Economists are often accused of focusing excessively on GDP, with the result that government policies make GDP a priority to the detriment of other contributors to well-being. This research proposes a broader summary statistic that incorporates consumption, leisure, mortality and inequality. While the new statistic is highly correlated with GDP per capita, cross-national deviations are often large: Western Europe looks considerably closer to the United States; emerging Asia has not caught up as much; and many developing countries are further behind. Each component of the statistic plays a significant role in explaining these differences, with mortality being the most important. While still imperfect, the statistic arguably provides better guidance for determining public priorities and evaluating policies than does GDP alone.
There is considerable geographical variation in the use of healthcare by beneficiaries of Medicare, the US federal health insurance program for people who are 65 or older. This research explores the extent to which regional disparities are driven by the providers, whose use of expensive tests or procedures might vary across different places, or by the patients, who might have different healthcare needs and preferences. Analyzing data on Medicare beneficiaries who have migrated from one part of the country to another, the study finds that patients and providers account for roughly equal shares of the differences in regional spending. The results provide a better understanding of the components of medical costs, adding nuance to the debate about possible inefficiencies in US healthcare spending.
The Berlin Wall provides a unique natural experiment for identifying the key sources of urban development. This research, for which its authors have recently been awarded the prestigious Frisch Medal, shows how property prices and economic activity in the east side of West Berlin, close to the historic central business district in East Berlin, began to fall when the city was divided; then, during the 1990s, after reunification, the same area began to redevelop. Theory and empirical evidence confirm the positive relationship between urban density and productivity in a virtuous circle of ‘cumulative causation’. The analysis has practical applications for urban planners making decisions on housing and transport infrastructure.
Trade relations between the United States and China have grown increasingly tense, spurred by concerns that growing imports from China have led to plant closures and job loss in the United States. We find a link between the sharp decline in U.S. manufacturing employment after 2000 and the granting of Permanent Normal Trade Relations (PNTR) to China, which eliminated uncertainty about China‘s continued access to the U.S. market. Our research into the reactions of U.S. and Chinese firms to PNTR highlights the sensitivity of firm behavior to policy uncertainty.
Women are often paid less than men, they are often underrepresented in leading positions, and their careers develop at a slower pace than those of men. Here, we ask to what extent these differences can be explained by childbearing. To evaluate the career cost associated with having children, we consider women’s decisions regarding labor supply, occupation, fertility and savings. We evaluate the life-cycle career cost of children to be equivalent to 35 percent of a woman’s total earnings. We further show that part of this cost arises well before children are born through selection into careers characterized by lower wages but also lower skill depreciation.
In many, many cases, people have a preference for working and doing business with those who share the same religious beliefs, come from the same geographic region, or have something else in common. If this preference arises from discrimination against other groups – if there is economically inefficient favoritism – the economy will not reach its full potential. But could there also be efficiency gains from transacting with people who are culturally proximate? If so, is it possible for the gains to be large enough to more than offset the losses from discrimination? Surprisingly, the answer to both questions is yes. However, that does not mean the barriers between groups should be reinforced. Policies that break down informational barriers between groups could produce further gains.
A central question in the US debate over privatized Medicare is whether increased government contributions to private plans generate lower premiums for consumers or higher profits for producers. This research finds that insurance companies pass through 45% of higher payments in lower premiums and an additional 9% in more generous benefits for those who enroll in Medicare Advantage. Since the findings also suggest that the less than full pass-through is a result of insurer market power, efforts to make markets more competitive may be key to increasing the pass-through to consumers.
The impact of industrial policy on China’s economic growth has been difficult to assess, in part due to the lack of direct evidence on government support measures, which remain secret. This research uncovers hidden subsidies provided to the Chinese shipbuilding industry, which has more than doubled its global market share in recent years. The subsidies decreased shipyard costs in China by 13-20% between 2006 and 2012, policy interventions that have led to substantial misallocation of global production with no significant gains for consumers. Japan, in particular, has lost market share.
The number of people living in poverty in countries around the world is commonly measured using the World Bank’s poverty line – the ‘$1 per day’ that many people have heard of, though it has risen over time and now stands at $1.90 per day. However this measure assumes that the needs of the poor are the same in every country, an assumption at odds with the evidence and common sense. This paper develops a Basic Needs Poverty Line that overcomes this problem giving us new and in some cases surprising insight into the severity of the poverty problem in both rich and poor countries around the world.
While much attention has been paid to the education premium on the labor market, little study has been devoted to the marriage market. Looking back at four decades of US marriages, this research finds that more highly educated people are more likely to marry and that their spouses tend to be of similar academic achievement. Additionally, more educated couples invest greater time in developing their children’s potential. Meanwhile, children from less educated households enjoy fewer resources and are less likely to marry highly educated spouses, the upshot of which could be less social mobility and wider economic inequality.