On place-based and adaptable public policy
A recent report published by BROOKINGS INSTITUTE discusses the potential effectiveness of place-based policies for strengthening the economies of depressed areas. Co-authored by Harvard’s BENJAMIN AUSTIN, EDWARD GLAESER, and LAWRENCE H. SUMMERS, the report emphasizes that region-specific, flexible policies may best foster a nation-wide equilibrium:
“Traditionally, economists have been skeptical towards [place-based] policies because of a conviction that relief is best targeted towards poor people not poor places, because incomes in poor areas were converging towards incomes in rich areas anyway, and because of fears that favoring one location would impoverish another. This paper argues for reconsidering place-based policies …
Indeed, even the most diehard opponent of place-based redistribution should see the logic of tailoring Federal policies to local labor market conditions. Standard social policy rules, like the Bailey (1976)—Chetty (2006) formula for unemployment insurance, depend on parameters that differ across space. If non-employment is particularly harmful in one location and particularly sensitive to public policies, then that diehard could still support a place-based revenue-neutral twist that reallocates funds from benefits that subsidize not working to benefits that encourage employment, without encouraging migration or raising housing prices.”
Link popup: yes to full paper. The two main policy recommendations are an expanded EITC and subsidies for employment.
The paper reviews the literature on enterprise zones and empowerment zones, which bear some similarities to the new Opportunity Zone policy, in that there they combine tax benefits (to businesses or investors) with a place-based approach. Do they work? Not resoundingly: “In the past twenty years, the literature on state enterprise zones has grown, but results seem to be quite sensitive to the time period and approach” (44).
- A Nonprofit Quarterly post explains the key differences between Opportunity Zones and the Clinton-era Empowerment Zones: “The new program differs from the Empowerment Zone program in two key aspects: 1) It won’t be limited to a few cities and could benefit rural areas, as well as urban areas; 2) the tax benefits flow to investors (i.e., through deferred capital gains) rather than involving direct tax credits to businesses that locate in the designated communities.” Link popup: yes.
- There is a growing literature exploring concerns about the federal project. A February blog post from Brookings considers whether these zones will help foster economic development or expedite residential and commercial gentrification. Link popup: yes. However, EIG says “less than 4 percent of zones have recently experienced high levels of socioeconomic change, a proxy for gentrification and displacement risk. The average Opportunity Zone’s housing stock has a median age of 50 years, more than ten years older than the U.S. median—a sign that many of these neighborhoods urgently need reinvestment.” Link popup: yes. ht Cody Evans
- At the Tax Policy Center, Steven Rosenthal writes, “The fundamental problem with Opportunity Zones is the disconnect between the size of the potential tax costs, which are uncapped, and the social benefits from the investments, which will be hard to measure.” Link popup: yes.
- A recent interview with Stanford’s Rebecca Lester suggests that stimulating community-beneficial investment in Opportunity Zones relies not only on investors, but on public officials as well: “The extent to which these projects actually help low-income residents will in some ways be a function of how local governments participate in directing the investment.” Link popup: yes. (And see her initial analysis of Opportunity Zones published in June. Link popup: yes.)
- The New Localism released a list of guiding principles that “enable the greatest job creation potential and the most advantages for lower income resident employment, both, inside and outside the eligible zones.” Link popup: yes.
- In a 2015 Washington Monthly article, Phillip Longman chronicles the history of American geographical economic disparity. Link popup: yes.
New discussion around workers’ councils and codetermination
In a paper from 1992, economists RICHARD B. FREEMAN and EDWARD P. LAZEAR articulate a marked lack of research around the effects of workers’ councils and cite an atmosphere that urgently requires more attention to the topic—concerns still relevant nearly three decades on:
“The most recent article on councils in a major economics journal was Paul Douglas’s 1921 piece in the Journal of Political Economy (JPE). In part, the neglect of councils reflects economists’ traditional unwillingness to look inside the black box of the firm and lack of adequate theoretic tools to treat organizational issues. In part also, it reflects the absence of empirical studies or observations that are needed for parsimonious theorizing. Such neglect of works councils can no longer be justified. The precipitous fall in private sector unionism in the United States, declining unionism in the United Kingdom, and concerns about how different labor relations systems fare in a global marketplace have renewed interest in councils as a workplace institution.”
Read their full paper, which demonstrates a set of related models describing various positive and negative effects of works councils and “the problems councils might face in a decentralized American or British labor system,” here popup: yes. (See also the collected volume popup: yes of research on works councils in which it was included, edited by JOEL ROGERS and WOLFGANG STREECK.)
