Child Poverty

• “Real-Time Poverty, Material Well-Being, and the Child Tax Credit,” by Jeehoon Han, Bruce D. Meyer, and James X. Sullivan. NBER Working Paper no. 30371, August 2022.

Federal support for poor children has shifted over time from cash transfers that penalized work (the Aid to Families with Dependent Children program, 1935–1996) to tax credits offered only to those who work. This switch was proposed in a 1991 report by a bipartisan National Commission on Children, which recommended a $1,000 refundable credit for all children through age 18. A version of the credit was proposed by Republicans in their 1994 Contract with American and by President Bill Clinton in 1995. It was eventually enacted in 1997 as a $500-per-child non-refundable credit, meaning that families that paid little in income tax couldn’t take full advantage of the amount. In 2001 Congress increased the credit to $1,000 per child and made it partly refundable. The 2017 Tax Cuts and Jobs Act increased the credit to $2,000 per child.

During the pandemic, it was temporarily expanded to $3,000 for every child age 6–17 and $3,600 for every child under 6. In addition, the credit was made fully refundable to those whose credits exceeded their tax obligations. This policy change reignited the scholarly and political debate about the costs and benefits of requiring work in return for taxpayer assistance.

As described in this paper, early evaluations of the program claimed that the rate of child poverty was reduced by 25 percent and then rose by over 40 percent after the expiration of the monthly payments in January 2022. Evaluations of the effects using a different methodology detected only a small decline in poverty during the period of monthly child tax credit payments and no increase after the elimination of the payments. The first evaluation found gains in income without any reduction in work while the second found that increased transfers induced a compensating decline in employment among low-skilled workers with children.

This paper explains the methodological differences that led to the drastically different estimates and argues the second is methodologically superior. Claims that the child allowance would reduce poverty without meaningfully discouraging parental employment appear to be incorrect.

Zoning

• “Houston, You Have a Problem: How Large Cities Accommodate More Housing,” by Anthony W. Orlando and Christian L. Redfearn. SSRN Working Paper no. 4242854, October 2022.

A commonly offered solution to high housing prices is zoning reform. Regulation was an early participant in the examination of zoning, publishing some of Edward Glaeser and Joseph Gyourko’s landmark work in the early 2000s (see “Zoning’s Steep Price,” Fall 2002). A recent Working Papers summary discussed calculations of the zoning “tax” by metropolitan area (see Working Papers, Winter 2021–2022).

This paper cautions readers that zoning reform in California may not result in large increases in housing supply and reductions in prices as reform advocates predict. The paper compares housing supply in California and Texas to demonstrate that the path of housing prices and population growth in both have many similarities even though California has zoning constraints while Texas is more market oriented.

The basic argument is that metropolitan areas have a life cycle. In the early phase, growth is met through single family housing development on vacant land. But once available land for greenfield development becomes too far from jobs and amenities, this development stops even if there are no legal greenbelt restrictions on further sprawl. It is replaced with high-density development on “infill” lots. Such development has higher marginal construction costs. Thus, as cities grow denser over time, their supply elasticity will decline, and the price needed to produce the marginal housing unit will increase even in the absence of zoning constraints. For example, housing supply elasticities in Harris County, the central county in the Houston metropolitan area, have decreased from 0.32 in 1980–1994, to 0.25 in 1990–2004, to 0.15 in 2000–2016.

Texas is becoming more like California with regard to housing supply—and therefore faces the prospect of rising house prices in the years ahead. While Houston has been eager to build more housing over the last 20 years, so too was Los Angeles 40 years ago. Sacramento is growing faster than most Texas cities today even though it is in California. City age and density matter.

Antitrust

• “Criminal Enforcement of Section 2 of the Sherman Act: An Empirical Assessment,” by Daniel A. Crane. SSRN Working Paper no. 4136638, June 2022.

In March 2022, the U.S. Justice Department announced it would consider bringing criminal cases for monopolization under Section 2 of the Sherman Act. Section 2 prohibits individual firms from possessing and exercising a high degree of market power regardless of whether the firm tried to fix prices or rig bids. This dramatic change in policy—the last Section 2 case was in 1977—was defended as simply a “revival of previous agency practice.”

