It’s a brave new world out there for wonks. Companies including LinkedIn and Trulia rank among a laundry-list of firms producing and publishing their own economic data in the U.S., and it can be hard to parse what’s good and what’s questionable.
Indeed Economist Jed Kolko’s slides on the pros and cons of new data sources, prepared for the National Association of Business Economists’ big annual meeting this week, is worth a read. We’ve summed it up for you as the first item in this week’s economic research roundup, followed by new findings on inflation inequality, research that quantifies unemployment’s pain, and a look at the winners from France cutting restaurant taxes. Check this column each week for interesting research from around the world.
What’s good in the world of proprietary data?
While he may have a bias – Kolko sits at an organization that creates proprietary data – his slides give a great review of the current debates about using privately-collected big data.
Kolko writes that proprietary data has potential: it offers granularity, new frontiers and timeliness that government data often lack. Yet it’s not making the A-list indexes yet, and the government still produces gold-standard, widely-followed data. As new datasets tracking everything from the labor market to housing evolve, it’s crucial that companies make their products’ time series with transparent methodology and avoid overselling their figures, he argues. His final conclusion is that new data sources – from LinkedIn to Trulia – are complements and not supplements to existing surveys.
The Promise and Limits of New Economic Data
Presented September 2017
Available on the NABE materials website
The less you have, the higher your inflation
Inflation isn’t monolithic, and prices tend to rise faster for those who have less money to spend. Xavier Jaravel, an assistant professor at the London School of Economics, has quantified inflation inequality using “scanner data” — that is, data on goods’ prices and quantities of actual purchases when barcodes are scanned at the cashier.
The inflation gap between richer and poorer households is sizable, about 0.65 percentage point per year between 2004 and 2015, he finds. If every cent matters, it’s a divergence that can’t be overlooked. Jaravel calculates that, to preserve the purchasing power of poorer households, the value of food stamps should have risen 31.4 percent in that period — their value actually rose only 23.2 percent, counting for food inflation.
But why does inflation bite more for those who have less? His study suggests it is all a matter of choice. Higher-income households usually benefit form higher product variety, which implies higher competitive pressure — and eventually lower inflation just for those products that the better off tend to buy more.
The Unequal Gains from Product Innovations: Evidence from the US Retail Sector
Presented at the European Central Bank conference on low inflation, September 2017
Available on the Stanford website
Quantifying unemployment pain
How much do households suffer when unemployment climbs? Families face an average expected dollar-equivalent welfare loss of $1,156 on an annualized basis when the unemployment rate rises by 1 percentage point, based on new research from the Atlanta Fed. Even though the probability of unemployment is less for those with higher education, their potential income loss is greater, so their expected hit is actually higher.
That overall welfare loss is equivalent to what a household loses when prices spike by 1.8 percent, the research finds.
Family welfare and the cost of unemployment
Published September 2017
Available on the Atanta Fed website
Who consumer tax cuts really benefit
It’s not shoppers who win when consumption taxes are slashed – it’s the businesses they patronize. A large value-added tax cut at French restaurants back in 2009 had a limited effect on consumers. Employees and material good suppliers saw some boost, and the largest gain by far accrued to the owners of the sit-down eateries, who pocketed 41 percent of the tax cut in the longer run as their profits climbed. After about 30 months, consumers were only receiving 18 percent of the benefit. Prices had only decreased by 2 percent 30 months after the VAT cut, the researchers found.
Who Really Benefits from Consumption Tax Cuts? Evidence from a Large VAT Reform in France.
Published September 2017
Available on the NBER website
Old people are weighing on interest rates
As people expect to live longer and save more and as slower population growth slows down productivity and potential growth, it’s weighing on interest rates. In fact, the earlier trend – people living longer – has a much stronger effect, based on San Francisco Fed researchers’ modeling. “Our results suggest that changing demographics related to population aging will have a negative, quantitatively relevant, and long-lasting effect on the natural rate of interest,’’ the authors write. That means that the neutral interest rate, which neither stokes nor slows growth, will hover just above zero in the future, limiting central banks’ ability to react to shocks and stimulate the economy.
Demographic Transition and Low U.S. Interest Rates
Published Sept. 25, 2017
Available on the San Francisco Fed website