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description=8 posts published by dvollrath during May 2014;

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this, share, growth, and, blog, economics, archives, piketty, reading, list, robert, the, monthly, may, 2014, who, cares, how, fast, gdp, grows, income, shares, mis, allocation, is, gordon, right, about, agriculture, declining, dynamism, persistence, in, economic, development, takes, solow, seriously, main, menu, recent, posts, shameless, plug, follow, via, email, tags, blogroll, meta,

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the (398), that (172), and (131), growth (106), this (103), for (65), share (63), capital (60), are (55), per (54), new (53), #income (49), from (45), about (45), productivity (43), gdp (42), then (38), have (36), firms (36), but (35), not (35), labor (34), opens (33), with (32), window (32), how (31), firm (30), you (29), output (29), like (28), piketty (28), more (28), can (27), has (27), goods (27), utility (27), time (26), some (25), capita (25), 2014 (24), what (24), will (24), there (23), reject (23), agricultural (22), these (22), year (22), null (22), here (21), email (20), between (20), one (20), because (20), worker (20), self (19), entry (19), very (19), data (19), out (19), all (19), consumption (18), may (18), over (18), countries (18), get (17), blog (17), marginal (17), than (17), posted (16), reddit (16), facebook (16), see (16), would (16), just (16), right (16), economics (15), they (15), number (15), their (15), find (14), economic (14), much (14), going (14), rate 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Text of the page (random words):
going to be how fast these marginal utilities fall that is how quickly does an extra donut get old and boring versus how quickly better health gets old and boring we often use log utility to describe consumption of which means that the marginal utility of consumption is or in terms of resources as chad jones will tell you log utility is very curved meaning that the marginal utility quickly runs down towards zero as you load up on more donuts aside log utility though is less curved than other typical utility functions for consumption so i m probably understating how fast utility falls with more consumption what s the utility function for intangible goods i don t know that there is any kind of consensus about what this looks like but let me use a very simple utility function that will demonstrate the logic of not caring if gdp grows let s have so that this function is linear in so that the marginal utility of intangible goods doesn t depend on how much you consume you can never be too healthy so to speak the most important part here is that marginal utility falls more slowly for than for consumption goods back to our optimal choice of using the assumed utility functions i get that my first order condition is which solves out to that is the optimal fraction of resources to spend on consumption goods falls as rises as we get more resources labor capital technology we use fewer of them on actually producing consumption goods the payoff in terms of utility is just too low compared to the payoff in utility from having more intangible goods remember that gdp is just and under our optimal assumption for this is just in other words it would be optimal in this model for gdp to stay constant at even as the available resources are increasing we would willingly sacrifice additional gdp because it only enhances consumption goods without increasing intangibles no growth in gdp is utility maximizing by fiddling with the exact utility function for intangibles you could get a different answer perhaps gdp optimally rises very slowly if intangible goods have a declining marginal utility or gdp optimally falls over time if intangible goods have an increasing marginal utility as you use them think of enjoying national parks more if you are healthy enough to hike through them the ultimate point of ed dolan s post and this one is that there is nothing inherently desirable about rising gdp it is simply a statistical construct capturing the total value of currently produced goods and services if we prefer things that are not currently produced goods and services then who cares if gdp rises or falls something that i didn t address here is how we adapt to a lower fraction if falls this implies that we are idling resources like labor if i m going to consume fewer donuts i m going to put some bakers out of business if you re lucky the bakers don t mind because they would have chosen to go backpacking through yosemite anyway if you re not then these unemployed bakers are looking for something to do as usual in these kinds of questions seeing the different equilibrium outcomes is a lot easier than seeing how to transition from one to the other share this share on x opens in new window x share on facebook opens in new window facebook share on reddit opens in new window reddit email a link to a friend opens in new window email like loading posted in uncategorized tagged environment growth intangibles us 4 replies piketty and income shares posted on may 27 2014 by dvollrath 4 note the growth economics blog has moved sites click here to find this post at the new site doug gollin oxford university econ professor my coauthor and an amateur ninja i may have made up that last one left a great reply to my post on piketty and growth economics let s start with the first point doug makes but for the record it is not at all straightforward to