Every Monday, the National Bureau of Economic Research, a nonprofit organization made up of some of North America’s most respected economists, releases its latest batch of working papers. The papers aren’t peer-reviewed, so their conclusions are preliminary (and occasionally flat-out wrong). But they offer an early peek into some of the research that will shape economic thinking in the years ahead. Here are a few of this week’s most interesting papers:
Authors: Kory Kroft, Fabian Lange, Matthew J. Notowidigdo, Lawrence F. Katz
What they found: The high level of long-term unemployment during and after the Great Recession was driven by the lack of jobs and the difficulty of finding work after a long period of joblessness, not by characteristics of the unemployed themselves.
Why it matters: One hallmark of the recent recession was the unprecedented number of people out of work for more than six months, the standard definition of long-term unemployment. One possible explanation for the crisis was that something about the people who lost jobs in this recession — such as their occupation, education level or geographic region — made them difficult to reemploy. The authors of this paper, however, find little evidence for that theory (a finding consistent with other work, including my own). Instead, they attribute the rise in long-term unemployment to the previously documented phenomenon of “duration dependence” in job finding: The longer you’re out of work, the less likely you are to find a job. The recession left millions of people out of work at a time when very few jobs were available; when companies started hiring again, many of the unemployed had been out of work for more than six months, making it hard for them to find jobs.
Key quote: “Essentially, the overall matching efficiency of labor market is reduced when the incidence of long-term unemployment is high. This is not the whole story, however. Firms continue to worry about demand conditions and have lowered their recruiting intensity for posted vacancies, further contributing to the … persistence of the low flows from unemployment to employment in the aftermath of the Great Recession.”
Data they used: Longitudinally linked Current Population Survey data.
Authors: Lasse Eika, Magne Mogstad, Basit Zafar
What they found: “Educational assortative mating” — the tendency of people to marry someone with the same level of education – is a significant contributor to income inequality. But assortative mating has declined among college graduates in recent decades and therefore does not explain the recent rise in inequality.
Why it matters: College graduates are increasingly likely to marry other college graduates. Because graduates also tend to earn more money, previous research has suggested that this trend contributes to rising levels of income inequality. But using data from the U.S. and Norway, the authors of this paper find that the pattern of “assortative mating” has actually weakened in recent years. In 1980, Americans with a college degree were three times more likely to marry a spouse with a college degree, compared to what would be expected based on random chance; in 2007, they were only twice as likely. Rather than reflecting changing preferences, the increased probability of college graduates marrying is simply due to there being more graduates, period. At the bottom of the educational spectrum, on the other hand, assortative patterns have become stronger: High school dropouts have become increasingly likely to marry other dropouts. The trends cancel each other out, so changing marriage patterns can’t explain the rise in income inequality. What can, the authors argue, is the increasing payoff from a college degree: Income inequality in the U.S. (as measured by the Gini coefficient) would be 23 percent lower if the economic return to a college degree had remained at 1980 levels.
Key quote: “We found that educational assortative mating accounts for a non-negligible part of the cross-sectional inequality in household income. However, the changes in assortative mating over time barely moved the time trends in household income inequality. … By comparison, increases in the returns to education generated a considerable rise in household income inequality, but these price effects were partly mitigated by increases in college attendance and completion rates among women.”
Data they used: Annual Social and Economic Supplement to the U.S. Current Population Survey; “several registry databases maintained by Statistics Norway.”
Authors: Alberto Galasso, Mark Schankerman
What they found: Patent protections encourage further innovation in the pharmaceutical, chemical and mechanical industries, but discourage it in computers, electronics and medical instruments.
Why it matters: Innovation lies at the heart of economic growth. New inventions make workers more productive, create new products and reshape industries. Of particular importance in recent decades has been “cumulative innovation,” new inventions that build on past ones. This has led to new questions about the role of patents. Traditionally, patent protections have been seen as encouraging innovation, by allowing inventors to profit from their creations. But patents could also hinder cumulative innovation by making it harder for subsequent researchers to improve earlier inventions. In this paper, the authors try to quantify these dueling effects by looking at cases in which the U.S. Court of Appeals for the Federal Circuit invalidated patents. They find that, on average, removing patent protection leads to a 50 percent increase in citations of the underlying patent, a proxy for follow-on innovation. But the impact varies widely by industry. Fields with complex technology and highly fragmented patent ownership, such as computers and biotechnology, saw big gains when patents were invalidated, whereas fields where patent ownership is more concentrated, such as the pharmaceutical industry, saw no effect. Moreover, the impact of patent invalidation is entirely driven by patents held by large companies; when patents held by small or medium-sized companies are invalidated, there is no subsequent increase in innovation.
Key quote: “While a welfare assessment of patent rights is well beyond the scope of this paper, our ﬁndings provide good reason to believe that a wholesale scaling back of patent rights may not be the appropriate policy. Patent rights block cumulative innovation only in very speciﬁc environments, and this suggests that government policies to address this problem should be targeted. It is preferable to design policies and institutions that facilitate more eﬃcient licensing … which is the key to removing the blocking eﬀect of patents and promoting cumulative innovation.”
Data they used: Decisions of the Court of Appeals for the Federal Circuit; the U.S. Patent and Trademark Oﬃce patent dat set.