The Perfect and the Free

An Introduction To the Blog

Jacob Vigdor is Professor of Public Policy and Governance at the Evans School of Public Affairs at the University of Washington, and a Research Associate at the National Bureau of Economic Research.

Curriculum Vitae

This post originally appeared on 9/7/2009.

There is virtually no cost to disseminating information via the internet.  Since the cost is close to free, it stands to reason that the average piece of information on the internet is close to valueless.  That's just basic economics: in equilibrium, marginal cost equals marginal benefit.  This in and of itself should give pause to any serious individual who wishes to get into the blogging game.  With hundreds of millions of people already in the market, how can there be any valuable niche left to fill?

In spite of this compelling logic, I initiated this blog on Labor Day 2009 with the hopes of establishing a community.  A rough draft of the community's manifesto would look something like this:

• Competitive markets are the most important institution promoting the advancement of the human condition.
• In public discourse, the term "free markets" is used much more frequently than "competitive markets." (there are twice as many google hits for the former than the latter).
• "Free markets" and "competitive markets" may seem synonymous to some people, but they really aren't.
• While government intervention is sometimes a threat to the competitive marketplace, even greater threats lurk within the marketplace itself.  To call government "the problem" or "the solution" is to horrifically oversimplify reality.

The third bullet point is the biggie.  People trot out the term "free markets" thinking that it is a term familiar to any half-wit who has sat through econ 101.  That's not really true.  We economists try to teach people about the implications of perfectly competitive markets, not free markets.  (Hence the title of the blog)

The trouble with this confusion is that proponents of "free markets" end up espousing some viewpoints that are very easy to caricature.  These proponents then risk being drowned out of important public debates.  What the world (or more specifically the US) needs are proponents of competitive markets, who can articulate the potential for competition to improve the human condition.  And that's why I'm here.

I've talked to a couple of publishers about writing a book along these lines.  The trouble is, books are a really iffy way to build communities these days.  Sure, there are some success stories out there.  But I have a lot of smart colleagues who have written insightful books that nobody reads.  Maybe nobody will read this either, but at least I spare myself the pain of having to deal with reviewers, editors, and so forth.

So, if all this sounds intriguing to you, please stick around.  There is more groundwork to lay out in the initial posts, but before long this blog should converge to a lively discussion of current events and debates from a "competitive market" perspective.

Can't Afford Your Apartment? Rent Control Won't Help. Here's Why.

In San Francisco and its immediate suburbs, the typical two-bedroom apartment rents for over $3,000 per month.  Working a full-time job at the city's $15/hour minimum wage, if we set aside both paycheck deductions and potential income supports like the Earned Income Tax Credit, yields $2,600/month in income. That's enough to afford the typical efficiency apartment in San Francisco, which rents for about $2,000/month, leaving only $600/month to cover food, transportation, and all other costs of living in an expensive city.  That's a budget of about $20/day for three meals, transit fares, and all the other incidental costs of life.

San Francisco has had a rent control law in effect for the past forty years. During that time, rents have more than sextupled. Without rent control (except for a brief period around World War II), the Bay Area saw rents increase by a factor of 4.5 over 65 years. With rent control, the same increase took only 34 years.

This tells you pretty much all you need to know about the effectiveness of modern rent control laws. 

San Francisco's case is not really unusual either.  Among the nation's most expensive cities you'll find quite a few that have operated rent stabilization laws for decades. New York City, Los Angeles, Oakland, San Jose, DC.  Why hasn't rent control managed to stave off the worsening affordability crisis we see in the nation's successful cities?  If you've been trained in economics, your knee-jerk reaction might be the econ 101 lesson: a price ceiling reduces supply, exacerbating housing shortages and driving up prices for any units exempt from control.

There's something to the knee-jerk reaction; recent studies have documented a tendency for landlords facing rent control to convert their buildings to owner-occupied condominium complexes. Although that does happen, modern rent control laws, better described as rent stabilization laws, incorporate several features designed to prevent the supply-reduction effect from kicking in. (Economist Richard Arnott pointed this out 24 years ago.) The only problem is that these provisions also tend to make rent control more toothless.

• Rent stabilization laws in San Francisco, New York, and elsewhere exempt newly constructed apartments from regulation. This preserves the incentive to build, but at the cost of reducing the law's effectiveness. In San Francisco, buildings constructed after 1979 are exempt from the law.
• Rent stabilization laws in most cases allow landlords to raise rents significantly when a tenant moves out. This is the main reason why we don't see rents frozen at 1970s levels, very few tenants have stayed put in the same apartment that long.

Adopting modern rent control helps a certain set of people: those currently renting apartments they can afford -- provided the apartments aren't covered under one of the exemptions typically written into law.  The regulations ensure that the rent will increase no more than a certain amount -- pegged to the rate of inflation in many cases, though some laws like Oregon's new statewide regulation allow higher increases (inflation plus 7% in Oregon's case).  Rent control doesn't force rents to go down, it just keeps them from going up too fast.

The real reason rent control has been utterly ineffective at keeping cities like San Francisco affordable: it was never designed to do that in the first place.  In the era when most modern rent control policies were adopted, cities didn't face housing shortages or affordability crises. In the period between 1950 and 1980, most American cities were witnessing population declines, as families fled to the suburbs leaving surplus housing behind.  Immigration, traditionally a significant source of population growth in cities, was at historic lows.

