A student today told me that air pollution was up. The fact is, that is not even close to the truth. Typically students (and many people) lean toward the pessimistic. It is little wonder with the constant blaring of bad news and fear-mongering from those whose agenda is attracting eyeballs or votes (or both). The truth, however, is a stubborn thing, but it is not always front and center.
From 1970, aggregate emissions from 6 common pollutants are down 78%. CO2 alone is down 9%.
At the same time, we consumed 43% more energy, had a 62% growth in population, almost a 200% increase in miles traveled by gas-powered vehicles, and nearly a 300% growth in GDP. At the same time, our standard of living (measured by real GDP per capita) rose 244%. (source US BEA)
Most would conclude, I would observe, that with population and vehicle miles and GDP rising, of course, air quality has to suffer. But that is not the case. Why are people so pessimistic? The evidence everywhere is that the world improves.
I am not trying to simplify or dismiss real problems, but I am pointing out that the US is one of the world’s best examples of clean air. As countries get rich, they can spend more on cleaning their environment.
Ourworldindata.com says, “Death rates from air pollution are highest in low-to-middle income countries, with more than 100-fold differences in rates across the world.” Air quality is a normal good. As incomes rise and residents can move beyond mere survival demands, it becomes something they will demand. (https://ourworldindata.org/air-pollution).
The following graph shows worldwide death rates due to air pollution on the vertical axis. As countries become rich, they can afford to demand clean air. In the first graph below, countries defined as low-income are shown. The trend is downward for indoor air pollution, but the death rate due to all air pollution stands at 189 per 100,000 residents.
In the second graph, a similar trend is shown for countries the world bank classifies as rich, showing death rates from air pollution is falling. In 2019 the death rate from all air pollution in these high-income countries is 15 per 100,000 residents or less than 8 percent of the low-income countries. In other words, low-income countries, as of 2019, have shown a great reduction in air pollution deaths over time but have a death rate of almost 13 times the high-income countries.
When a country becomes richer, air quality gets better.
Originally published on November 21, 2019, on LinkedIn, updated lightly October 29, 2022
My blog tagline is economists put the science into data science. Part of the reason I make this claim is many applied econometricians (sadly not all) place a high value on causality and causal inference. Further, those same economists will follow an ethic of working with data that is close to the 2002 guidance of Peter Kennedy and myself.
Judea Pearl discusses “The Seven Tools of Causal Inference with Reflections on Machine Learning” (cacm.acm.org/magazines/2019/3/234929), a Contributed Article in the March 2019 CACM.
This is a great article with three messages.
The first message is to point out the ladder of causation.
As shown in the figure, the lowest rung is an association, a correlation. He writes it as given X, what then is my probability of seeing Y?
The second rung is intervention. If I do X, will Y appear?
The third is counterfactual in that if X did not occur, would Y not occur?
In his second message, he discusses an inference engine, of which he says AI people and I think economists should be very familiar. After all, economists are all about causation, being able to explain why something occurs, but admittedly not always at the best intellectual level. Nevertheless, the need to seek casualty is definitely in the economist’s DNA. I always say the question “Why?” is an occupational hazard or obsession for economists.
People who know me understand that I am a huge admirer, indeed a disciple of the late Peter Kennedy (Guide to Econometrics, chapter on Applied Econometrics, 2008). Kennedy in 2002 set out the 10 rules of applied econometrics in his article “Sinning in the Basement: What are the rules.” I think they imply practices of ethical data use and are of wider application than with Kennedy’s intended audience. I wrote about Ethical Rules in Applied Econometrics and Data Science here.
Kennedy’s first rule is to use economic theory and common sense when articulating a problem and reasoning a solution. Pearl in his Book of Why explains that one cannot advance beyond rung one without other outside information. I think Kennedy would wholeheartedly agree. I want to acknowledge Marc Bellemare for his insightful conversation on the combination of Kennedy and Pearl in the same discussion of rules in applied econometrics. Perhaps I will write about that later.
Pearl’s third message is to give his seven (7) rules or tools for Causal Inference. They are
Encoding causal assumptions: Transparency and testability.
Do-calculus and the control of confounding.
The algorithmization of counterfactuals.
Mediation analysis and the assessment of direct and indirect effects.
Adaptability, external validity, and sample selection bias.
Originally posted on LinkedIn on March 7, 2021, Lightly updated on October 29, 2022.
Subtitle: Please, OHIO, do not pass the raise the wage act as a constitutional amendment.
Do you know how many workers are paid the minimum wage? How big is the problem?
In 2021 it was 1.091 million workers or 1.4 percent of the total wage and salary workers in the US (and less than 0.8 percent of all workers paid wage or salaried).
For nine years, I taught survey methods in a course then called Computer Skills for Economic Analysis. It featured lots of data work and programming leading to economic analysis. (It has since been remastered and renamed econometrics I required as core in the College of Business). One task was to have students update and administer a survey to at least 30 people, asking but not requiring them to try to survey a full age range of people (not just their same-age friends). What resulted was about 4,700 observations over the near-decade. It gave good practice in collecting and merging data and then analyzing questions.