read these income shares from national accounts data the true labor and capital shares cannot be easily inferred from macro data and they are also difficult to pin down in firm level micro data before we get going let s be clear that this is not a criticism about transcription errors or cherry picking of results as in chris giles recent ft report for more than you probably care to digest on that subject see this link which has a nice roundup of the hubbub specifically doug has the following concern the national income and product accounts for most countries report something called employee compensation this sounds like labor income but it leaves out some important forms of labor income such as the labor income of the self employed this is something that doug has looked closely at before see here and that prior research is pretty clear that there are big adjustments to be made regarding the earnings of the self employed simply put earnings for the self employed which piketty calls mixed income are reported as capital income in national accounts but contain both labor income the implicit wage i pay myself while running my own firm and capital income the implicit return i get for having emptied my savings account to start a company so the national accounts data do not accurately reflect the distribution of income between labor and capital further the amount of self employed income as a share of national income tends to shrink as countries develop think of people moving from farms to factories and going from self employed to wage workers over the time frame that piketty is looking at there would have been distinct changes declines almost certainly in the share of self employed income within all of the countries he examines piketty s strategy with the mixed income of self employed is to split it up into labor and capital income using the same ratio he observes in the reported labor and capital income so if employee compensation is 2 3 of reported labor and capital income in the national accounts then as i understand it piketty assumes that self employed income is also 2 3 labor income and 1 3 capital income is this a problem here s how it might be if self employment income is really fundamentally different perhaps it is 90 labor and only 10 capital then the shift over time away from self employment would have necessarily changed the distribution of income between capital and labor that is piketty could be overstating capital s share in 1890 because he assumes that 1 3 of self employment income is capital income while really only 10 of self employment income is capital income some of the deep declines in the capital share he documents around wwi and wwii may simply reflect the shift of workers out of self employment with it s incorrectly small labor share and into wage work which is accurately measured as labor income that period is one of rapid industrialization so presumably the shift from self employment to wage work would have been quite large so one point is that piketty has possibly overstated capital s share in the early period roughly 1870 1910 whether this is enough to materially change his overall story is unclear to me you d need data on self employment shares and take some stand on how self employment income is split between labor and capital a second point is that doug may have provided part of the explanation for the big drop in capital income around wwi and wwii it may reflect a structural shift away from self employment and towards wage work doug also notes a concern over going from the functional distribution of income labor vs capital shares to the size distribution of income incomes of top 1 of individuals as doug notes not all capital income accrues to rich people and not all labor income goes to the poor or the working classes and he is absolutely correct about that but i don t think that piketty necessarily falls into that trap the first section of the piketty book is really about the functional distribution of income capital s share of national income he establishes perhaps shakily some stylized facts on this share based on national accounts the second section of the piketty book is about the size distribution of income where he looks at variation in the earnings of the top 5 or 1 or 10 using individual tax records and surveys from various countries piketty is not confounding the capital share with the share going to the top 5 he has separate sources for those two series he then further digs into the tax records to establish where those top 5 are getting their income long story short the top 5 are getting an increasing share of their income from wages or what is reported as wages at least to tax authorities over time but it is also true that the top 5 earn almost 100 of the total reported capital earnings in the tax data or what is reported as capital earnings to tax authorities this is where piketty then draws a link between capital s share of national income and the income share of the top 5 given that he observes that historically nearly all of capital income is earned by the top 5 or so then an increase in capital s share of income will lead to a larger share of income for that 5 share this share on x opens in new window x share on facebook opens in new window facebook share on reddit opens in new window reddit email a link to a friend opens in new window email like loading posted in uncategorized tagged income shares piketty self employment 4 replies mis allocation and growth reading list posted on may 23 2014 by dvollrath 1 note the growth