Rent control was a response to a very different national crisis: inflation. In recent years, despite the housing affordability crisis in some cities, the overall inflation rate in the economy has been low.  From 1993 to the present -- a period of more than a quarter century -- the consumer price index has exceeded 3% in only two years: 2000 and 2008.  Between 1968 and 1985, the period when all the modern rent control laws were passed, inflation exceeded 3% every single year, hitting double digits in four of those 18 years.

Rent control was designed, then, to provide some protection to a dwindling number of voters -- that word chosen very intentionally -- fearing cost-of-living increases they could not afford.  So long as they stayed put, they would remain protected. And yes, research has shown that rent control leads tenants to stay put longer. But were those tenants to leave, joining their former neighbors in the suburbs or the sun belt, the protections disappear. They aren't designed to be passed on to the next tenants.

If rent control doesn't fix affordability crises, what will? Dismal scientists will point to two basic solutions: building more housing or convincing people to move away from cities with housing shortages.  One can also resolve affordability problems for a select few by operating housing subsidy programs -- which require taxpayer funding. While these programs exist in the US, they are significantly underfunded. In the Seattle area, another region undergoing an affordability crisis, you can't even get on the waitlist for government-funded rent subsidies. One local housing authority held a lottery for places on the waitlist in 2017, in which some 85% of those interested in a waitlist spot -- not a subsidized apartment, but a spot on a years-long waitlist -- walked away empty handed.

It's not a problem with an easy solution.

Why PAPRSS?

Today I launched a new website, www.paprss.org, "Public Access Peer Review for the Social Sciences."  Here are the problems it seeks to solve.

Historically, there were three fundamental rationales for academic journals.  They disseminated work, they signaled the quality of work, and they subjected manuscripts to an editorial process that in theory improved them.

Technology has rendered the dissemination function obsolete.  In fact, by placing papers behind paywalls, academic journals often inhibit rather than promote the dissemination of research.

Quality signaling is now and has always been imperfect.  Editorial decisions hinge on two basic questions: whether the research is competently executed, and whether it is of interest to the journal's readership.  Many well-conceived and well-executed studies are rejected on the grounds that they are not projected to be of interest to a journal's readership.  This projection is based on a tiny sample of readers, in many cases a single journal editor.  Technology now presents us with the means to allow the readers in a field to decide what is of interest to the field, rather than a small non-random sample.

The editorial process may or may not improve the quality of a finished paper.  It certainly takes time.  Top journals in economics subject authors to a process that can stretch on for years and involve multiple rounds of revision.  The back-and-forth negotiations over edits are hidden from public view.  Reviewers may request revisions that a sound majority of readers would consider unwise, but authors have no mechanism to appeal to a wider readership.  Reviewers, hidden behind a veil of anonymity, may exhibit various forms of bias or harbor undisclosed conflicts of interest.

PAPRSS seeks to give researchers the opportunity to receive referee report-style feedback in a public forum, where non-anonymous commenters can rebut or reinforce reviewer suggestions and authors can provide updates.  It is closer in spirit to a conference session with discussant comments, as reviewers do not hide their identities and make comments for the public and not solely for the author. As in the conference format, authors will have an opportunity to respond to a posted review, and others will have the opportunity to post (moderated) comments. Authors can revise papers in response to reviews and comments. Moderators and editors on the site will encourage civility and constructive dialogue in all communications.  All users -- authors, reviewers, and commenters -- will be asked to declare relevant conflicts of interest as a prerequisite for participating in conversation about a manuscript.

PAPRSS is intended to supplement the standard journal publication process.  It will not make up-or-down publication decisions on manuscripts, it will only post reviews for those manuscripts.  It does not intend to secure distribution rights for work, only to provide links to work posted elsewhere.  It is an "aggregator" rather than a publisher.  The highest value of PAPRSS will be for work that has yet to complete the peer review process.  Assistant professors coming close to their tenure review may value PAPRSS for providing more rapid independent signals of work quality than the traditional peer review process.  In fact, in its initial roll-out PAPRSS will only consider posting reviews of junior scholars approaching a promotion review (whether on tenure track or not).

When a manuscript reviewed on the PAPRSS site is accepted for publication, the published may require the removal of non-paywalled links.  In such a scenario, PAPRSS will continue to feature a post regarding a manuscript, but link to the official paywall.

For readers, PAPRSS will provide curated sets of links to papers of interest by subfield, with short reviews providing information that might help inform decisions to read or to place on reading lists.

If you think this is at all a useful idea, PAPRSS needs both supply and demand.  Senior scholars are encouraged to volunteer to be available to write blog post-like reviews.  Eligible authors are encouraged to request reviews for their work.

Reflections on Tenure Appendix A: Notes for Junior Economists

This is a brief extension to the series of posts drawing upon my experiences as a member of a University-level promotion and tenure committee.  In that role I reviewed about 200 tenure dossiers, including those of a few economists.  So if you practice the dismal science, here are a few notes for you.