Students and people are unrealistic and pessimistic
One thing that stood out was when we asked what was the unemployment and inflation rate; the answers were amazingly overstated. These were numbers that most people had no idea about, but when asked, they always tended to forecast worse than the actual rates and not by a few percentage points either. Pessimism seemed to reign, and students and respondents always leaned heavily toward the worst case.
The same is the case about whether the minimum wage should be raised, specifically how many people are affected by the minimum wage directly, that is, how many are paid at or below the minimum wage? I always found that even my class of economists overstated this number as well, and again not by a few percentage points.
Students saw being paid at or below minimum wage as a larger problem than it is. They saw the number of persons affected by minimum wage as a relatively large portion of the economy. And they didn’t correctly see the minimum wage as primarily being among the young, inexperienced, and uneducated.
Why they are so pessimistic is an important question not addressed here, but many in the media and political world do benefit from that pessimism.
In 2021, after the COVID recession, fewer workers are paid at or below minimum wage, and they represent an even lower percentage of the total hourly workers than in 2020. (1.091 million and 1.4 percent). By the way, of the 1.091 million workers, only 181,000 were paid at the minimum wage, and 910,000 were paid below due to exceptions and carveouts in the law.
What else can we learn from the BLS report?
Of the 1.091 million workers paid hourly at or below the minimum wage
44.3 percent are 24 years or younger. (Table 1)
52.0 percent are part-time workers (Table 1)
52.8 percent are in the Southern states (Table 2)
73.7 percent are in Service industries (Table 4)
14.9 percent have less than a high school diploma (Table 6)
34.4 percent have a high school diploma and no college (Table 6)
27.2 have some college and no degree (Table 6)
8.8 percent have an Associate degree (Table 6)
12.3 percent have a Bachelor’s degree (Table 6)
65.0 percent are never married (Table 8)
16.4 percent are married, spouse present, and over 25. (Table 8)
In 2021, 76.1 million workers aged 16 and older in the United States were paid at hourly rates, representing 55.8 percent of all wage and salary workers. The percentages shown above are all based on hourly workers.
1.5 percent of hourly workers are paid at or below the minimum wage. This is the same as saying that 0.8 percent of all workers are paid at or below the minimum wage.
The size of the problem is very small.
And in Fall 2022, the Raise the Wage Act is on the Ohio Ballot
This is bad legislation, and even more so by attempting to change the constitution. Ohio voters may want to pass this because they think it is going to do some good, but the good part will be swamped by the bad.
The CBO said the act if passed, would reduce employment by 1.4 million persons, but in this post, you can see that only 1.091 million are currently paid at or below the minimum wage. The disemployment effects would be devastating. The CBO said it would lift 0.9 million out of poverty. But in that post, I show that poverty is already falling.
The worker who faces disemployment is the least productive among all of the low-wage workers. An employer having the potential of hiring a dropout with poor job skills and a student in college will almost always take the ‘better’ hire. At an extreme, the former never gets work and needs it the most, while the latter will, on their own, grow into a better job as they complete their education. So the minimum wage hurts those who advocates suggest it should help the most.
The Raise the Wage Act has been introduced in each US congress since 2017 by Bobby Scott in the House and Bernie Sanders in the Senate. It is back on the table in the 117th Congress. In their analysis, the Congressional Budget Office tells us that the increase of the minimum wage to $15 will raise 900,000 people out of poverty in exchange for a reduction of 1.4 million jobs. Tradeoffs are typical of all government interventions, some people gain, and some people lose. Whether you are in favor of a minimum wage increase comes down to how you weigh these two outcomes.
To quote the CBO report, under the Raise the Wage Act of 2021 by 2025 we will see:
Employment would be reduced by 1.4 million workers, and
The number of people in poverty would be reduced by 0.9 million.
[COVID concerns are discussed below, not all data include the years 2020 and the early months of 2021. Also, the report just cited suggests the deficit will increase by $54 billion, raise prices to all, including the federal government, and would change the distribution of spending. All fascinating aspects I do not talk about in this article.]
The minimum wage decreases employment
Employment effects: Economists have long known that there are negative effects of an increase in a minimum wage when set above the market wage in a labor market. When a minimum wage is effective (above market-level wages), both demanders and suppliers (employers and workers) adapt.
On the demand side, the rise of cost to employers will cause the employer to seek to (1) shift the cost onto consumers in the forms of higher prices (2) shift from dependency on low-wage workers (of lower productivity) into more skilled workers, (3) move away from low productivity labor towards automation and capital, or (4) scale back their production, or to some measure bits of all four possibilities. All four steps result in fewer minimum wage workers being demanded and hired.
On the supply side, those who do not work or who work at lower than minimum wages are more likely to seek a minimum wage job since it is more rewarding. This incentive effect pulls in more workers seeking the now more rewarding minimum wage jobs. Consider a thought experiment: What if there is a student in college who finds that the $7.25 minimum is not enough to compensate for her time away from studying? She essentially goes to college full-time from both a class and a study perspective. When the wage is raised from $7.25 to $15, this becomes more tempting, and she is more likely to enter the labor market and defer other uses of her time, possibly leading to less class or study time or both. She enters the labor market, drawn by the higher reward. An employer now has a richer pool of applicants to choose from now that she and others like her, who have more education and more productivity, are competing for the same jobs that dropouts are competing for. The employer will always hire the most (potentially) productive candidate in the pool of applicants. If she is selected, who is hurt? Answer: the least productive, for example, the dropout with no work experience, who already has a much tougher time getting a job.
