Cash and Crime

Sitting here in my office at the World Bank, I came across two little tidbits as I did my quick morning scan of the news and economics articles on the internets.

First, there is this Oregonian article which describes the problem that marijuana businesses face because they are legitimate in the eyes of the State of Washington but not in the eyes of the Feds - meaning banks will not deal with them.  So, it is essentially an all-cash business.  Those involved in the trade worry that this will lead to more crime.

Are their fears justified?

Yes, says this paper by a group of criminologists and economists, who study the changeover from welfare checks to an electronic benefit card in Missouri (it was rolled out at different times for different counties providing a bit of a natural experiment setting) and find that the card was responsible in an almost 10% decrease in crime.

Ok, back to work.

Fred Thompson: My Last Post on Minimum Wages (I Hope)

 Fred Thompson carries the water this week as I am in Washington, DC giving a talk and working at the World Bank.  

Why do folks get so worked up over the minimum wage? The best evidence shows that the net effects of increasing minimum wages are trivial (the figure on the right plots strength of results on the vertical axis and effect size on the horizontal axis). As Madeline Zavodny put it, the issue appears to be a “maximal conflict over minimal effects.”

Moreover, it is clear that state adoptions of minimums higher than the national standard are not due to differences in economic conditions: wage growth, the cost of living, income inequality, a high proportion of minimum-wage earners in the workforce, etc. That these things should matter seems intuitively plausible. For example, a recent article in Governing magazine categorically states that state minimum-wage increases are driven primarily by growth in the relative cost of living, especially where gentrification and amenity-based tourism amplify inequalities of income and wealth. But, when such claims are subjected to rigorous empirical testing no relationships are found. Minimum wage increases are apparently not driven by absolute or relative economic hardship or, absent interaction with political variables, economic conditions generally.

What, then, explains interstate variations in minimum wages? The best research on this issue done to date fingers politics. My colleagues, Kawika Pierson, and Tim Johnson, and I have replicated much of this research. Our analysis confirms most earlier findings: that minimums higher than the national standard predict subsequent state minimum-wage hikes, that timing matters, and that states, which enact minimum-wage hikes, are almost invariably under Democratic Party control (although not all states that are controlled by Democrats have higher minimums and neither the size of Democratic majorities nor shifts from Republican to Democratic control appear to be correlated with increases in state minimum wages.)

We have extended this line of investigation in three directions. First, we show that a disproportionate number of minimum-wage hikes are enacted during the even-numbered years between presidential elections (so-called mid-term election years). This variable turns out to be significantly more powerful than the number of years since the last boost (federal and/or state), the main timing-related mechanism considered in earlier studies. Second, simple partisan control matters more than ideology. Earlier studies looked at partisan control or ideology, but not both. And, third, after accounting for the election cycle and partisan control, state minimums are found to vary inversely with their cost to in-state consumers, either because states adopting them have few minimum wage workers or because of tax exporting (i.e., shifting the burden of the minimum wage to out-of-state consumers). Most economists believe that if a jurisdiction can export taxes, it will. But our attention to this factor was, in fact, triggered by the SeaTac initiative, which raised the minimum wage “for the airport’s hospitality and transportation workers.”  

We used mixture models with state minimums as our response variable and year fixed-effects and the interaction between Democratic control of the state legislature and low-wage or export employment as a percent of total employment as our predictor variables. Our interaction terms are consistently positive and significant. The interaction terms also dominate any effect that Democratic control (either as a percent or a dummy) or legislative ideology shows on its own. Interestingly, specifications featuring the interaction between Democratic control of the state legislature and export employment consistently outperform those featuring the interaction between Democratic control and low-wage employment. The interaction models involving ideology also work quite well, but are dominated by the interaction of a naive Democratic control dummy (1 when Democrats control the legislature) and the jobs measures. Stated statistically, there are good reasons to think that legislative ideology scores are measuring demand for minimum wages ‘with error’ in this setting, and concluding, therefore, that the real issue is party brand.

As improper as this is, we marvel at the fact that we can explain 40-50+ percent of the variance in state minimum wages net of fixed effects. This seems like a lot of explanatory power given that we are considering only partisan control, the jobs mix, and the election cycle. At the same time, we do not see how these results can be reconciled with the notion that minimum-wage battles are really about the policy’s material consequences. The variables included in our models are simply too feckless for that interpretation to be taken seriously.

Instead, they suggest that the primary function of proposed minimum-wage hikes is rallying the party faithful to fight mid-term elections and that when Democrats actually control legislatures they must often put up or shut up, whether they really want to or not. In other words, the minimum wage, like banning assault-weapons or abstinence-only sex education, is basically a political football, an otherwise largely inconsequential object, given symbolic importance by interparty rivalry.

Of course, minimum wage hikes are also symbolically important as expressions of public concern for low-wage workers. Nevertheless, this legitimate justification is difficult to reconcile with the fact the issue tends to reappear on the legislative agenda every fourth year even in states where the minimum wage is high and indexed for inflation.

Picture of the Day: The Current Account

From the Wall Street Journal.