1. Everything in my earlier post about getting tenure applies.  That post is intended to be pan-disciplinary.
2. Don't be alarmed if your CV shows no publications for 2-3 years after you completed your doctorate.  That's completely normal given how long it takes to push an article through to publication.
3. After that 2-3 year fallow period, if you're placing 1-2 articles per year in good peer reviewed journals, nobody will complain about your rate of productivity.  You can even go lower than that if you are really hitting "top" journals.  If you go higher and aren't placing everything in "top" journals, you might get advised to slow down.  I did!
4. There may be other fallow periods on your record, attributable to childbirth, the distractions of moving across institutions, or other life priorities. Your letter writers and senior colleagues should not hold these things against you, particularly at institutions that have "clock stoppage" rules for such events.  Neither I nor anybody can guarantee that letter writers or senior colleagues will do what they should do. But light is continuously driving out darkness on this front.
5. For everything everybody says about the tyranny of the top 5, know this: economists writing tenure letters read papers.  They don't write letters saying "well, this person has two hits in the AER, so that's all you need to know."  That is the predominant style of letter writing -- CV reading -- in med schools, but not among economists.  I've personally written letters for (successful) candidates that said "this paper is really much better than its journal placement might suggest."
6. You may think that your job market paper is your best paper.  The odds are that your letter writers will disagree.  Your JMP was a labor of love and it's not crazy to be attached to it, but the more time you spend doing research the better you get both at picking important questions and answering them convincingly.
7. Most common question I get from junior colleagues: should I send out unpublished work with my materials?  It's a case-by-case decision.  Given point 4, if you send it, letter writers will read it.  Given point 5, your more recent work is probably pretty good work.  On the other hand, sending out work that hasn't been through rounds of feedback and revisions is risky.
8. Once you submit your materials, if good things happen (R&Rs, acceptances) pass that information along to your review committee or chair!

Did Sherwin Rosen (accidentally) cause the rise in income inequality?

In 2003 Thomas Piketty and Emmanuel Saez introduced one of the more famous graphs in modern economics.  Since updated to 2017, it looks like this:

Described verbally, the graph shows the time series of income inequality in the United states over a century, measured as the percent of all income accruing to those in the top 10% of the distribution.  Once upon a time, this share was quite high.  It dropped dramatically during World War II, a phenomenon often attributed to wartime wage and price controls. It then remained at a relatively steady and low level until sometime right around 1980, at which point the series reaches an inflection point and begins to rise.  It's a rise less dramatic than the 1940s drop, but it has persisted for decades, to the point that inequality by this measure now exceeds that observed at any point in the last century.

What event precipitated the inflection around 1980?  What broke the United States out of a nearly-four-decade period of stable, low inequality?  There are theories.  Reagan-era tax policy changes may have altered the distribution of reported income.  Things like the decline of labor unions, the shrinking real value of the minimum wage, the rise in low-skilled immigration, international trade, skill-biased technological change, they come up. But can we peg them to that very clear turning point?

Let me pose another hypothesis: that inequality at the very top end of the income distribution began to rise because a prominent new scientific argument gave intellectual cover to those in a position to claim a greater share of the economy's spoils.  What prominent new argument?  Sherwin Rosen's classic paper, "The Economics of Superstars," published in the American Economic Review in 1981.

Let's take a step back. Economic theory suggests that in competitive labor markets, workers are paid the value of what they produce for their employer. The key word here being "competitive." Vast numbers of workers are not paid the value of what they produce.  Take schoolteachers.  Recent research suggests the value that high-performing teachers add to society might run more than a quarter-million dollars per year, based on the future outcomes of the students they teach.  Yet the average teacher is paid closer to a fifth of that amount. The standard theoretical retort to this sort of observation goes back to the word "competitive." Labor markets may not, in fact, be competitive all the time.  Teachers living in one location, for example, may discover that there's only one school system for which they might reasonably work.

There's a broader shortcoming to economic theory in the labor market, which posits that people must be paid to work because otherwise they would just consume leisure all the time. This argument disregards the key role that work plays in determining self-worth. People, in many cases, have a need to work and will do it for free if they can't find a way to be paid for it.

Set theory aside. The key point: in reality compensation reflects much more than the value of what one produces. It reflects bargaining power, social norms over what is acceptable, non-monetary aspects of employment like prestige, fringe benefits, and working conditions, and more.

Enter Rosen.  The key argument of his paper: modern technology has produced scenarios where the very best performers in certain fields provide value to a vast number of people.  Collecting even a small payment from each of them yields a very large reward.  "Performer" being a key descriptor of the type of work being done.  That word appears six times in Rosen's text.  "Author" appears five times, "musician" three times (along with "violinist" and other such terms), "arts" appears twice, "athlete" appears twice (along with "football" and "basketball" once each).

"Businessman" appears just twice.  Once in a footnote, and once in a concluding quotation taken from earlier work by Alfred Marshall. Rosen intended his idea to be applied in the main to occupations for which new technology had enabled a mass market to enjoy the work of the very best performers.  The notion that the argument might apply to the very best chief executives or financiers appears nowhere in Rosen's own words.

Yet in the decades since the release of "The Economics of Superstars" the interpretation has shifted, to serve as an explanation for rising compensation of executives and other businessmen rather than performers more traditionally defined.  A Google news search for the terms "Sherwin Rosen," "superstar" along with the word "musician" yields nine hits.  Replace the word "musician" with the term "CEO," a term that appears nowhere in the original text, and the hit count quintuples.

So let me claim Rosen's work, which in the most charitable description thought of applications to business leadership only tangentially, was co-opted. Given the key role of social norms in determining what is an "acceptable" level of executive compensation, the scientific cover afforded by the argument that some leaders are, too, "superstars" may be part of the paradigm shift that clearly occurred after 1980.  Recognize this: Rosen's work, referenced by many as an explanation for the phenomenon of escalating inequality, antedates what it is claimed to explain.

