The Redistribution Recession
How Labor Market Distortions Contracted the Economy
Published on 29. November 2012
Book
Hardback
364 pages
978-0-19-994221-3 (ISBN)
Description
Since 2007, many fundamental aspects of the economy and the labor market have changed dramatically. With the exception of Medicaid, subsidies flowing to the unemployed and financially distressed households in the forms of loan forgiveness and government transfers almost tripled. The generosity of mean-tested subsidies like food stamps, and employment-tested subsidies like unemployment insurance have steadily increased. Congress considered legislation that would raise marginal income tax rates, and would present Americans with new health benefits that would be phased out as a function of income. Also, a large number of homeowners owed more on their mortgages than their houses were worth, and many in both the private and public sectors renegotiated their mortgage contracts. And many others renegotiated business debts, consumer loans, student loans, and tax debts.
Labor economist Casey B. Mulligan argues that because the way these trends have affected the labor market, they deepened, if not caused, the recession. He explains how progressive tax rates and binding minimum-wage laws reduce labor usage, consumption, and investment, and how they increase labor productivity. This means that while a small part of the population actually works more, overall hours worked in the whole economy are less. He explains and examines the pratical ways that for many people during a recession it costs more to earn more, and how people are working less because of it. One newly discovered aspect of the costs on earning is the large portion of the labor force renegotiating debt. Mulligan quantifies how borrowers can expect their earnings to affect the amount that lenders will forgive in debt renegotiation, and how this has acted as a massive implicit tax on earning. He also measures the changes in market tax rates that resulted directly from "social safety net" programs, and quantifies these changes' effects on the labor market and the economy. Mulligan argues that much of the decline in labor usage since 2007 was a reaction to the combination of higher marginal tax rates and a higher federal minimum wage, and that it is important to understand why labor market distortions like these suddenly increased, and to what degree those increases were caused by the various measures enacted to boost the labor market.
The Redistribution Recession is a controversial, clear-cut, and thoroughly researched analysis of the effects of various government policies on the labor market during the recent recession.
Labor economist Casey B. Mulligan argues that because the way these trends have affected the labor market, they deepened, if not caused, the recession. He explains how progressive tax rates and binding minimum-wage laws reduce labor usage, consumption, and investment, and how they increase labor productivity. This means that while a small part of the population actually works more, overall hours worked in the whole economy are less. He explains and examines the pratical ways that for many people during a recession it costs more to earn more, and how people are working less because of it. One newly discovered aspect of the costs on earning is the large portion of the labor force renegotiating debt. Mulligan quantifies how borrowers can expect their earnings to affect the amount that lenders will forgive in debt renegotiation, and how this has acted as a massive implicit tax on earning. He also measures the changes in market tax rates that resulted directly from "social safety net" programs, and quantifies these changes' effects on the labor market and the economy. Mulligan argues that much of the decline in labor usage since 2007 was a reaction to the combination of higher marginal tax rates and a higher federal minimum wage, and that it is important to understand why labor market distortions like these suddenly increased, and to what degree those increases were caused by the various measures enacted to boost the labor market.
The Redistribution Recession is a controversial, clear-cut, and thoroughly researched analysis of the effects of various government policies on the labor market during the recent recession.
Reviews / Votes
Much of the policy reaction to the Great Recession emphasized Keynesian effects on aggregate demand and downplayed individual incentives to work, produce, and invest. In contrast, Casey Mulligan's research focuses on how an expanded array of U.S. safety-net programs-food stamps, unemployment insurance, Medicaid, and housing/mortgage assistance programs-raised effective marginal income-tax rates especially for poor families. These diminished incentives to work help to explain the weakness of the U.S. economic recovery since the end of the recession in 2009 and also explain why Barack Obama is justifiably called the 'Food-Stamp President.' Hopefully, future government policymakers will deliver better results by learning from this important book. * Robert J. Barro, Paul M. Warburg Professor of Economics, Harvard University *More details
Language
English
Place of publication
New York
United States
Target group
College/higher education
Illustrations
60 two-color line illustrations
Dimensions
Height: 240 mm
Width: 161 mm
Thickness: 28 mm
Weight
977 gr
ISBN-13
978-0-19-994221-3 (9780199942213)
Copyright in bibliographic data and cover images is held by Nielsen Book Services Limited or by the publishers or by their respective licensors: all rights reserved.