Oregon's February Unemployment Falls to 6.9%

Oregon's February unemployment dropped below 7% for the first time since August 2008 on the addition of 2,900 jobs.  The February unemployment rate was 6.9%.  The drop in the unemployment rate occurred despite healthy growth in the labor force (which is what would would expect and like to see in a recovery).  Big gainers were in construction and manufacturing.  All of this bodes well for a healthy Spring and Summer.

Picture of the Day: Moving to Oregon

Here is a graphic of inbound and outbound goods relocations from Atlas Van Lines. Lots of folks moving to Oregon.  In general this picture immediately struck me as showing the movement to jobs, especially the North Dakota and Montana bits (Oregon too, in terms of growth rates).

But maybe for Oregon it is just the good beer...

Soccernomics Redux: MLS is Starting to Make its Mark

This is an interesting (albeit a bit small and too low rez) graphic by Riley Champine, apparently of the U of O, as shown on the Washington Post site.  It shows how, in a number of ways, how the MLS has grown and is becoming a real major league.  Though it fails to mention the biggest challenge MLS faces: TV ratings.

Looking at the map is it any wonder why the MLS is keen to add franchises in Orlando, Miami and Atlanta?

Soccernomics: The Kids Love the Soccer

A new study show that kids 12-17 are avidly interested in Major League Soccer as much as Major League Baseball. What is most interesting to me in this study is how, in the last few years, baseball has really fallen off while MLS has picked up.  Given youth participation rates in soccer and the sudden expansion of European football on US television, it is not surprising that MLS has caught the wave.  Plus the level of play int he MLS has steadily improved over the life of the league and while it is still far below the big European leagues it is no longer panful to watch as it was ten years ago.    

And pity the poor NHL: I love hockey but it never made sense to me the sudden rise of the NHL and its expansion into warm winter cities.  I figured it would all unravel, and so it has.  But it is still very viable due to the economics of arenas and the additional programming the sport offers.   For a while that is what NFL owners thought about MLS - which was a disaster.  Seattle is the only place where MLS has worked in an NFL stadium and even there, the quality of the games on that horrible artificial surface is going to be a problem moving forward.

But looking at this is seems like bets made recently by young entrepreneurs like Merritt Paulson look pretty good, eh?  These kiddos don't have a lot of money to spend, but they are growing up fast...

Picture of the Day: No Progress on Productivity

From the Wall Street Journal comes this graph which illustrates the point I made when I talked about the January Oregon jobs report: there just has not been a big driver of growth - some big productivity enhancement that could really help speed our recovery.  You could argue that the gains in 2009 and 2010 were from firms squeezing the most out of workers in response to slack demand but the gains since then are dismal.

The Ukraine Crisis and the Mind of an Economist

Like many which very little knowledge of the region, I have found the crisis in Ukraine confusing.  The 'economics' angle has focus on natural gas and the benefit of the military sea port in Sevastopol.  But, as an economist, this does not tell mew that much.  Yes, contestable resources are important, but modern economics is all about the effect of incentives on behavior and I have found the coverage of the crisis distinctly lacking in its analysis of the incentives on Putin to pursue his current strategy.

Which is why I found this op-ed piece in The New York Times so illuminating. I cannot speak to the veracity of the analysis, but at least it speaks my language: what are the incentives that Putin is responding to.  It may have inaccuracies but the discussion of incentives makes a lot if sense to me:

Mr. Putin’s aim is not a de jure separation of Crimea from the rest of Ukraine. That would be legally problematic and disadvantageous to Moscow in terms of its future influence over Ukrainian politics. The purpose of Russia’s incursion was to obtain the greatest possible autonomy for Crimea while still retaining formal Ukrainian jurisdiction over the peninsula.

A referendum on March 30 is likely to result in a vote for further autonomy, and it would provide Crimea with such broad freedoms that it would become a de facto Russian protectorate. Moscow would then aim to keep the Russian Black Sea fleet in Crimea indefinitely, and remove any limits on its operations, size and replenishment. 

**** 

That’s because Russia has a strong interest in nominally retaining Crimea as part of Ukraine. From the disintegration of the Soviet Union onward, Crimea, with its traditionally separatist leanings, was always a destabilizing factor. It served as a direct avenue of Russian pressure on Ukraine, and also guaranteed almost a million “pro-Russian” votes in Ukrainian elections, ensuring the dominance of the pro-Russian eastern half of the country over the nationalist western half.

Ahh ... realpolitik

Oregon January Unemployment Fell to 7% on 1K New Jobs

It is slow but it is steady - Oregon's climb out of the deep pit that was the Great Recession continues albeit at a snail's pace.  While job growth was only 1,000 in the black (on a seasonally adjusted basis), the private sector actually added 2,500 while government shed 1,500 jobs.  So we are still talking pretty healthy private sector job growth though clearly not as robust as we would like to see.

Years ago when I was predicting the fall out of the recession, I mentioned that there was no clearly identifiable driver of growth for the future.  This seems even clearer in retrospect: what we are seeing is the unraveling of the economic troubles wrapped up in housing and banking, but no great new productivity enhancing technology like the IT revolution (or innovations in credit markets...heh, heh).

So, while this is good news rather than bad, it is not great.  And in saying this I am consciously repeating a refrain made many, many times in the recent past.  But sometimes slow and steady is a good thing and this is one of those times.