Maybe executives and financiers are indeed "superstars."  The question then is this.  What, in the technology of investing or corporate management, plays the role that television, radio, and other technologies played in Rosen's description of the performing arts?  And how did that technology manage to emerge only after Rosen wrote his article?  There's certainly an argument to be made that Rosen was merely prescient, rather than co-opted, though it should be said that the speculative commentary concluding his paper references "cable, video cassettes, and home computers" (p.857) rather than finance or corporate management. Any effort to distinguish prescience from co-optation would rest heavily on the answers to these two questions.

An intriguing final footnote: Rosen suggested (p.856) that the superstar theory should also apply to economists.

On the monetization of expertise

Ten years ago I received a call from the U.S. Department of Justice's Civil Rights Division. They were in the midst of pretrial proceedings involving a prominent landlord in the Los Angeles area, who stood accused of ethnic discrimination in his apartment buildings.  I had published a few studies on racial and ethnic segregation in American cities; discrimination is a prominent theme in this work.  I agreed to assist the DOJ in their investigation.  My assistance consisted almost entirely of writing a rebuttal to an expert witness report the landlord had commissioned, which attempted to make the argument that the under-representation of certain ethnic groups in the landlord's buildings reflected segmentation of the housing market.  That is, the landlord argued that he rented fancy apartments and certain ethnic groups weren't interested in those.

After I submitted my rebuttal, the landlord settled.  It was the largest settlement DOJ had ever received in a rental market discrimination case.

I was compensated for my work.  To the tune of about $30,000, as I recall. 

Not just anyone could have performed the work that I did in this case, and had it gone to trial the "Daubert" standard on who may qualify as an expert witness would have excluded quite a few people (e.g., graduate students) who might otherwise be completely competent to carry out the statistical analysis.  The U.S. government earned quite a bit more in the settlement than what they paid me to conduct the work.  And at the end of the day, I could take some satisfaction in having intervened on the side of tenants facing (alleged -- as part of the settlement the landlord admitted no wrongdoing) discriminatory treatment.

Outside consulting is quite common for academic economists.  At the outset of the Obama administration, five prominent economists filed voluntary disclosures detailing the sources of their income: Alan Krueger from Princeton, Lawrence Summers from Harvard, Austan Goolsbee from Chicago, Cecilia Rouse from Princeton, Rebecca Blank of Michigan (now chancellor of the University of Wisconsin-Madison), and Raphael Bostic of USC (now president of the Atlanta Fed).  Each of them reported at least $45,000 in compensation from sources other than their University employer.  Summers, in particular, reported over $8 million in compensation from sources other than Harvard, including the hedge fund D.E. Shaw, Citigroup, Goldman Sachs, JP Morgan, Lehman Brothers, and many others.  Krueger reported nearly $200,000 in income from sources other than Princeton, plus $166,000 in advance payments on a textbook contract.  Krueger's income from these sources nearly equaled his University salary.  In some years, my own outside income has similarly come close to equalling my University salary.

It's true that the median academic economist, perhaps even the academic economist at the 90th percentile, earns less than what they might had they opted for a job in the private sector. But the returns to expertise can be high: Krueger's reported compensation reached $735,000; Goolsbee's $558,000; Rouse's $398,000; Summers' $9.1 million. And this is 10 years ago. We are not talking assistant professor salaries here.

In some respects, we can think of all these activities as "the market at work." The DOJ, Citigroup, and others have a demand for expertise, and qualified economists provide the supply.  We're making the world a better place by delivering something of value. Someone down the line, whether a tenant facing discrimination or an investor seeking a better return, benefits from our willingness to be compensated for our expertise.

In the case of academic expertise, however, there's a potential problem. The value of our expertise depends critically on its scarcity: the more common the knowledge or perspective, the less any client will be willing to pay for it.  More exact, the value of expertise depends on its perceived scarcity, the extent to which a client can be convinced that no other provider can substitute for us.

At the same time, our fundamental task as academics is to disseminate knowledge, to make it ubiquitous rather than scarce.  The academic norm, as well, is to acknowledge the wisdom of those who have preceded us, to note the shoulders of the giants upon which we stand. Therein lies a fundamental conflict.  How can we balance the reality that we profit from our expertise with our pledge to endow our students and colleagues with equivalent expertise, and to acknowledge that ours is but one of many minds at work on a problem?  Those of us who have attained a reputation as experts will better monetize our expertise if we can restrict the supply of competitors, or more effectively make the case that we are the perfect consultant to suit the client's needs. And our own actions can effectively restrict the supply, shift those perceptions.

Do economists really exercise that kind of power?  Consider the publication process, which has evolved to commonly require multiple rounds of revision prior to publication in the most prestigious outlets, a process that can easily take years even in the unlikely event that a paper is published at the journal of first submission.  These prestigious outlets themselves base their publication decisions on the constraints imposed by an arcane, irrelevant medium -- print.  The net effect is to slow down the productivity of economists, which restricts the supply of new experts entering any field.  Consider as well the governance of the economics profession, which has continuously bestowed the top honors and signals of expertise within a limited range of prestigious departments.

I don't mean to theorize that some back-room deal resulted in the publication and governance structures we have today. The expertise conundrum is a form of prisoner's dilemma. Collectively, we are all best off if the widest range of minds are at work on the most vexing and important problems.  Individually, given the potential to monetize expertise, we are best off if nobody else comes to be seen as quite as expert as we are in our domain.  Thus in the absence of altruistic action we individually face incentives to retard the acquisition of expertise, and support structures that enhance perceptions that expertise is limited to a very few scholars at the top of the profession.  It doesn't help that the most senior scholars in any field, with the greatest potential to monetize their portfolio of past work, play a strong role in anointing the next generation of experts through editorial decisions and tenure letters. 

