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:
Title: “Reallocation in the Great Recession: Cleansing or Not?”
Authors: Lucia Foster, Cheryl Grim, John Haltiwanger
What they found: Recessions have historically made the U.S. economy more productive by shifting resources away from low-performing companies. But the recent recession was an exception.
Why it matters: Recessions are painful, especially for people who lose their jobs or see their savings wiped away. But economists have long hypothesized that recessions can also serve a useful purpose in the economy by reallocating workers from less efficient companies (which tend to be hit the hardest by economic downturns) toward more efficient ones (which take advantage of the opportunity to hire good employees). The authors find historical evidence for this “cleansing” effect, although they caution that this doesn’t necessarily mean recessions are a net positive for the economy. But they find that the most recent recession was different: There was less job turnover than in past downturns, and the reallocation that did take place did less to boost productivity. The authors aren’t sure why the recent recession was different but speculate it may be due to the financial crisis, which was particularly hard on young companies.
Key quote: “In sum, we find that the cleansing impact of earlier recessions attenuates in the Great Recession. If the cleansing effect of a recession is its ‘silver lining,’ we find this silver lining is tarnished in the Great Recession.”
Data they used: Longitudinal Business Database, Annual Survey of Manufacturers and other data from the U.S. Census Bureau
Title: “Pathways to Education: An Integrated Approach to Helping At-Risk High School Students”
Authors: Philip Oreopoulos, Robert S. Brown, Adam M. Lavecchia
What they found: An intensive program aimed at low-income children in Toronto successfully boosted high school graduation rates, college attendance, and math and reading scores.
Why it matters: Poor children often face a wide range of disadvantages, including failing schools, crime-ridden neighborhoods and limited parental involvement. As a result, programs that target just one barrier are often doomed to failure. In 2001, the nonprofit Regent Park Community Health Centre, which serves one of Toronto’s poorest communities, opted for a more comprehensive approach and launched Pathways to Education, a program open to all Regent Park youths that offered “extensive tutoring, mentoring, and financial support (such as bus tickets tied to attendance at school and bursaries for postsecondary schooling), as well as easy access to student-parent workers who provide information and advice as needed on a wide range of issues.” The authors find the program boosted high school graduation rates to 53 percent from 38 percent, and college enrollment to 53 percent from 34 percent. High school test scores also rose, especially for girls.
Key quote: “Implementation quality, community support, recruitment, communication efforts, and target population may be key underlying ingredients for program effectiveness that could explain why some site impacts are larger than others. Still, the program’s initial introduction looks as though it was highly effective in improving education attainment for a sample of very poor youth.”
Data they used: Student-level data from the Toronto District School Board, Toronto Community Housing and Pathways program administrators
Title: “Experimental Evidence on Distributional Effects of Head Start”
Authors: Marianne P. Bitler, Hilary W. Hoynes, Thurston Domina
What they found: The federal Head Start preschool program provides large achievement gains for low-income students, especially for those with the weakest test scores. Those effects fade during elementary school, but they are longer lasting for some Spanish speakers.
Why it matters: The nearly 50-year-old Head Start program enrolls more than 900,000 children each year and is the federal government’s largest early-childhood education initiative. At the root of the program is the idea that early interventions have long-lasting effects. To test that hypothesis, Congress in 1998 created the Head Start Impact Study, which followed nearly 5,000 children, half of whom were randomly offered Head Start slots and half of whom were not. Using data from the study, the authors find that Head Start participants experienced large gains in reading and math, with the weakest students making the most progress. Those gains disappeared once students reached elementary school, however, with the exception of Spanish speakers, whose improvement lasted through the first grade.
Key quote: “We find that Head Start participation leads to large and statistically significant gains in cognitive skills in the preschool period in receptive vocabulary, early literacy, and early numeracy. We find that the gains are largest at the bottom of the distribution of achievement, with treatment on the treated effects sizes upwards of a full standard deviation at the lowest achievement levels. Once the children enter school, the overall cognitive gains fade out. We find little effect of the experiment on non-cognitive outcomes.”
Data they used: Data from the Head Start Impact Study
Title: “A New Method of Estimating Potential Real GDP Growth: Implications for the Labor Market and the Debt/GDP Ratio”
Author: Robert J. Gordon
What he found: Slow growth in both productivity and the labor force mean the U.S. economy is unlikely to accelerate in coming years. That means the national debt will be much larger as a share of the economy than the Congressional Budget Office (CBO) estimates.
Why it matters: Ever since the recession ended five years ago, the U.S. economy has consistently fallen short of economists’ expectations. Northwestern University economist Robert J.. Gordon, a prominent pessimist about the long-term direction of the economy, thinks the pattern will continue. Conventional economic forecasts focus on the “demand” side of the economy: how much stuff (both goods and services) people want to buy. Gordon focuses instead on the “supply” side of the economy: how many workers there are (labor supply) and how much they can produce (productivity). Both labor supply and productivity have grown slowly in recent years, and Gordon says that trend means that the economy can’t grow at anywhere close to the 2.2 percent annual rate that the nonpartisan CBO anticipates. Instead, Gordon thinks the underlying growth rate of the economy is a mere 1.6 percent. If he’s right, the economy will be almost 10 percent smaller in 2024 than the CBO expects, and the national debt will be 87 percent of gross domestic product, not the 78 percent the CBO anticipates.
Key quote: “The unemployment rate has declined at a rapid rate over the past two years. Output growth has been mediocre. If the widespread expectations of break-out real GDP growth over the next three years at a rate of 3.0 percent or higher come true, the arithmetic begins to violate the realm of possibility. Some combination of the following must happen — a decline in the unemployment rate from 6 to 4 percent or below, an end to the decline of the labor force participation rate despite the retirement of the baby-boomers, or a break-out of total-economy productivity growth from its average of 0.5 percent in 2010-14 and 1.2 percent in 2004-14.”
Data he used: The Current Population Survey, National Income and Product Accounts, CBO projections