Ban the Box

• Kaestner, Robert, and Xufei Wang, 2024, “Ban-the-Box Laws: Fair and Effective?” NBER Working Paper no. 32273, March.

A recurring topic in Working Papers is criminal justice policy innovation. The goal of these policies is to reduce the negative effects of incarceration on subsequent employment.

In the Spring 2024 Working Papers, I reviewed a paper that examined the expungement of felony convictions in California. The paper found no effects on employment or incomes. The positive effects found in previous studies were likely the result of selection effects: the non-random population of those who initiated expungement.

In the Fall 2016 Working Papers, I reviewed a working paper on “Ban-The-Box” (BTB) policies, which prohibit employers from asking about criminal history (the notorious “Have you been convicted of a crime?” checkbox) on initial job applications. The intent of such policies is to increase employment among Black males, who have disproportionately more criminal convictions than other applicant groups. The paper found that employers responded by engaging in more statistical discrimination. That is, employers reduced their consideration of young Black men in general because the employers were prohibited from determining which of them had criminal records.

The current paper updates those findings. Some 37 states and 150 cities and counties have adopted some type of BTB law. Also, Congress passed the Fair Chance Act in 2019, which prohibits federal agencies and contractors from asking applicants about criminal history before making a conditional offer of employment.

The authors studied young men ages 25–44 with less than a college degree. The existence of any BTB law in a person’s area of residence had no effect on employment over the period 2004–2019. The null effect consisted of a negative effect on employment of young (ages 25–34) Black men by approximately 3–4 percentage points (4 percent) between 2004 and 2014 and increased employment of this group of Black men by 2 percentage points (3 percent) between 2014 and 2019. The authors suggest the difference in the two time periods was the result of a lower unemployment rate in the latter period rather than the BTB laws.

Markups and Market Power

• Miller, Nathan H., 2024, “Industrial Organization and the Rise of Market Power,” working paper, April.

Some economists claim that business price markups have increased over time. I first described this research and criticisms of it in the Summer 2018 Working Papers.

This paper is a comprehensive literature review of the topic. It examines the details of how markups are measured and argues that the results are driven by these details. It describes two types of studies: those that use macroeconomic data, and industry-specific studies. Both types have their difficulties. The macro studies use an econometric method that assumes perfect competition to measure market power, a methodological move that one paper called “circular.” Some industry studies document technological change that lowers production costs; because prices do not decrease as fast as costs, markups increase. However, other industry studies, including steel and automobiles, find decreased markups over time. No industry studies have found increasing prices. There is a difficulty, though, with the industry studies: They can be conducted only of industries that are stable and long-lived and thus are not representative of the larger economy.

Antitrust and Platforms

• Hovenkamp, Erik, 2024, “Platform Exclusion of Competing Sellers,” SSRN Working Paper no. 4724751, February.

Increased interest in antitrust has not just been driven by the return of populist concerns about large corporations. Some economists also favor increased intervention. Erik Hovenkamp is a young antitrust scholar trained in both law and economics. In this paper he examines cases in which Big Tech platforms like Google, Amazon, Apple, and Facebook refuse to deal with rivals. Hovenkamp offers a hypothetical example: Google removes all competing map apps from its Google Play store. As a result, Android users are effectively forced to use Google Maps. Google is exploiting control of a dominant platform (its app store) to impede competition in a secondary market (the market for map apps).

When would such a strategy increase profits? Traditional Chicago School antitrust analysis would argue never. Google already exploits whatever market power it has in the market for search through its advertising prices. Excluding rivals in the competitive market for map software would not increase profits.

But “Post-Chicago” antitrust analysis argues such a strategy would increase profits under certain conditions: (a) the secondary market (mapping software) is imperfectly competitive with differentiated products and economies of scale; and (b) a portion of buyers of the secondary good attach little or no value to the primary good (Google search itself). If excluding rivals reduced the sales of non-Google map apps below the minimum scale needed to remain profitable, Google could increase profits.

Post-Chicago antitrust analysis has existed for more than 30 years but has had little effect on actual antitrust legal practice. Hovenkamp argues that should change. For those readers who need a quick refresher on Post-Chicago thinking, this paper provides a good summary.

Consumer Credit

• Zywicki, Todd J., 2024, “Looking Forward by Looking Backward: The Future of Consumer Finance and Financial Protection,” SSRN Working Paper no. 4728037, February.

Todd Zywicki provides a concise history of consumer credit in this essay. He argues that elites have been concerned about debt that was not collateralized by other assets ever since the early Industrial Revolution. Even Adam Smith differentiated productive loans to “sober” individuals from loans to fund consumption. These concerns resulted in usuary laws that placed caps on interest rates that eliminated legal small loans to workers to smooth consumption. Such concerns continue to animate restrictions on payday loans today; see Spring 2017 Working Papers.

An important consequence of usuary laws was the emergence of black-market loans to finance workers’ consumption-smoothing. One economist estimated that in 1911 about 35 percent of New York City employees owed money to illegal lenders. Former Federal Reserve chairman Alan Greenspan once referred to the plight of city-dwellers in that era as one of “virtual serfdom” to black-market creditors. The reform efforts of the Russell Sage Foundation and General Motors auto financing in the mid-1920s legitimized the use of consumer credit.

According to Zywicki, the level of household non-mortgage debt relative to income or assets has remained constant since the 1960s. Without the large increase in student loan debt, the consumer debt ratio for the typical household would be significantly lower today than 40 years ago.