It would be reasonable to argue that there is a sufficiently strong altruistic norm among academic economists that these concerns are misplaced. People don't go into academia for the money. It is one thing, though, to say that scholars don't choose a career for the money, and quite another to say they are incapable of being corrupted by it.

Whether we believe academic economists are altruistic or corrupted, we should acknowledge that we have made the road to a successful career narrow and difficult in a way that benefits established scholars at the expense of new ones.  The hardship involved in traversing this road may most dissuade those who are now under-represented in our profession. How do we solve this problem?  Possibly by reforming the institutions that have exacerbated barriers to entry into the realm of experts. Or possibly by devising credible new ways to circumvent them.

If this is indeed a problem of corruption, is it unique to economics?  I have no reason to think it is.  Conflict-of-interest problems are rampant in the medical sciences.  But given the particular subject matter in some fields of economics -- making money -- our discipline has no shortage of prospective clients.

 

Reflections on Tenure V: Am I Ready to be Promoted to Full Professor?

Five years ago I wrote a series of blog posts reflecting on my time as a member of Duke's committee on Appointments, Promotions, and Tenure.  This committee drew a collection of senior scholars from across campus to review tenure and promotion dossiers for both internal and external candidates in almost every corner of the university.  These posts included some thoughts on the institution of tenure itself, some advice for assistant professors, some advice for newly tenured professors, and some advice for scholars playing the role of an external letter writer.

This fifth entry in the series is inspired by the case of Donna Strickland, one of the recipients of the 2018 Nobel prize for physics, who earned this recognition while holding the title of associate professor.  While this might not mean much to a layperson, it poses a key question for those of us in the academy.  What does it say about our promotion practices and policy that a scholar receiving global recognition for advancing her field would not have first received recognition from her employer?

The title of associate professor is intended to be a temporary position.  Scholars are promoted to that rank if they have convinced their colleagues that they have been and will continue to be productive and impactful researchers.  If they realize that expectation, they earn their next promotion.  But the second promotion in the academic hierarchy operates by different rules than the first.  Scholars are reviewed for promotion to associate professor on a predetermined timetable.  While the tenure clock can be a source of stress, its use ensures some degree of fairness across candidates. 

There is no timetable for the second promotion.  A scholar might earn the second promotion in as little as one year -- in rare cases, a particularly precocious assistant professor might be promoted directly to full rank.  But the time between promotions can stretch into decades.  And sometimes the second promotion might not happen at all, even when a scholar continues to be a productive and impactful researcher.

The problem is that scholars typically need to speak up for themselves to initiate the second promotion review.  For some, this comes easily and naturally.  For others it does not.  Perhaps for this reason, there are significant disparities in outcomes.  During my time on the APT committee, we'd occasionally review a dossier for a scholar who was clearly overdue for their second promotion.  Their external letters would say things like "I had no idea that this scholar was not already a full professor."  These cases disproportionately involved female candidates.

Five years ago, I wrote about some basic signs that a scholar is ready for that second promotion.  What I didn't say but should have: these are benchmarks that can help you, the associate professor, make the case that it's time your colleagues reviewed you for promotion to full.  Let's review.

• In book writing disciplines, where tenure is typically granted to scholars who have published a first book and made headway on a second, publication of the second book along with progress on at least one more is the basic standard.
• In journal article disciplines, things are not quite so clear-cut.  I've seen letter writers in multiple disciplines reference h=20 (where h is a measure based on citation counts) as a rough guide.  This includes writers in both the social and natural sciences.
• Across the board, there is typically an expectation that the candidate will have published some new material after being promoted to associate.  At some institutions, research standards might be relaxed for a candidate who has devoted significant effort to teaching and service.

Here's one piece of advice that cuts across all disciplines and all universities.  If you are an associate professor, ask at least two people every year whether your record warrants a promotion review.  One person should be an insider to your institution: a department chair, a senior colleague, a dean.  The other should be an outsider to your institution.  Ask one of your former mentors.  Ask a trusted senior colleague from another institution.  Ask me (I'll keep any inquiries completely confidential; I'm most informed in the fields of applied microeconomics and other empirical social sciences, but have reviewed plenty of dossiers in other disciplines).

If you receive encouraging responses when you ask, but anticipate some pushback when you formally request your review, initiate the conversation after doing some background research.  Identify some scholars in your field who have recently been promoted to full professor.  How does your record compare to theirs?  Your former mentors or other senior colleagues in the field can help with this -- they've likely been writing letters for some of these scholars.

If you receive discouraging responses, solicit feedback.  What benchmarks should you focus on to earn consideration next year?

Some of you readers may be in a position to implement institutional policies that foster greater fairness and equity in promotion to full professor.  Here's the simplest suggestion: institute a clock.  The "tenure clock" is a stressful concept because tenure decisions are typically up-or-out.  Since associate professors typically already have tenure, introducing a new clock would not introduce the same degree of stress.  

Postscript

I should mention that there's an "old-fashioned" way to earn your promotion to full professor, namely bringing in an outside offer. If you don't mind the time and distraction of putting yourself on the market, where most senior search committees will be doing their best to sniff out candidates that are just trying to play them to score a counteroffer at home, by all means play this game.  But it is a game that disadvantages scholars with a spouse or partner pursuing their own career, or those with family ties that mitigate against long-distance moves.  That's where much of the gender gap in promotion comes from.

