The Mexican Border and U.S. Trade: What Would Be the Impact of a Border Closure?

By and ·April 13, 2019
University of California, Davis and University of Minnesota

The Mexican Border and U.S. Trade: What Would Be the Impact of a Border Closure?

(Click here for state by state sales to Mexico.)

The Issue:

Recently, the Trump Administration proposed closing the U.S. border with Mexico. The United States has strong economic ties with Mexico and such an action could have ripple effects across the country. An actual border closure could slow or halt trade

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Why Does the Census Matter for State and Local Governments?

By and ·March 22, 2019
McCourt School of Public Policy, Georgetown University

The Issue:

The accuracy of the census has far-reaching implications. Not only does the decennial census determine how many representatives each state can elect to the House of Representatives, but it also determines how half a trillion dollars in federal funds will be distributed to state and local governments.

The Facts:

  • The U.S. decennial census is unique because it is an actual enumeration of the total population living in the United States, rather than a sample. Administrative data sources, while increasingly valuable for research, fail to capture the full population. For example, IRS data only includes those who file taxes. The comprehensiveness of the decennial census makes it an important data source for social scientists conducting research and for businesses making investment and expansion plans, among others.
  • Census data are used to apportion multiple federal funding streams. In fiscal year 2015, census data were used to determine the allocation of $675 billion for 132 programs.
  • The top five programs by the amount of funds that used census-based population numbers and population characteristics to determine fund distribution in fiscal year 2015 were: Medicaid ($311 billion); the Supplemental Nutrition Assistance Program (SNAP $71 billion); Medicare Part B ($70 billion); Highway Planning and Construction ($38 billion); and the Federal Pell Grant program ($29.9 billion).
  • How the census data is used to determine funding varies from one program to another

 

What this Means:

The decennial census provides a uniquely comprehensive data source. Its accuracy affects not only political representation but whether adequate funding is disbursed to where it is needed the most in areas ranging from potholes to health insurance to education. The degree to which an inaccurate count will impact state and local finances varies from one location to another depending on their characteristics and the federal programs from which they receive assistance. Many states have established their own, multi-million dollar census media and outreach campaigns to ensure that all of their residents are counted.

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Breaking Barriers to College for High-Achieving, Low-Income Students

By ·March 17, 2019
University of Michigan

The Issue:

Low-income students with strong academic credentials are less likely to attend a highly selective college than students from higher-income homes. This is especially puzzling, given that selective schools tend to offer low-income students more generous financial support and have greater resources that increase the students' chances of completing a degree.

The Facts:

  • Only about 12 percent of college students in the U.S. come from families in the bottom fifth of the income distribution. This is partly due to differences by income in academic preparation prior to college. But even among well-prepared students there are substantial gaps in college enrollment and the quality of college attended.
  • An important share of high-achieving students from low-income families attends schools that are less selective than schools they could qualify for. In Michigan, for instance, strong students from lower-income homes are 8 percentage points less likely to attend a highly selective institution, such as the University of Michigan, than higher-income peers (see chart).
  • Research has found that low-income students do not apply to more selective schools in part because they are uncertain about whether they are suitable; because they overestimate how much college is going to cost them; and because parts of the process — such as filling out financial aid forms — present large procedural barriers.
  • Low-cost low-touch interventions can successfully close the income gap in college selectivity. An experimental program that sent informational packets to qualified students in Michigan greatly increased their chance of applying and enrolling in a highly selective school. The packets identified them as likely candidates to the University of Michigan and promised four years of free tuition if they were accepted. We found that the likelihood of applying to the University of Michigan more than doubled among the students who received the packet: 67 percent applied, compared to only 26 percent among the students who had similar qualifications but did not receive the outreach. Importantly, the program did not involve adding new scholarships: the students who were identified for the study would already have been eligible for at least free tuition and fees in the absence of the intervention.
  • The results suggest isolation is an important cause of undermatching in Michigan. The increase in application and enrollment rates were largest in rural areas, in high schools that previously had no students apply to or enroll at the University of Michigan and where there were the fewest students who qualified for the scholarship.

What this Means:

While education is often thought of as a potential route for income mobility, the fact that strong students from low-income families are more likely to apply to less selective colleges (or to no schools at all) likely contributes to educational and income inequalities. Undermatching in the face of generous options of financial aid supports the notion that barriers of confidence, information and distance stand in the way of a college education for low-income students. Fortunately, our experience indicates that there are low-cost options for addressing some of these concerns.

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The Potential of State Earned Income Tax Credits

By and ·March 14, 2019
Emory University

(Click here for a bigger version of the map.)

The Issue:

State legislatures play an increasingly important role in setting social and health policies. Earned income tax credit laws, enacted at the state level, offer a potentially fruitful area for policy action. The programs have been shown to play an important role in reducing poverty while encouraging participation in paid work. However, state EITCs vary tremendously in terms of generosity and many states still lag behind in this income support program.

The Facts:

  • State-level Earned Income Tax Credits (EITC)s are modeled closely after the federal program, which is designed to supplement the incomes of low-wage workers — in particular those with children — and to reduce their tax burden, while encouraging recipients to work. Administered through the income tax filing process, recipients earn a tax credit that varies with the level of earned income and with family structure. State EITCs add to the federal dollars, with amounts varying based on state and family size.  
  • State EITCs vary tremendously in terms of generosity, ranging from 3.5 percent of the federal benefit to as high as 85 percent of the federal benefit (see map). There is firm evidence that both the federal and state EITC programs contribute to reducing poverty and increasing labor force participation, especially among single mothers.
  • Studies on state EITCs find improved health outcomes for children. In our research we find small improvements in birth weight and in gestation length in states with EITCs. State EITCs are also associated with increased private health insurance and improved health status among older children.
  • The costs  to states of adopting or expanding existing EITC programs include the costs of the credits, forgone tax receipts, and costs of detecting erroneous filings. However, the administrative costs are low, with states needing to only add a line or schedule to the income tax form.

