work hours, job characteristics, workplace management methods, workplace climate, job transfers, and promotions, among others (Kuroda and Yamamoto 2016a, Sato 2016). Second, mechanisms that cause employee mental health to deteriorate include working irrationally long work hours because of such psychological tendencies as overconfidence bias (i.e. the employee has too much confidence in his or her own health), which could result in unexpected health damage (Kuroda and Yamamoto 2016b). Research also has looked at the impact of deteriorating mental health on corporate performance, with the results showing that businesses with higher sick leave or turnover rates of employees with mental disorders tend to have poorer performance as measured by return on sales (Kuroda and Yamamoto 2016c).
There are still just a few examples of research that validate mental health problems from an economic perspective, and more research needs to be done. Moreover, mental health is a major issue that is relevant to a number of fields, including medicine, epidemiology, industrial health, and psychology. As such, it is important to address it with interdisciplinary research, and researchers in various fields should collaborate in this regard.
The World Bank’s latest Doing Business report has been released. The report “measures regulations affecting 11 areas of the life of a business. Ten of these areas are included in this year’s ranking on the ease of doing business: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. Doing Business also measures labor market regulation, which is not included in this year’s ranking.”
Its key findings are as follows:
Doing Business 2017: Equal Opportunity for All finds that entrepreneurs in 137 economies saw improvements in their local regulatory framework last year. Between June 2015 and June 2016, the report, which measures 190 economies worldwide, documented 283 business reforms. Reforms reducing the complexity and cost of regulatory processes in the area of starting a business were the most common in 2015/16, as in the previous year. The next most common reforms were in the areas of paying taxes, getting credit and trading across borders. Read about business reforms.
Economies in all regions are implementing reforms easing the process of doing business, but Europe and Central Asia continues to be the region with the highest share of economies implementing at least one reform—96% of economies in the region have implemented at least one business regulatory reform.
Doing Business includes a gender dimension in four of the 11 topics sets. Starting a business, registering property and enforcing contracts present a gender dimension for the first time this year. Labor market regulation already captured gender disaggregated data in last year’s report.
This year’s report expands the paying taxes topic set to cover postfiling processes—what happens after a firm pays taxes—such as tax refunds, tax audits and administrative tax appeals.
The report features six case studies in the areas of getting electricity, getting credit: legal rights, getting credit: credit information, protecting minority investors, paying taxes and trading across borders as well as two annexes in the areas of labor market regulation and selling to the government. The case studies and annexes either present new indicators or provide further insights from the data collected through methodology changes implemented in the past two years. See all case studies.
A number of things jumped out at me. First off, the rankings of the oft-praised Nordic countries, particularly Denmark and Sweden. See how those two countries compare to the U.S. below.
World Bank Rankings
Denmark
Sweden
U.S.
Overall
3
9
8
Starting a business
24
15
51
Construction permits
6
25
39
Getting electricity
14
6
36
Registering property
12
10
36
Getting credit
32
75
2
Protecting minority investors
19
19
41
Paying taxes
7
28
36
Trading across borders
1
18
35
Enforcing contracts
24
22
20
Resolving insolvency
8
19
5
Denmark ranks higher than the United States with Sweden only a spot behind.[ref]Full rankings found on pgs. 203 (Denmark), 242 (Sweden), and 248 (United States) of the full report.[/ref] Yet, in both Denmark and Sweden it is easier to
Start a business
Get a construction permit
Get electricity
Register property
Protect minority investors
Pay taxes
Trade across borders
As Will Wilkinson put it, “[Y]ou cannot finance a Danish-style welfare state without free markets and large tax increases on the middle class. If you want Danish levels of social spending, you need Danish middle-class tax rates and a relatively unfettered capitalist economy.”
However, the next few graphs are probably some of the most interesting bits of the report:
As the report explains,
research shows that where business regulation is simpler and more accessible, firms start smaller and firm size can be a proxy for the income of the entrepreneur. Doing Business data confirms this notion. There is a negative association between the Gini index, which measures income inequality within an economy, and the distance to frontier score, which measures the quality and efficiency of business regulation when the data are compared over time (figure 1.8).
