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All posts by Rohan Mascarenhas



Why Is Economic Mobility Higher in Canada than the U.S.?

Rohan Mascarenhas, Russell Sage Foundation
January 12, 2012

In a recent post for the the New York Times' Room for Debate, Tim Smeeding noted that the 'American Dream' may actually make more sense in places like Canada, which has a higher economic mobility rate. "Unless the U.S. can learn from countries like Canada how to enhance mobility," he writes, "Americans in search of an equal-opportunity society might just as well move north." The comparison is interesting because of the cultural similarity between the two countries; in a recent poll, Canadians reported feeling just as strongly as Americans that individual hard work matters much more for getting ahead than factors beyond a person's control (like your family's personal income).

So what explains the different mobility rates? In another post in the forum, Miles Corak (also an RSF author) listed some of the reasons the odds are better for Canadian kids:

If I were born to parents in the bottom 10 percent, I would rather they were raising me in Canada. Being in the bottom 10 percent would mean less hardship: my family income would be greater; I would be more likely to be living with both of my biological parents; I would be visiting a doctor regularly; and I would spend more time with my parents, particularly my mother during my infancy as she would have almost one year of paid parental leave.

Private Equity and the American Economy

Rohan Mascarenhas, Russell Sage Foundation
January 12, 2012

RSF author Eileen Appelbaum appeared on the Diane Rehm Show today to talk about the role of private equity in the U.S. economy. The topic is in the news because of the Republican primary race; some of the candidates have criticized Mitt Romney's tenure at Bain Capital. It's a difficult issue: on the one hand, some view the rise of private equity as a net positive force; these firms theoretically buy inefficient firms, restructure them and make them profitable again. Detractors argue private equity firms are driven more by short-term profits that rely chiefly on cutting labor and product quality before re-selling the firm for a quick profit.

Late last year, the Russell Sage Foundation awarded funds to Appelbaum and Rosemary Batt to systematically study the private equity phenomenon in the American economy. In a recent paper published by CEPR, they examined four case studies of large U.S. and U.K. corporations that had been restructured by private equity. They concluded:

The case studies also suggest that the private equity investors, where they made money, did not do so via performance improvements, but rather through financial engineering or shifts in the distribution of rents from other stakeholders to the new shareholders. At Mervyn’s, they relied heavily on the sale of real estate, the cutting of jobs and benefits of employees, and the reneging onlong-standing vendor contracts. Vendors, creditors, employees, and their communities suffered thecollateral damage. At EMI and Stuyvesant/Cooper Village, the new owners lost money, but littlecompared to other stakeholders, who suffered collateral damage – the artists whose music EMIfailed to promote; the renters who were owed millions in back rent and the communities in whichthey were located.

An Interview with Ruth Grant: The Ethics of Incentives

Rohan Mascarenhas, Russell Sage Foundation
January 5, 2012

Ruth Grant discusses incentivesRuth Grant is a Professor of Political Science at Duke University, specializing in political theory with a particular interest in early modern philosophy and political ethics. A former RSF Visiting Scholar, Grant is the author of Strings Attached: Untangling the Ethics of Incentives (Russell Sage and Princeton University Press, 2011), which "questions whether the penchant for constant incentivizing undermines active, autonomous citizenship."

Q: When you consider the controversies that currently dominate the political debate, the use of incentives isn't high on the list. People seem more vexed about policies like the health care mandate or income taxes than, say, the use of a tax deduction to encourage charitable donations. Why did you become interested in the use of incentives as a form of power, and why do you think we should talk about them more?

A: I think that I have always been uncomfortable with certain kinds of incentives in my own experience; for example, incentives in the workplace that undermined team spirit or incentives in my child’s classroom that really made her feel manipulated. Other incentives don’t bother me at all. I began to notice that incentives have become the preferred tool of policy in all kinds of settings – governments, businesses, schools, prisons, hospitals – and it seemed important to think through which uses of incentives are innocuous and which are not. The fact that we have invented a new verb – “to incentivize” – is an indication of how much this approach has seeped into the culture. “To incentivize” is a much narrower concept than “to motivate,” which includes incentives, inspiration, arousing curiosity, etc. Something is lost if we automatically consider only incentives when we want to influence people. It seems important to discuss these issues precisely because incentives are pervasive, but also taken for granted.

The Return of the Layaway

Rohan Mascarenhas, Russell Sage Foundation
January 5, 2012

layawaysIn his latest column in the New Yorker, financial writer James Surowiecki reports the return of a retail phenomenon not seen since the Great Depression: the layaway purchase. Before the financial crash, the default payment mode for consumers was the credit card. Buy now, pay later. Now, as the financial crunch continues to pinch pockets, more stores are offering layaways. Here's how they work:

You pick out the product you want, make a down payment, pay a service fee (typically five dollars), and then make regularly scheduled payments over a period of time until you’ve paid off the full price. There are no interest payments, and if you don’t make all the payments you get your money back, minus a cancellation fee. It’s the exact opposite of installment credit, where you get the product, and then pay for it.