The grad student labor market

Graduate student employees at the University of Washington are on strike today.  Represented by the United Auto Workers local 4121, the students have formed a picket line not far from my office window. I can hear cars honking their horns in support, each honk arousing a cheer from the strikers.

I've written before about the quirky nature of accounting in graduate education.  There's another quirk that pertains to their employment.

Suppose I, as a University faculty member, wish to hire a graduate student for research assistant work.  This happens all the time, and RA work is a key component of graduate training.  Let me walk you through what it costs me to hire an RA.

Anytime you hire an employee, you've got to pay salary and benefits.  In the current academic year, the standard RA salary at the University of Washington is $2,650 a month, or $23,850 over nine months.  Federal regulations stipulate that students may work no more than 20 hours per week, so if you work this out on a per-hour basis it's a rate of $31.80 per hour.

I'm required to pay 18.4% fringe benefits on that.  So tack on another $4,388.

I'm also required to pay the student's tuition for them.  That's another $14,751 for the academic year.  You might think of this as additional compensation for the student, but doctoral students typically don't pay tuition out of pocket so it's closer to the truth to say this is the University skimming money off the top for its own benefit.

The grand total: $42,989 for half-time work over 9 months, or roughly $57.32 per hour.  Granted, the student only sees just over half of that money, but that's what I (or more precisely, the sponsor funding my research) has to pay.

Compare this to hiring a research analyst who is not a student.  To hire that sort of employee my grant would be charged salary and 32.5% fringe benefit rate.  I could offer a salary as high as $86,520 for full-time year-round work and still have per-hour costs below those of hiring a grad student.  But I wouldn't need to.  A salary offer well below that, even in an expensive market like Seattle, would attract highly qualified applicants.

Why would you hire a grad student when you can get an equally qualified full-time worker for less? That's a question I've asked, and been asked, many times. Faculty often face administrative pressure to steer their dollars toward hiring students.

With research funding becoming harder to come by, universities facing increasing fiscal pressure, and grad students facing increasing costs of their own, it's not a pretty situation.

Let's address homelessness with a property tax, King County

[This post originally appeared on May 11th, 2018 when Seattle's City Council was considering levying an Employee Hours Tax to fund services and housing for the homeless. Since then, the Council approved that tax unanimously and subsequently voted to repeal it before it took effect, in the face of a petition campaign that threatened to overturn the tax by ballot initiative.]

It’s very hard, as a public finance economist, to sit and watch elected officials complain about the regressivity of Washington’s tax regime out of one side of their mouth and propose to levy yet another regressive tax out of the other side.  They describe the tax as progressive using faulty logic.  They have been presented evidence pointing out their error and have chosen to willfully ignore it.

In recent plot twists, an independent consultant’s report was revealed to have estimated that King County needs over $400 million per year to address homelessness.  Much of the press coverage has overlooked the fact plainly stated by the consultant: we’re already spending about $200 million, so the net additional spending needed is “only” about $200 million.  Our elected officials are currently (as of 9:30 AM on Friday, May 11, 2018) bickering over whether to meet 20% or 37% of that need.

Allow me to suggest an alternative policy.  That instead of imposing an “employee hours tax,” which is the most regressive tax we could possibly impose, to meet a fraction of the region’s need, we meet 100% of the need with a more progressive alternative.

The property tax.

Yes, I know, howls of anger and frustration.  King County property owners have just seen their tax bills rise an average of 17%, owing primarily to state legislative action to address inequity and underfunding in public K-12 education.  While our property tax bills look large compared to last year, they actually don’t look all that large when compared to other benchmarks.  In King County, which if a separate state would be the most affluent in the nation with a median household income near $80,000, property taxes per capita equal $2,559.  This is lower than Alaska, Connecticut, the District of Columbia, New Hampshire, New Jersey, and New York – every one of which save Alaska also imposes a progressive income tax (New Hampshire’s is only on interest and dividend income).

There is $534.7 billion worth of property in King County.  To raise $200 million with a new property tax levy, we would need to impose a tax of 0.037%.  That is, thirty-seven thousandths of one percent.  For the owner of a $700,000 home, the bill would come to $261.83 per year.

Let’s do a side by side comparison of three tax proposals.

	Council majority plan	Mayor Durkan plan	Property tax plan
Tax what?	Employee hours, then payroll for “large” businesses	Employee hours for “large” businesses.	All property in King County
At what rate?	26 cents/hour, then 0.7%	13 cents/hour	0.037%
To satisfy what percent of the need identified in the McKinsey report?	37%	20%	100%
Would this be a progressive tax?	Heavens no! Workers end up footing the bill for employment taxes, even if business writes the check to government.	Actually this is even more regressive than the council plan. Hours taxation is worse than payroll taxation.	The progressivity of the property tax has been debated for 40+ years. Suffice to say it’s much more progressive than the other two options.
What would Jeff Bezos have to pay?	26 cents for every hour he works in Seattle.	13 cents for every hour he works in Seattle.	$28,120 per year, unless he sells his $76M King County home.
Would we need to worry about our tax base moving away?	Yes	Yes	Nope.  Unless an earthquake or volcanic eruption takes land away from King County and redeposits it elsewhere.
Would this require elected officials to have the courage to ask voters to step up and pay their share?	No	No	Yes

(Note: the Durkan plan was voted down by Seattle's City Council shortly after this post was first published.)