Data across multiple years and economies show that as economies improve business regulation, income inequality tends to decrease in parallel. Although these results are associations and do not imply causality, it is important to see such relation. The results differ by regulatory area. Facilitating entry and exit in and out of the market—as measured by the starting a business and resolving insolvency indicators—have the strongest link with income inequality reduction (figures 1.9 and 1.10). These two Doing Business indicators are focused on equalizing opportunities and access to markets (pgs. 11-12).
In short, lower income inequality is correlated with simpler, business-friendly regulations. Anyone worried about income inequality should take note.
I recommend taking a look at the data for yourself. Lots of good stuff.
Remember when people were peddling that #deleteUber nonsense? Well, here’s a few more reasons to hate Uber[ref]Sarcasm on high.[/ref] according to a 2016 study:
Using a differences-in-differences specification and controlling for county-specific linear trends, we find that the entry of ride-sharing tends to decrease fatal vehicular crashes. Our (unweighted) estimated 1.1 percent decline in vehicle fatalities for each additional quarter are smaller than those found by Greenwood and Wattal (2015).
We…observe declines in arrests for assault and DUI. Specifically, we find that Uber’s entry lowers DUIs rates by 6 to 27 percent. The magnitude of our findings are smaller than those found by Jackson and Owens (2011) who show that DUIs decreased by 40% when the Washington DC Transit Authority expanded late night Metro transportation services. In many cases, these declines become larger the longer the service is available in an area. These beneficial declines are somewhat offset by increases in arrests for motor vehicle thefts (pg. 15).
Here are the specifics on fatal accidents:
Our unweighted estimates are consistent with Uber leading to larger declines in fatal accidents the longer the service is available. Fatal crashes decline by 0.5 percent for each additional month or 1.5 percent for each additional quarter Uber is available. Night-time fatal crashes decline by 0.9 percent for each additional month or 2.7 percent per quarter. The number of fatalities decline by 0.37 percent for each additional month or 1.1 percent for each additional quarter Uber is available. Our estimates are a third of the size as those in Greenwood and Wattal (2015) who find a “3.6% – 5.6% decrease in the rate of motor vehicle homicides per quarter [or 0.9% – 1.4% per month] in the state of California.” In the weighted regressions, the estimated effect over time tends to be smaller and statistically significant. We observe statistically significant and economically meaningful declines in fatal accidents, fatal night time accidents, and the number of fatalities the longer Uber is available.
…Overall, our findings suggest that Uber does not increase overall fatal crash rates and, for some specifications, is associated with a decline in fatal crash rates (pgs. 12-13).
And for various crimes:
The results are similar with and without weights: counties with Uber experience statistically significant declines in arrests for other assaults and DUIs. The magnitudes are economically important and typically larger for the weighted estimates. For other 14 assaults, the entrance of Uber is associated with a 11 to 18 percent decline. The availability of Uber is associated with a 6 to 27 percent decline in DUIs. Counties experience a 55 to 157 percent increases in arrests for motor vehicle thefts after the introduction of Uber. This may come from an increased propensity for Uber passengers to leave personal vehicles parked in public locations.
…For DUIs, we witness a 2.8 to 3.4 percent decline for each additional month of Uber service. We continue to observe declines in arrests for assault; each additional month of Uber availability is associated with a 2.4 percent decline in assaults in the unweighted estimate. The results for motor vehicle thefts are also consistent across specifications with some evidence of increasing thefts over time.
Because we are concerned that Uber may enter areas with characteristics that are correlated with crime rates, we restrict the sample to only those areas where Uber services have been offered…[A]rrests for DUI decline by 17 percent with the entry of Uber. Including both the entry and trend effects, the…estimates reveal a 2.7 to 3.9 percent decline in DUIs for each additional month Uber service is available. Motor vehicle thefts increase following the entry of the ride-sharing service. The results for assaults, however, become statistically insignificant.
Our estimates reveal that the introduction of Uber lowers arrests due to DUIs and may lower assaults. Overall, this suggests that the introduction of Uber increases the safety of citizens. We also witness little to no change in liquor law violations, fraud, or embezzlement. This suggests that our findings are not due to overall declines in crime rates. We do, however, witness an increase in the theft of vehicles (pgs. 13-15).
Safer societies with fewer deaths: not a bad trade-off for “selling out” at JFK airport.[ref]Doesn’t mean there aren’t otherthingsworth criticizing Uber for (as noted in the comments below). For this post, think of Uber as proxy for “taxi competition.”[/ref]
I’m sure most of you have heard about the 