economics blog has moved sites click here to find this post at the new site back with another set of readings for my grad class this fall as before a pdf and bibtex file of the papers i teach in this area are located under the papers page one of the more active areas in growth right now is studying the allocation of factors of production think of productivity growth being decomposed into two sources within productivity growth as each individual firm becomes more efficient and between productivity growth as we shift factors of production from low productivity firms into high productivity ones a first question is how much observed growth comes from within versus between sources this requires looking at productivity at the firm level data that is not easy because it is not something one can count like workers or machines we have to back it out from estimations of firm s production functions so a lot of growth economists now find themselves hanging around the offices of their industrial organization colleagues trying to look cool and hoping to bum some data or get some help with wooldridge s 2009 technique for estimating firm level production functions once you ve got these estimates doing the within and between calculations is relatively straightforward a different question is how much potential for between productivity growth is there in other words how much higher would productivity be if i could rearrange factors of production until the marginal revenue product was equal across all firms to answer these kinds of questions you have to actually provide some kind of model of firm behavior so you can figure out how output will respond at each different firm when you start messing around for a really simple example let a firms production be where is productivity and is labor the firm has some market power and the inverse demand curve is which says that if the firm produces more the price it can charge for that output must fall is a measure of how much market power the firm has if the and the firm is a price taker as goes to one their market power gets stronger the firm hires workers at the wage growth economists favorite salad the wedge profits for the firm are this extra term is often called a wedge it s like a subsidy if or tax if facing the firm although in most applications the wedge is not specifically associated with any tax or subsidy it just is a stand in for any kind of additional markup or markdown a firm can charge for its product if i maximize profits for this firm and solve for their choice of labor to use i get as you d expect if productivity goes up the firm will be larger however note that if the wedge is positive then this expands the firm relative to how big it would be if the wedge is acting like a shift up in the demand curve and so the firm produces more which requires it to hire more workers if the wedge is negative then this is like a shift down in the demand curve and the firm will be smaller the wedge means that firms can be large even if they are not productive or small even if they are productive what papers then do is to remove the wedge from each firm and recalculate the level of for each firm once you know that roll up the output produced across all firms to find out aggregate production without the wedges compare this to the observed output level i e with wedges this tells you how much higher output could be if these wedges didn t exist this is the potential between productivity growth in a country and this potential between productivity growth is intriguing because it doesn t necessarily mean i have to adopt a new technology or acquire new capital or workers i just need to reshuffle the capital and workers i have to more efficient firms looking at these calculations across countries you can talk about whether india is poor relative to the u s because it has bigger wedges than the u s for example the implication of most of the papers on the reading list is that yes the wedges in poor countries are bigger worse that is in india and other poor countries there are lots of frictions keep the marginal revenue product of labor or capital from being equal in different firms and so lots of scope for between productivity growth those frictions cost india a lot of foregone output in the u s the frictions are smaller but certainly still exist a newer wave of research in this area involves more serious investigations of what these wedges actually represent one possibility is that high productivity firms would like to expand but are limited in their ability to do so by an inability to find financing in this case financial sector sophistication is a key to improving allocations another likely suspect is the regulatory regime entry costs exit costs and size dependent rules for firms for example a nice concept for future research hint hint grad students is to measure the impact of particular reforms on the measure of potential between growth if the reform effectively opens up entry or allows easier exit or eliminates state owned firms etc etc then the scope for between growth should fall over time as the economy gets more efficient and the wedges get smaller share this share on x opens in new window x share on facebook opens in new window facebook share on reddit opens in new window reddit email a link to a friend opens in new window email like loading posted in uncategorized tagged allocation firms growth productivity reading wedge 1 reply is robert gordon right about u s growth posted on may 20 2014 by dvollrath 8 note the growth economics blog ha...