What does the literature say about employment effects? Some say that economists have changed their thinking on the employment effects based on studies that show no negative employment impact. One economist remarks thusly and says they are reacting based on the entire literature.
David Newmark and Peter Shirley speak to the disagreement.
What is … puzzling, is the absence of agreement on what the research literature says – that is, how economists even summarize the body of evidence on the employment effects of minimum wages. Summaries range from “it is now well-established that higher minimum wages do not reduce employment,” to “the evidence is very mixed with effects centered on zero so there is no basis for a strong conclusion one way or the other,” to “most evidence points to adverse employment effects.”
David Newmark and Peter Shirley NBER working paper issued in January 2021, and revised in March 2021.
… we assembled the entire set of published studies in this literature and identified the core estimates that support the conclusions from each study, in most cases relying on responses from the researchers who wrote these papers.
And their conclusions?
Our key conclusions are: (i) there is a clear preponderance of negative estimates in the literature; (ii) this evidence is stronger for teens and young adults as well as the less-educated; (iii) the evidence from studies of directly-affected workers points even more strongly to negative employment effects; and (iv) the evidence from studies of low-wage industries is less one-sided.
David Newmark and Peter Shirley NBER working paper issued in January 2021, and revised in March 2021.
The Minimum wage increase will decrease Poverty
Ok, but what about poverty? How much will it decrease and is it effective?
The CBO says 0.9 million workers will be raised from poverty. Isn’t that worth the losses in employment?
Semega, et al. write:
The 2019 real median incomes of family households and nonfamily households increased 7.3 percent and 6.2 percent from their respective 2018 estimates (Figure 1 and Table A-1). This is the fifth consecutive annual increase in median household income for family households, and the second consecutive increase for nonfamily households.
The official poverty rate in 2019 was 10.5 percent, down 1.3 percentage points from 11.8 percent in 2018. This is the fifth consecutive annual decline in poverty. Since 2014, the poverty rate has fallen 4.3 percentage points, from 14.8 percent to 10.5 percent (Figure 7 and Table B-5).
This means before we consider the increase in the minimum wage, that poverty has declined, and median household income has risen in each of the last five years. Incomes are on the rise, and poverty is in decline. The need for the increase in the minimum wage to reduce poverty, while laudable, will only add to the current decline. That is, it is easy to think that poverty is rising and we have to do something, while what we have been doing sees poverty diminishing and income rising.
But 0.9 million workers will be freed from poverty! Most of the minimum wage workers are young, 48 percent of the minimum wage workers are under the age of 25. And poverty amount the youth is already in decline since 2010 as can be seen in Table 11 from the Census report. The market without the minimum wage rise to $15 is already reducing poverty.
The CBO report says that the increase to $15 will decrease 0.9 million from poverty roles. Table 7 puts this in perspective as 0.9 million is about 2.6 % of the total persons in poverty based on the 2019 level. Clearly, the minimum wage is not a significant poverty reduction program for the US. That is, if the argument is that the rise in the minimum wage reduces poverty, the tradeoff is that a two-and-a-half percent reduction is worth the loss of employment and all other disruptions in the marketplace, such as rising prices of goods and services.
COVID ruins everything.
I saw that on a t-shirt, and it certainly offers much truth. Covid also changes the conversation above. Poverty rates may have risen, incomes may have fallen, and unemployment rates are much lower now, but not yet back to the levels of 2019. So COVID ruins this tale in part.
However, the COVID recession is passing; whether this quarter or a couple of quarters from now, it will end, and the recovery that has already begun will return us to the earlier paths or to some slightly adjusted paths. (Update: The NBER Business Cycle Dating Committee has officially declared the COVID recession started in March 2020 and ended in April 2020. )
We know that working from home will not end as workers, and some companies highly prefer this new structural setting. Some goods and services are likely gone not to return because of this structural change, but I imagine that it only hastened the pace of change and not completely bent trends in very opposite directions. Of course, time will tell, and that is what makes this time fascinating from an economy-watch perspective.
Conclusion
I end this with not only my opposition to any increase in the minimum wage but with three things that we tend to do that distort our sense of what action is important in the economy:
We overreact with pessimism. We think things are always worse than they are. Much of this is fostered because bad news gets our attention faster.
Even when the current trend is negative, we are often ignorant of what the long-term trend has been. Poverty may be temporarily turning up, but look at how much better we are now compared to decades ago. Transitory changes are sometimes painful, but ignorance of the size and direction of long-term trends may make us choose ill-advised policy prescriptions today.
Economic principles never change; how we apply them does. Demand curves always slope downward, meaning when prices are higher, we will buy less. When wages are higher, we will employ less (how much less is the real question).