According to standard economic theories, Surowiecki explains, rational consumers would not choose the layaway. Why not simply save enough money in a bank account and then head to the store? Or why not use your credit card and pay the balance in a sustainable manner? But Surowiecki cites RSF-funded research in the field of behavioral economics to explain the appeal of layaways:

Immigrants in a New Destination: Reading, PA

Rohan Mascarenhas, Russell Sage Foundation
December 29, 2011

Urban Studies Journal

Immigrants from the Dominican Republic have faced a difficult transition to life in the United States. They and their children suffer from high poverty rates as well as poor educational and occupational outcomes. They are currently undergoing a large geographic shift—moving out of the areas in which they initially settled and into new communities, which are often smaller and have weaker economies. With an award from the Russell Sage Foundation, Salvador Oropesa of Pennsylvania State University examined one such community of Dominican immigrants in Reading, Pennsylvania. Here is the abstract from his latest study, "Neighbourhood Disorder and Social Cohesiveness among Immigrants in a New Destination: Dominicans in Reading, PA":

Compound Interest and Retirement Savings Behavior

Rohan Mascarenhas, Russell Sage Foundation
December 28, 2011

Consumer Finance Decision Making

Why don't Americans save more for retirement? Earlier this month, I discussed a study that hypothesized that people are not invested in their "future selves"; for many, the pain of stashing away part of the weekly paycheck outweighs the benefits of bigger savings 40 years down the road. But another article, which also appeared in the RSF-funded issue of the Journal of Marketing Research, examines another problem: do people underestimate the power of compound interest?

Here's the question the researchers ask: Imagine you deposit $1,000 at the start of each of three years and earn 7 percent interest, compounded annually. At the end of those three years, how much money would you have? The correct answer is $3,440, almost 15 percent (not 7 percent) more than than the total amount deposited, as interest is earned annually on the previous interest earned. The authors of the article—Craig McKenzie and Michael Liersch—explain why these calculations matter:

Due to compound interest, savings grow exponentially over time, but most undergraduate students believe that savings grow linearly, and the therefore grossly underestimate how much money can accumulate over the span of a typical career...Because they believe that savings grow linearly, they also underestimate the cost of waiting to save, which makes the decision to put off saving more appealing than it ought to be. However, we show that increasing students' and real employees' awareness of the exponential growth of savings over time, even subtly, helps them appreciate the benefits of saving and motivates them to save for retirement.

Charts on Unemployment and the Great Recession

Rohan Mascarenhas, Russell Sage Foundation
December 20, 2011

While Congress remains locked in its latest budget battle over unemployment insurance, it may be a good time to investigate the Great Recession's unprecedented effects on America's labor market. Below are a series of charts from Chapter 3 ("Job Loss and Unemployment") of the RSF volume The Great Recession. The authors—Michael Hout, Asaf Levanon and Erin Cumberworth—include a depressing list of employment statistics and analysis and conclude: "Any recession brings some job loss and boosts unemployment, but the number of jobs lost, the portion of the labor force unable to find work, the duration of layoffs and job search, and the ratio of job-seekers to vacancies were all at their postwar highs in the fourth quarter of 2009."

1. Industry Unemployment Rates

What the authors note:

• Double-digit unemployment rates among construction workers are not unprecedented. The recessions in 1973 to 1975, 1980 to 1982, and 1990 to 1991 brought construction unemployment rates over 15 percent.
• American industry continues to produce goods—it just uses fewer workers to do it...U.S. firms produced their much bigger 2007 output with 4.8 million fewer workers than manufacturing firms employed in 1977.

An Inequality Reading List from Daron Acemoglu

Rohan Mascarenhas, Russell Sage Foundation
December 19, 2011

inequalityThe website FiveBooks recently asked economist Daron Acemoglu to recommend a reading list on rising inequality in the industrialized world. He listed two books that are connected to research funded by the Russell Sage Foundation: The Race Between Technology and Education (co-authored by RSF trustee Lawrence Katz) and Unequal Democracy, which was co-published by the Foundation.

Here's what Acemoglu said about Katz's book:

Behavioral Economics on TED.com

Rohan Mascarenhas, Russell Sage Foundation
December 19, 2011

Here are four videos featuring RSF-affiliated scholars from TED.com, an excellent nonprofit dedicated to discussing and spreading new ideas. The scholars below are Daniel Kahneman (a member of RSF's Behavioral Economics Roundtable); Sendhil Mullainathan (a grantee and member of RSF's Consumer Finance working group), Dan Ariely (who contributed to the recent consumer finance issue from the Journal of Marketing Research), and Shlomo Benartzi (also a member of RSF's Consumer Finance working group).

1. Daniel Kahneman discusses his research on happiness and memory. You can read more about this line of research in his RSF volume, Well-Being: The Foundations of Hedonic Psychology.

The Great Recession and Marriage Rates

Rohan Mascarenhas, Russell Sage Foundation
December 16, 2011

Several stories have appeared recently about the Pew Research Center's study on declining marriage rates in America (see here and here for examples). Based on analysis of U.S. Census data, the study finds that barely half of all adults in the U.S. are currently married—a record low. While the report does not discuss the causes behind the trend (a long-term one that has also been seen in other industrialized countries), some have asked what role the Great Recession may play in couples' decisions to delay their wedding days.

As part of its special initiative on the Great Recession, the Russell Sage Foundation published a study entitled "The Great Recession's Influence on Fertility, Marriage, Divorce and Cohabitation." Here's the key paragraph on marriage:

Figure 8.6 (below) shows the marriage rate since 1998. Since the start of the Great recession, the marriage rate has declined, but that rate was already declining prior to the recession. Contrary to some accounts in the media, there seems to be no major inflexion of the trend in the Great Recession "window" (shaded area in the figure)...We find little evidence of major recession effects on marriage. Further analysis with future data will be able to answer this question with greater precision.