As I’ve said before, there is an element of justice in using property taxation to address homelessness and housing affordability.  While many would like to blame King County’s problems on a single rapidly growing employer, population growth need not lead to housing price escalation if we are willing to build enough of it in response (In the 1940s, Boeing added about as many employees here as Amazon has recently -- it caused no affordability crisis because we built enough housing to keep up) .  We have chosen, by maintaining the nation’s 5^th most stringent land use regulations, to make this county more expensive.  Those of us who own property have profited from the affordability crisis.  In four years, I’ve seen the value of my Seattle home increase by 50%.  Yes, the property tax increase would eat away at this windfall gain.  After a thousand years or so, I’d be back to the breakeven point.  Unless of course my house continues to appreciate.

I've heard enough people of privilege come forward with the message "let's tax that other person of privilege to solve this problem." It is time instead for people of privilege to come forward and say "tax me to solve this problem."

The miser and the townspeople: a contemporary fable

Once there was a wealthy miser who lived outside a crowded town. 

Many of the townspeople worked for the miser -- more and more of them, in fact.

The miser angered the townspeople.  The miser collected money from far and wide, most of it from people who lived in distant lands far from the town.  The townspeople who worked for the miser were handsomely paid, and their wages in turn were spent in boutiques and taverns their neighbors owned, keeping many of them fed, clothed, and sheltered.  But the miser also kept much of the money he collected to himself.

Even as some prospered by working for the miser, or by catering to the miser's minions, life grew worse for others.  As the miser recruited more people to work in the town, the town council refused to allow more shelter to be built.  The council did this not because they were opposed to shelter, but because many townspeople owned shelter and profited from the shortage.  These shelter-owning townspeople were more likely to vote in council elections.  The townspeople who worked for the miser weren't troubled by the high cost of shelter as the miser paid them enough to afford it.  Those who only rented shelter and who did not work for the miser were left out.  Many of them gave up on finding shelter in the town and searched in the hinterland.  Many of them found themselves on the street.

Eventually, all the townspeople were angry but for different reasons.  Some townspeople resented the miser and his minions for making the town more crowded and expensive.  Some townspeople were quite happy to have the town be expensive, for it made them wealthy, but resented the conditions in the streets.  Many of these townspeople also thought well of the miser because he had been personally generous to them.

The town council sought a way to make everyone happy, but found it impossible.  They could move people into shelter from the street more rapidly by repealing the law that banned new shelter, but that would anger the shelter-owners who profited from scarcity.  The council could sweep the streets and send the unsheltered to the hinterland, satisfying the shelter-owners but angering those who cared for the unsheltered and others who remembered a simpler time.  As a compromise, the council sought to help the unsheltered in various ways but found their efforts expensive and ineffective, which only served to exasperate the entire populace.  The problem grew worse by the day, to no one's satisfaction.

The council hatched a plan.  Perhaps inspired by another civic leader who had once proposed to build a big beautiful thing and have somebody else pay for it, they decided to raid the miser's castle.  The proceeds of this raid would be used to build a tiny number of new shelters, perhaps one-twentieth of what the town really needed, perhaps one-hundredth.  But this would make it look like the council was doing something about the problem, all while protecting the wealth of the shelter-owners to whom they owed their positions.  Sometimes it is better to appear as though you are solving a problem than to actually solve it.  Particularly if you are an elected official.

The plan had a weakness.  It was illegal for the council to raid the miser's castle, for he did not live in the town. The overlords governing the town required all raids upon a class of castle to be conducted proportionately, and expressly forbade conducting raids outside the town walls.  The council would need to find a more clever way to execute the raid.  So they proposed a new law amenable to their overlords: that the miser must pay to the town a fixed sum for every townsperson who worked for him.  They announced the proposed law with great fanfare, pointing to the miser's great wealth and greed.  They knew that the proposed law would not appeal to the beneficiaries of the miser's generosity, but bet that these beneficiaries would be outnumbered by those angered by wealth and greed.

The plan had another weakness.  While the goal was to extract money directly from the miser, it remained the miser's choice of whether to pay from his own pockets, pay by being less generous to the townspeople he employed, or by ceasing to employ townspeople altogether. The miser knew well that hundreds of other towns clamored to enjoy the largesse he might direct toward them.

While scolding the miser for his wealth and greed, the council secretly hoped that the very characteristics they ascribed to the miser would suddenly and inexplicably disappear, causing him to decide to pay from his own pocket when ultimately he did not have to.  The council was whispered tales of other misers in other towns who had been the targets of similar laws, who had either withdrawn their minions from the town or made the minions pay.  In fact, there were no tales to be heard of a miser actually choosing to pay from his own pocket.  For what kind of miser pays from his own pocket when he can pay from another's instead?  The council ignored the tales they heard and clung to their vision of a magic reawakening in the miser's castle.

And then one day, the miser spoke.  Through a spokesperson, as misers are wont to do.  The miser would not countenance paying the council's tribute.  Much wailing and gnashing of teeth ensued.  The beneficiaries of the miser's largesse -- those on his payroll, and those who owned the shelter his actions had made more valuable -- shouted and spat at the council.  "Let the miser be the miser, you are powerless to change him," they proclaimed.  The council and their allies, in turn, argued that the law was not really meant to target the miser after all, that the true targets were more numerous if far, far less wealthy.  All while cursing the miser for his wealth and greed.

The council, angered though they continued to be about the miser's unwillingness to betray the attributes that had produced his wealth, came to understand the limitations of their power.  They had no power to directly raid the miser's castle, and no power to force the miser's hand.  They had no power to prevent the miser's employees from moving in, and no power to prevent others from moving out.  They had only the powers their overlords allowed them, very few powers indeed.  The only power they truly possessed was to change the law that forbade the construction of new shelter, a power they were too cowardly to use.

