Does this support the Higgs view of the Great Depression, and the modern view of stagnation? Or is it just an anomaly? Remember, beware any single study. But of course, a single study is something.
Do ‘Cheeseburger Bills’ Work? Effects of Tort Reform for Fast Food
After highly publicized lawsuits against McDonald’s in 2002, 26 states adopted Commonsense Consumption Acts (CCAs) – aka ‘Cheeseburger Bills’ – that greatly limit fast food companies’ liability for weight-related harms. …
… we find that CCAs significantly increased stated attempts to lose weight and consumption of fruits and vegetables among heavy individuals. We also find that CCAs significantly increased employment in fast food. Finally, we find that CCAs significantly increased the number of company-owned McDonald’s restaurants and decreased the number of franchise-owned McDonald’s restaurants in a state. Overall our results provide novel evidence supporting a key prediction of tort reform – that it should induce individuals to take more care – and show that industry-specific tort reforms can have meaningful effects on market outcomes.
Let’s revisit that in case it’s not clear. If you reduce the costs employers face (in this case the risk of being sued for ridiculous things), customers take more responsibility for themselves, and that the companies hire more people. That should not be surprising. The obvious extension is to then ask, “how is this any different than regulations which impose other costs on firms, like the minimum wage or mandating benefits?” It’s, of course. no different.
Related, I was going to blog this article, but decided against it. The above piece is just a tiny, tiny slice of what the author “doesn’t understand.”
Economists are very familiar with the “rebound effect” which tends to undermine direct regulatory mandates. For example, if you mandate seatbelts in cars, you in effect lower the cost of driving aggressively, so you should expect drivers to consume more aggressive driving. Of course whether in fact drivers respond in toto by driving more or less aggressively is still an empirical question, but it at least makes you aware of what it means to be a good economist. Always be on the lookout for where the bodies are buried. Another classic example economists beat on is the implementation of CAFE standards in an effort to reduce fuel consumption. Again, the direct effect of the regulation is that since each car gets better mileage, then people will burn less gas per mile driven. The in-tuned economist would recognize of course that increasing fuel economy standards lowers the marginal cost of driving an additional mile, so you might expect some amount of the gas savings to be “eaten” up by driving more miles at the margin. Again, whether CAFE standards actually increase driving is an empirical question. I don’t think economists are claiming that the rebound effects are more than enough to offset the gains due to the standard, rather their point is that the proposed gains due to CAFE are overstated. Furthermore, the real lesson is not that there is a rebound effect, but that at the margin an input standard like CAFE is tautologically inferior to an increase in the price of the activity you want less of, such as a fuel tax. In any case, I found the behavior and strategy in this paper to be interesting. They find that in response to CAFE, drivers do not drive more. OK, that’s perfectly fine, that still. by the way, doesn’t mean that CAFE standards are anywhere near good policy. But why they don’t drive more is interesting. It’s not that drivers wouldn’t respond to the better mileage in a way we expect, it is that the cars they are forced into buying by CAFE suck. And people don’t like to drive cars that suck. How dystopian,
This paper exploits a discrete threshold in the eligibility for Cash for Clunkers to show that fuel economy restrictions lead households to purchase vehicles that have lower cost-per-mile, but are also smaller and lower-performance.
I am sure the NY Times and HuffPo will feature this result on the front page of their respective organs:
For example, how much of the rise in earnings inequality can be attributed to rising dispersion between firms in the average wages they pay, and how much is due to rising wage dispersion among workers within firms? Similarly, how did rising inequality affect the wage earnings of different types of workers
working for the same employer–men vs. women, young vs. old, new hires vs. senior employees, and so on?
Covering all U.S. firms between 1978 to 2012, we show that virtually all of the rise in earnings dispersion between workers is accounted for by increasing dispersion in average wages paid by the employers of these individuals. In contrast, pay differences within employers have remained virtually unchanged, a finding that is robust across industries, geographical regions, and firm size groups. Furthermore, the wage gap between the most highly paid employees within these firms (CEOs and high level executives) and the average employee has increased only by a small amount.
Of course, the reason I link to the above is because it suits my biases, and I am a paid shill to promote it. Nevertheless, we know first that earnings inequality doesn’t capture the kind of inequality that “people” claim to worry about (i.e. access to goods and services). We know that measuring earnings inequality itself is fraught with difficulty, particularly if we do not have a universe of panel data, which we do not have anywhere near that. We know that earnings inequality can be reflecting very different lifestyle choices made by otherwise identically situated individuals. We know that the index number problem (e.g. adjusting for price changes over time) can have a large impact on measured inequality over time. We know that most people don’t actually care about inequality and that most people don’t actually know how it is changing without the NYT telling them to care about it. And now we see that different firms/industries are paying more dispersed wages than they were 40 years ago, not that workers within any firm are being treated differently. I suppose this means we should tax Google out of existence to make this kind of inequality go away. I’d note, of course, that even if the finding is right, we still don’t have a counterfactual. Maybe within firm earnings would have compressed were it not for some factor causing inequality in wage payments within firms, or perhaps within firm inequality would be different if the composition of workers within those firms had remained the same (I sense that the degree of vertical integration of firms may have changed over time and the activities that they do and do not do on their own may have changed). For example, my old firm fired its entire print staff at about the time I was leaving. If you look at the data for my old firm then, it would look like wage inequality fell over time.
I found this paper to be particularly depressing for two reasons. First, as longtime readers may know, I get queasy at anyone trying to estimate “optimal taxation” because I tend to disagree with the objective function. Second, and more alarming perhaps is that this paper argues for higher education subsidies on the grounds that labor and capital taxation post-education distorts those markets, so we need to distort the education market in order to correct for it. Dystopian. Maybe Tomorrowland should have included something about that idea instead of beating us over the head for global warming and our indifference to it.
And the excellent Gabe W. sends me a link to this episode of Dog Bites Man: “When Family Friendly Policies Backfire.” Yet again, I wonder what the author of this piece would say? We know what the kids at Vox would say already. Let me retitle their article for you in case it is not clear, “The Way You Love Moms is to Impose Rules, by Force, That Require Other People to Pay for Moms … and Oh, It Doesn’t Matter if Those Policies Actually are Good for Moms, It Just Matters that Our Piece of the Map is Colored with the Right Color. Because? Moms.” I especially “liked” this part of the article:
As Americans debate whether and how to make the system here more generous, there are lessons from overseas. The child-care law in Chile, the most recent version of which went into effect in 2009, was intended to increase the percentage of women who work, which is below 50 percent, among the lowest rates in Latin America. It requires that companies with 20 or more female workers provide and pay for child care for women with children under 2, in a location nearby where the women can go to feed them.
It eases the transition back to work and helps children’s development, said María F. Prada, an economist at the Inter-American Development Bank and lead author of a new study on the effects of the law. But it has also led to a decline in women’s starting salaries of between 9 percent and 20 percent. Researchers compared pay at the same companies before and after they were big enough to be forced to comply with the law. (Another approach by companies, especially smaller ones, has been simply not to comply with the law.)
But of course, like we saw above, we wouldn’t expect increasing firm costs in America by, say, raising wages they have to pay workers, to have any adverse impact at all.