Hutchins Roundup: Productivity slowdown, Medicaid, and more

Studies in this week’s Hutchins Roundup find that it’s increasingly difficult for researchers to find new ideas, the more Medicaid pays for C-sections, the more doctors perform them, and more.

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It is getting increasingly harder to find new ideas

Nicholas Bloom, Charles Jones and Michael Webb of Stanford and John Van Reenen of MIT find that it takes more and more researchers to push the frontiers of knowledge forward. In other words, the productivity of individual researchers is declining. For example, doubling the density of computer chips every two years requires 75 times more researchers today than in the early 1970s. To offset the increased difficulty of finding new ideas and maintain constant growth in GDP per person, the U.S. must double its research effort every 13 years, they estimate.

Medicaid reimbursement rates affect physicians’ choices of procedures

Using data for 1990-2008, Diane Alexander of the Chicago Fed finds that Medicaid reimbursement rates affect physicians’ decisions to perform C-sections. In particular, a $100 increase in the reimbursement differential between C-sections and vaginal births is associated with a four percent increase in the probability of a C-section for women on Medicaid. The payment differential has no effect on women with private insurance or women whose doctors are on salary, she finds, suggesting that the relationship between payment rates and procedure use is causal. But the author also finds that increased incidence of C-sections is associated with fewer infant deaths, indicating that policies to lower rates of C-sections may have adverse health consequences for low-income patients.

Firms’ pre-existing financial vulnerabilities contributed to productivity growth slowdown after the crisis

Using cross-country, firm-level data, Gee Hee Hong and Romain Duval of the IMF and Yannick Timmer of Trinity College Dublin trace the slowdown in productivity growth after the global financial crisis to the interaction of pre-existing financial vulnerabilities among some firms and the tightening of credit conditions. In particular, firms that were more financially fragile before the crisis – as measured by a higher leverage ratio or a higher share of debt maturing during the crisis – experienced a bigger decline in productivity growth compared to firms that entered the crisis with stronger balance sheets. Financially vulnerable firms reduced intangible investment more than other firms in response to the crisis, which is one plausible way financial frictions contributed to the slowdown in productivity growth.

Chart of the week: Household net worth is approaching pre-crisis levels

Quote of the week: “I see some tension between signs that the economy is in the neighborhood of full employment and indications that the tentative progress we had seen on inflation may be slowing,” says Federal Reserve Board governor Lael Brainard.

 “If the tension between the progress on employment and the lack of progress on inflation persists, it may lead me to reassess the expected path of the federal funds rate in the future, although it is premature to make that call today… I will be watching carefully for any signs that progress toward our inflation objective is slowing. With a low neutral real rate, achieving our symmetric inflation target is more important than ever in order to preserve some room for conventional policy to buffer adverse developments in the economy. If the soft inflation data persist, that would be concerning…”