What this Means:

Extending the EITC in states that do not provide one and increasing the generosity in those that do can result in sizeable benefits. More generous state EITCs can raise incomes, encourage employment, increase private health insurance coverage, and improve health – outcomes with numerous individual and public benefits. However, these benefits need to be considered along with the monetary costs of providing the credit.

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Is the Skills Gap Real? Changes in Employer Skill Requirements During the Great Recession

By ·March 8, 2019
School of Public Policy and Urban Affairs, Northeastern University

The Issue:

Since the Great Recession, employers have cited a skills gap in which workers lack the education and experience needed to fill vacant jobs. While job requirements increased for many openings during the recession, the inverse has happened as the labor market has recovered: some employers have been lowering education and experience requirements to fill open positions. Does a skills gap exist and if so, what should public policy do about it?

The Facts:

  • The levels of education and experience that employers seek when hiring workers varies with the tightness of the labor market. The share of job postings requiring a bachelor’s degree or higher rose by more than 10 percentage points during the recession, from 2007 to 2010, and then fell as labor markets recovered, from 2010 through 2014. A similar pattern exists for the share of job postings requiring 5 or more years of experience (see chart).
  • At the local level, we find that a 1 percentage point increase in the state unemployment rate is associated with a 0.6 percentage point increase in the fraction of employers requiring a Bachelor’s degree and a 0.8 percentage point increase in the fraction of employers requiring four or more years of experience within a specific occupation. These estimates imply that roughly one-third of the total increase in skill requirements observed during the Great Recession was due to firms raising education and skill requirements as an opportunistic response to a greater abundance of workers.
  • Not all increases in skill requirements are temporary. Some argue that a portion of the rise in skills requirements during the Great Recession corresponds to a more permanent change in the skills being demanded due to firms changing the way in which they operate. In this view, changes brought about by the Great Recession hasten a process in which firms restructure their production toward greater use of machines (or outsourced labor) and higher-skilled workers.

What this Means:

The fact that the levels of education and experience required for job openings changes depending on the tightness of the labor market raises important questions regarding the existence of a skills gap. If, rather than being an indication of specific "learned" skills, companies use educational attainment as a screening mechanism for characteristics that are hard to observe — such as determination, work ethic, communication, teamwork or leadership — then providing general training might not be the most efficient policy response. Alternatively, is it that companies are more willing to provide on-the-job training when the labor market is tight? Or, do they change their production process to accommodate the characteristics of available workers? The finding that employer skill requirements are driven — in part — by the available supply of labor helps our understanding of how the labor market works and potentially makes a difference for workforce policy. As a result, education and training programs need to be designed with this cyclicality in mind. In addition, workers are not always aware of more specific skill requirements beyond education, especially in fields where certifications do not already exist for the skills needed or the skills themselves change rapidly.

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How Fast Did the Economy Grow Last Year?

By and ·March 5, 2019
Fletcher School, Tufts University and George Washington University and The Hamilton Project, Brookings Institution

The Issue:

There can be big differences in GDP growth depending upon whether that statistic is calculated over a given year, such as from the end of the previous year to the end of the current year, or by comparing GDP in one calendar year to GDP in the previous year. The differences in these calculations can make, and have made, a sizable difference in reports of how the economy is performing.

The Facts:

  • When reporting GDP growth in a calendar year, say 2018, one could compare GDP in 2018 to GDP in 2017. This is known as annual average or Year-to-Year (Y/Y) GDP growth. This method is accurate for what it explicitly measures, growth from one calendar year to the next calendar year, but it can be misleading about how much the economy grew in a given twelve-month period. Suppose GDP was 100 in each of the first three quarters of 2017 but then rose to 104 in the fourth quarter and stayed at 104 throughout 2018. The average GDP for 2017 is 101, the average GDP for 2018 is 104, so the Year-to-Year calculation shows that GDP growth was about 3 percent. But there was, in fact, no change in GDP during 2018 since it started the year at 104 and ended the year at 104.
  • An alternative measure using quarterly data calculates growth by considering the level of GDP in a particular quarter compared to its level one year (four quarters) earlier. In that example above, the 2018 Q4/Q4 growth rate is 0 percent since the level of GDP is 104 in both the fourth quarter of 2017 and the fourth quarter of 2018.
  • The difference between the Year-to-Year and Q4/Q4 growth calculations is particularly large when the economy has a big change in the latter quarters of a year, as was the case in 2009 (see chart). But even small divergences can have political effects. Most recently, the 2018 GDP growth rate was 2.9 percent when calculated on a Year-to-Year basis, but 3.1 percent when calculated on a Q4/Q4 basis. The difference between 2.9 percent and 3.1 percent is statistically negligible (especially since the fourth quarter data will be revised) but politically important given that the Administration had predicted GDP growth of 3 percent.  

What this Means:

The discrepancies across the two main ways of calculating GDP growth do not reflect incorrect mathematics or the distortion of statistics, it is simply a reflection that these methods can yield different results. When discussing growth that took place during a given year, it is better to use Q4/Q4 statistics if possible, but in some cases, only annual data are available. As with any statistical methodology, it is important to know the way in which differences can arise across different types of calculations, to recognize that consistency of methodology across time allows for fair comparisons, and to make sure that changes in methodology are not undertaken purely for reasons of messaging or to distort results for political gain.

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