Hutchins Roundup: Declining U.S. labor income share, racial disparities in asthma rates, and more

Vivien Lee,
Vivien Lee Senior Research Assistant - Hutchins Center on Fiscal & Monetary Policy, The Brookings Institution
Louise Sheiner, and David Wessel

August 3, 2017

Studies in this week’s Hutchins Roundup find that technological advances and trade drive the decline in the U.S. labor income share, neighborhoods explain much of the higher asthma rates among African American children, and more.

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Technological advances and trade are key drivers of decreasing U.S. labor income share

Using occupational- and industry-level data, Yasser Abdih and Stephan Danninger of the IMF investigate the declining share of U.S. income going to labor and find that the largest declines were in industries that had high initial levels of easily-automated occupations, faced intense competition from imports, used high levels of foreign inputs, and experienced steep declines in unionization. Automation explains 44 to 57 percent of the U.S. labor share decline since 2001, while import competition and use of foreign inputs jointly explain between 41 to 51 percent, they find. Although statistically significant, changes labor market institutions and unionization play a smaller role than globalization and technology, the authors conclude.

Zip codes explain higher asthma rates among African American children

African American children are about twice as likely to have asthma as other children. Some of the disparity is attributable to low birth weight, but asthma rates are much higher even controlling for that. Examining health records of all children born in New Jersey between 2006 and 2010, Diane Alexander from the Chicago Fed and Janet Currie from Princeton find that the disparity in asthma rates by race among low birth weight children disappears entirely after accounting for zip codes: all low birth weight children living in majority black neighborhoods, regardless of race, have higher incidences of asthma. The results show that residential segregation can play an important role in explaining persistent racial health disparities and challenge the notion that “being black” is an asthma risk factor, they say.

Washington state marijuana tax is near revenue-maximizing levels

The eight U.S. states that have legalized marijuana have widely different approaches to taxing it. In 2015, Washington State switched from a 25 percent tax on receipts at every stage of the production and sales chain to a 37 percent tax imposed at the retail level. Benjamin Hansen, Keaton Miller and Caroline Weber at the University of Oregon find that the initial tax regime encouraged mergers between cultivators and processors because they could avoid a 25 percent tax for one step of the supply process, creating inefficiencies. Few mergers were undone, but most new entrants weren’t vertically integrated and the market share of firms that weren’t vertically integrated rose after the tax change. They also find that marijuana demand is not sensitive to price changes in the very short-run, but becomes more responsive a few weeks after a price increase – and conclude that states that tax marijuana more lightly than Washington State are likely foregoing considerable amounts of revenue.

Chart of the week: Share of households’ financial assets invested in stock market is at highest level since the dot-com bubble


Quote of the Week:

“We’ve been in a period of stagnation since 2008 as a consequence of the sharp decline of capital investment and productivity growth. But stagflation is about to emerge. We are moving into a different phase of the economy—to a stagflation not seen since the 1970s—that is not good for asset prices,” says former Fed Chair Alan Greenspan.

“By any measure, real long term interest rates are much too low and therefore unsustainable. We are experiencing a bubble, not in stock prices but in bond prices. This is not discounted in the marketplace.”