- This paper surfaced amidst discussion around codetermination—the practice of including worker representatives on boards—following Elizabeth Warren’s proposed Accountable Capitalism Act popup: yes, which, among other things, would allow for workers to elect 40 percent of the membership of their board of directors. (The idea is very popular popup: yes, polling well in every single house district.) At the Roosevelt Institute, Leonore Palladino wrote a post on codetermination and the possibility of an end to shareholder primacy. Link popup: yes. At Vox, Matthew Yglesias provides a thorough account of Warren’s bill and the research and debate around codetermination. Link popup: yes.
- Much of the empirical work on codetermination has been done in the German context. From economist Felix Hörisch, a paper on the macro-economic effects of codetermination on income equality. Among the various notable results: codetermination is a stronger predictor of more equitable income disparities than high union density. Link popup: yes. Another paper from 2006 finds that labor representation on the supervisory board reduces corruption and agency costs within a firm. Link popup: yes. A review paper of codetermination policies throughout Europe finds lower share prices and positive impacts on innovation and productivity. Link popup: yes.
- Some brief but interesting commentary popup: yes on the Warren proposal from Raffaella Sadun of the Harvard Business school, who also shared the Freeman and Lazear paper on Twitter: “I have a hard time seeing this implemented: Besides feasibility, 2 concerns: 1) when they exist, these arrangements are likely to be an expression of trust between management and employees, not its cause. Getting cause and effect right matters; 2) These arrangements work when they fit with the system.” A counterpoint from another thread popup: yes from economist Gabriel Burdin: “Historical accounts of the implementation of German codetermination laws indicate employers strongly opposed to them at the beginning. Not sure whether trust is a prerequisite or an outcome of these arrangements.”
- Stockton’s basic income demonstration has released its discussion paper with details for the pilot. “Beginning in 2019, the Demonstration will provide approximately 100 Stocktonians with a guaranteed income of $500 per month for 18 months. The income will be unconditional, meaning there are no work requirements and no restrictions on how the money can be spent.” Link popup: yes. And link popup: yes to coverage in Business Insider. (JFI contributed to this research.)
- New research on Facebook and anti-refugee attacks in Germany. Among other things, research finds that towns in which Facebook usage rose a standard deviation above the national average, attacks increased by 50 percent. Link popup: yes to a report in the Times, link popup: yes to the study. On Twitter, economist Dean Eckles poses some questions popup: yes: “How relevant are short-run effects of outages in this case? If, say, a group is organizing via phone and the phones go down for a day, liked [sic] they’d do less that day. But if (a) phones hadn’t existed or (b) you banned them from phones, what would happen?”
- Brad DeLong’s list of worthy reads on equitable growth. Link popup: yes to the list.
- A remarkably lucid evidence review on the effects of voter ID laws from FiveThirtyEight. Link popup: yes.
- The Urban Institute is tracking the presence of work requirements for enrollees in public assistance programs. Link popup: yes to their tracking tool, and link popup: yes to a December report that provides a more in-depth survey of existing policies. ht Will
- “Scholars and policymakers have highlighted institutions that enable community participation as a potential buffer against existing political inequalities. Yet, these venues may be biasing policy discussions in favor of an unrepresentative group of individuals.… To explore who participates, we compile a novel data set by coding thousands of instances of citizens speaking at planning and zoning board meetings concerning housing development. We match individuals to a voter file to investigate local political participation in housing and development policy. We find that individuals who are older, male, longtime residents, voters in local elections, and homeowners are significantly more likely to participate in these meetings.” On the policy effects of skewed participation in local government. Link popup: yes. ht Will
- On austerity and health outcomes, by Roberto Perotti. Link popup: yes.
- A 2017 paper by David Autor, David Dorn, Gordon Hanson, and Kaveh Majlesi looks at the electoral effects of international trade exposure. Link popup: yes.
- Frank Pasquale with some foundational questions about algorithmic accountability: “Energy that could be put into better public transit systems is instead diverted to perfect the coding of self-driving cars. Anti-surveillance activism transmogrifies into proposals to improve facial recognition systems to better recognize all faces. To help payday-loan seekers, developers might design data-segmentation protocols to show them what personal information they should reveal to get a lower interest rate. But the idea that such self-monitoring and data curation can be a trap, disciplining the user in ever finer-grained ways, remains less explored. Trying to make these games fairer, the research elides the possibility of rejecting them altogether.” Link popup: yes.
Each week we highlight research from a graduate student, postdoc, or early-career professor. Send us recommendations: firstname.lastname@example.org