This paper by University of Michigan law professor Daniel Crane provides a comprehensive history of criminal Section 2 enforcement. The Justice Department brought a criminal charge under Section 2 in 175 cases. The first (against Federal Salt) was in 1903 and the last (against Braniff Airways) was in 1977. Were those cases similar to the cases the Biden administration envisions bringing against Google, Facebook, and other Big Tech companies? Claims that this change in policy is historically ground require such similarities.

Only 20 of the 175 cases involved unilateral conduct. In eight of those, the criminal charges were dismissed or all defendants were found not guilty. In the remaining 12, the largest fine—$187,000—was imposed on Safeway Stores in 1955 and would be equivalent to about $3 million today. In just three cases, a prison sentence was imposed. Two of those cases involved crimes of violence, while the third, in 1973, resulted in one individual serving one month in prison for unilateral monopolization.

Criminal Section 2 enforcement for non-violent unilateral exclusionary conduct has never been a significant part of the Justice Department’s enforcement practice. Writes Crane, “If the Justice Department carries through on its recent threats to begin bringing criminal monopolization cases again and it does so for non-violent unilateral conduct offenses and seeks significant penalties, it will be breaking new ground.”

Low Wage Workers

• “Low Wages Aren’t a Growing Problem,” by David Abraham and Simcha Barkai. SSRN Working Paper no. 4202741, September 2022.

The plight of low-wage U.S. workers is a hot topic among academics and elected officials. I have reviewed many papers about the effects of minimum wage laws and the econometric difficulties economists encounter in their attempts to ascertain the laws’ effects. This paper asks a simpler question: How are low-wage workers fairing over time?

Remarkably, there has been little to no increase in the number of low-wage workers since 1985 despite a large increase in the total number of workers. The number of workers earning $15 an hour or less (in 2019 dollars) was 36.5 million in 1985 and 36.7 million in 2019. In 1985 they constituted 41 percent of 88.2 million workers, while in 2019 they were only 28 percent of 132 million workers.

For those calculations, the inflation adjustment was made using the Consumer Price Index for all Urban Consumers, which economists have concluded overstates inflation. Using alternative measures results in a large decline in the number of workers earning low wages.

How about wage growth for low-wage workers? Wages in the 30th percentile grew at the same rate as those at the 70th percentile, and real wages below the 30th percentile grew even faster. The authors argue that unless we are willing to argue that conditions have worsened at the 70th percentile (which translates into a 2019 annual income of just under $60k for a full-time employee), we should not assert that conditions have worsened at the 30th percentile.

How about mobility? Data from the Panel Study of Income Dynamics, which surveys the same individuals over time, suggest that the persistence of low wages for males has not increased, and has likely decreased, over time.

Consumer Credit Cards

• “Who Pays for Your Rewards? Redistribution in the Credit Card Market,” by Sumit Agarwal, Andrea F. Presbitero, Andre F. Silva, and Carlo Wix. SSRN Working Paper no. 4126641, December 2022.

Many credit cards offer cash or other rewards for their use. Some people have argued that such rewards redistribute money from the poor to the affluent. In the Summer 2022 edition of Working Papers, I reviewed a paper by Todd Zywicki et al. that examines one possible avenue for this transfer: if merchants increase prices to pay for their increased bank card processing fees that pay for the rewards, those customers who pay in cash (assumed to be less affluent) pay for the rewards to card users (assumed to be more affluent).

That paper found that those with better credit scores, regardless of income, benefit from rewards programs, which are “paid for” by interchange fees charged to merchants. Those interchange fees, in turn, may or may not be passed on to consumers who use cash, depending on whether those consumers buy the same goods and services from the same merchants as those using credit cards.

The current paper by Sumit Agarwal et al. compares the incidence of rewards and interest costs for those who use rewards cards versus those who use traditional cards controlling for FICO credit score and income, including ZIP code and bank fixed effects. The Agarwal results are similar to the Zywicki paper. High-FICO cardholders earn money from reward cards while low-FICO cardholders lose money. But again, the relationship between winners and losers and income is low. High-income consumers with high FICO scores benefit from reward credit cards largely at the expense of high-income consumers with low FICO scores.