Time passed, and the town became increasingly populated by those on the miser's payroll, and other beneficiaries of his largesse. The councillors were replaced, one by one, with persons allied with this new majority. The long-time townspeople, who had been there long before the miser arrived, found themselves more crowded into and eventually priced out of shelter.  Not to mention out of work, for the miser brought his allies various magic devices that enabled them to feed, clothe, transport, and entertain themselves without the messiness of human employment.  Some left for the hinterland.  Others remained in the streets, until eventually the new council majority decreed that they too should be swept up and spirited away.

But in the town, all was quiet, all was peaceful, the botched raid an increasingly distant memory.

 

A crash course in tax incidence, or why Seattle's proposed "progressive business tax" is actually a regressive worker tax.

Think about the sales tax for a moment and I suspect you'll agree with the following two statements:

1. The sales tax is regressive, meaning that lower-income families devote the highest share of their income to paying the tax.  The root cause being that low-income families spend almost all of what they earn on taxable goods and services, while higher-income families save quite a bit.
2. When you buy something, you pay the tax.

These two statements imply a third.  If you believe them, you also believe this:

• The person who "pays" a tax is not necessarily the person who hands the money directly to the government.

When you purchase an item at a store, there isn't a little government agent there in the checkout line asking you directly for the tax.  It isn't handled as a separate transaction.  Instead, you are giving a bit of extra cash to the store with the expectation that the owner will in turn deliver that money to the government on your mutual behalf.  Which is generally what happens.  There are exceptions.

We've had a curious episode here in Seattle recently, where the local government appointed a "Progressive Revenue Task Force" to identify ways to raise money to address the city's twin crises of homelessness and housing affordability.  The PRTF's report recommends the city implement a so-called "employee hours tax," or in common parlance a "head tax," with the following justification, which appears at the top of page 4:

"An EHT is inherently progressive in the specific sense that, because it is levied on employers rather than individuals or households."

By this logic, the PRTF would deny points one and two above and call the sales tax "inherently progressive."  The sales tax is not levied on individuals or households either.  

Whether a tax is progressive or regressive depends on who pays it, and "who pays it" is a question of tax incidence, one of the fundamental bread-and-butter concepts in public finance economics.  The key argument: "who pays" is not the same as "who writes the check."  One entity might write the check but then pass the costs directly along to somebody else.  That's the way the sales tax works, that's the very reason the regressivity of the sales tax is pretty much a consensus view among economists.

The employee hours tax is a tax levied on businesses as a function of the number of hours worked by their employees.  Seattle's proposed tax amounts to 26 cents per hour worked, whether that hour is worked by a minimum-wage earner or Jeff Bezos.  So the argument that this is in fact a "progressive" tax completely falls apart if businesses were to pass the tax along to workers, in the form of reduced wages or reduced employment.

So do they?  Theory says that if we tax a transaction between two people, such as a business agreeing to pay a worker in exchange for their time, the person who is more dependent on that transaction (in jargon, the less elastic party to the transaction) will take the biggest hit.  So who is more dependent on an employment contract in Seattle, the worker or the business?

Economists are typically inclined to say "that's an empirical question."  Meaning, let's not argue about it abstractly, let's take it to the data.  The data are pretty unequivocal: taxes on employment hit employees, not employers.  A study of Philadelphia's wage tax, in effect since the 1930s, blames that tax for hundreds of thousands of lost jobs over decades.  A study of payroll taxes in Washington state -- a particular payroll tax that is paid by the employer -- concludes that tax increases are "largely passed on to workers through lower earnings."

These results help explain why the non-partisan Tax Policy Center rates payroll taxes as regressive: they are passed on to workers, and low-income households end up bearing a larger burden because wealthy households earn less of their income from work.  And that's just a payroll tax: a flat percent of wages paid that would hit a minimum-wage worker and Jeff Bezos at the same rate on their earned income.  An employee hours tax is even more regressive, because it represents a bigger hit for the lowest earners.

Seattle hopes to soften the impact of the employee hours tax by exempting smaller businesses, defined as those with revenues below a certain threshold.  From the standpoint of tax incidence analysis, this only negates the regressivity if high-grossing firms employ exclusively high-earning workers.  Which isn't the case.

What is a city, particularly one prohibited by law from levying a progressive income tax, to do?  The answer's pretty simple, actually.  If you need to raise money, raise it from property taxes.  Local politicians in Seattle like to call property taxes "regressive."  They are a tax on housing, and the poor pay a higher percent of their income in housing.  But this assumes that the incidence of the property tax falls on renters rather than landlords.  There's a pretty strong argument that this is not the case: the landlord can't take the property elsewhere, it's literally nailed down.  Whereas a prospective tenant can evade a property tax increase by renting an apartment in the next town over.  There's an active and vigorous decades-long debate among economists regarding whether property taxes are, in the words of one recent summary, "regressive, progressive, or what?"

If your city is determined to extract income from businesses, then tax their income.  The income of a business is equal to what's left over from their revenue after covering expenses -- their profits.  Businesses can escape payroll taxation can by passing it to workers or employing fewer of them.  Profit taxation is fundamentally different.

Bottom line, where Seattle's civic leadership would have you believe that the employee hours tax is a "progressive business tax," it's actually a regressive worker tax.