Schweitzer Classification
Other editions
Additional editions
E-Book
11/2012
1st Edition
OUP eBook
€47.49
Available for download
E-Book
10/2012
1st Edition
Oxford University Press, USA
€11.89
Available for download
Person
Professor of Economics, University of Chicago, author of Parental Priorities and Economic Inequality, weekly contributor to Economix blog for the New York Times
Content
Preface ; Chapter 1 Introduction ; Chapter 2 The Rise of Labor Productivity ; Quarterly Indicators of Aggregate Economic Quantities ; Movements Along an Aggregate Marginal Productivity Schedule ; On Average, Real Wages did not Fall ; Was It Customer Demand? Factor Reduction and Factor Substitution by Industry ; Neither Wealth Effects nor Intertemporal Substitution Effects Explain the <"Supply>" Shift ; Labor Market Distortions since 2007 ; Conclusion: Productivity Patterns Begin to Reveal the Recession's Causes ; Appendix 2.1: Productivity, Labor, and Residuals in Prior Downturns ; Appendix 2.2: Sensitivity Analysis ; Chapter 3 The Expanding Social Safety Net ; A Framework for Quantifying the Generosity of the Safety Net as a Whole ; Legislation Made the Safety Net Available to Millions More ; Legislation Increased the Amount of Benefits Received per Program Participant ; Most of the Increase in Government Safety Net Expenditure is the Direct Result of Program Rule Changes ; Safety Net Rule Changes and Assistance for the Unemployed ; Means-tested Loan Forgiveness ; Conclusion: Replacement Rates for Aggregate Analysis ; Appendix 3.1: Calculation and Aggregation of Statutory Eligibility and Benefit Indices ; Appendix 3.2: Sensitivity Analysis ; Appendix 3.3: The Self-Reliance Rate Outlook ; Appendix 3.4: The Making Work Pay Tax Credit ; Chapter 4 Supply and Demand: Labor Market Consequences of Safety Net Expansions ; The Income-Maximization Fallacy ; Labor and Output Effects of Safety Net Expansions ; Predictions for Consumption and Investment ; Calibrating the Wage Elasticity of Aggregate Labor Supply ; Conclusions and Interpretation ; Appendix 4.1: Comparative Advantage with Heterogeneous Effects of the Safety Net Expansions ; Appendix 4.2: Calibrating the Supply Elasticity from Unemployment Duration Studies ; Appendix 4.3: Safety Net Distortions Measured in Dollars per Year ; Chapter 5 Means-Tested Subsidies and Economic Dynamics since 2007 ; The Neoclassical Growth Model with Targeted Means-Tested Subsidies ; Data and Simulation Results ; Effects of the Safety Net Expansion ; Interpreting the Residual Labor Market Distortions ; An Investment Distortion by Itself does not Fit Actual Behavior ; Conclusions ; Appendix 5.1: Calibration, Simulation, and Additional Sensitivity Analysis ; Chapter 6 Cross-Sectional Patterns of Employment and Hours Changes ; Cross-sectional Patterns of Self-Reliance Rate Changes ; Work Hours Changes by Demographic Group and Region ; Program Participation Changes by Demographic Group ; Conclusion: The Cross-Sectional Patterns of Employment and Hours Changes are as Expected from a Large Safety Net Expansion ; Appendix: Summary Statistics and Additional Results ; Chapter 7 Keynesian and Other Models of Safety Net Stimulus ; The Safety Net and Consumer Spending ; Transfers and Government Purchases are not the Same ; Labor Market Slack and the Marginal Effects of Supply ; Sticky Prices, the Wage Elasticity of Labor Demand, and the Zero Lower Bound ; An Econometric Model that Nests My Approach with the Slack Market and Sticky Price Hypotheses ; Conclusion: Whether Labor Supply Matters More, or Less, during a Recession is an Empirical Question ; Appendix: The Safety Net, Sticky Prices, and Monetary Policy ; Chapter 8 Recession-Era Effects of Factor Supply and Demand: Evidence from the Seasonal Cycle, the Construction Market, and Minimum Wage Hikes ; The Christmas and the Academic Seasons as Demand and Supply Shifts ; Christmas Demand in Recessions and Booms ; The Summer Seasonal for Employment and Unemployment ; Housing Investment Crowds Out Non-Residential Construction ; The Employment Effects of Recent Minimum Wage Hikes Were No Less than Before ; The Federal Minimum Wage Hikes Likely Reduced National Employment by Hundreds of Thousands, Especially Among the Young and Unskilled ; Conclusion: Labor Supply Still Matters, About as Much as It Did in the Past ; Chapter 9 Incentives and Compliance under the Federal Mortgage Modification Guidelines ; The Budget Set of a Borrower Facing the FDIC-HAMP Modification Guidelines ; Borrower Reactions under Full Information and Full Compliance: Spend More and Work Less ; Lender Incentives to Expand Modification Capacity ; Conclusions ; Appendix 9.1: Principal Modifications and the Eligible Income Range ; Appendix 9.2: Marginal Tax Rates with Various Horizons and Discount Rates ; Chapter 10 Uncertainty, Redistribution, and the Labor Market ; A Model of the Equity-Efficiency Tradeoff ; Possible Changes in the Equity-Efficiency Tradeoff, and the Optimal Degree of Social Insurance ; The Cost-Benefit Analysis of Safety Net Expansions: Necessary Ingredients ; Conclusions ; Chapter 11 Conclusions ; Incentives Matter ; Was the Financial Collapse a Cause, or Effect? ; Labor Supply and Demand Help Explain an Unhappy Situation ; Bibliography