Poor Inflation

Kevin Lewis

May 18, 2022

Expected SES-Based Discrimination Reduces Price Sensitivity Among the Poor
Jorge Jacob et al.
Journal of Marketing Research, forthcoming 

Low socioeconomic status (SES) consumers tend to be more price sensitive than their high-SES counterparts. Nonetheless, various economic-related burdens, such as mobility costs and lack of information, often hinder their ability to attend to scarcity - a phenomenon called "ghetto tax." The current research moves a step further to show that even when very poor consumers can exert price sensitivity and are fully informed, a "psychological ghetto tax" often discourages them from doing so. Across five studies, we demonstrate that, relative to (a) high-SES consumers or (b) contexts of intragroup interaction, low-SES consumers are willing to pay higher prices and to accept lower value rewards to avoid commercial settings that require intergroup interaction (e.g., poor consumers in a high-end shopping mall). This effect is driven by the poor consumers' heightened expectations of discrimination in upscale commercial settings, a concern virtually nonexistent among wealthy consumers. Companies' inclusion statements emphasizing customer equality and/or customer diversity can serve as safety cues against stigmatized identities and increase low-SES consumers' price sensitivity. 

Minimum Wage Increases and Vacancies
Marianna Kudlyak, Murat Tasci & Didem Tuzemen
Federal Reserve Working Paper, April 2022 

Using a unique data set and a novel identification strategy we explore the effect of the state-level minimum wage increases on firms' existing and new vacancy postings. Utilizing occupation-specific county-level vacancy data from the Conference Board's Help Wanted Online for 2005-2018, we show that the state-level minimum wage increases lead to substantial declines in existing and new vacancy postings for occupations with a larger share of workers earning around the prevailing minimum wage. Our estimate implies that a 10 percent increase in the binding minimum wage reduces vacancies by 2.4 percent contemporaneously, and could be as large as 4.5 percent a year later. The negative effect on vacancies is more pronounced for occupations where workers generally have lower educational attainment (high school or less) and those in counties with higher poverty rates. 

The long-term effect of the Earned Income Tax Credit on women's physical and mental health
Lauren Jones, Guangyi Wang & Tansel Yilmazer
Health Economics, forthcoming

Using a novel method, and data from the National Longitudinal Survey of Youth 1979 (NLSY79), we estimate the cumulative, long-term, causal effect of Earned Income Tax Credit (EITC) eligibility on women's physical and mental health at age 50. We find that an increase in lifetime eligible EITC benefits is associated with long-term improvements in physical health, such as reduced occurrence of activity-limiting health problems and reduced reported diagnoses of mild and severe diseases. We explore intermediate health behaviors and outcomes, and find that an increase in lifetime eligible EITC benefits increases the number of hours worked and access to employer-sponsored health insurance, and decreases body mass index in the short-term. We find no significant effects of the EITC on mental health at age 50. Finally, we find that White women benefit disproportionately from the EITC in terms of mobility-related health issues, while Black and Hispanic women benefit in terms of lung-related illnesses like asthma, as well as cancer and stroke. 

The Effect of Housing First Programs on Future Homelessness and Socioeconomic Outcomes
Elior Cohen
Federal Reserve Working Paper, March 2022

Housing First programs provide housing assistance without preconditions for homeless individuals as a platform for rehabilitation. Despite the programs' increasing popularity, limited evidence exists on their effects on socioeconomic outcomes. Using a novel dataset combining administrative records from multiple public agencies in Los Angeles County and a random case manager assignment design, I estimate that Housing First assistance reduces homelessness and crime, increases income and employment, and does not have a detectable effect on health-care utilization. Cost-benefit analysis implies that these potential savings offset program costs within 18 months. These findings demonstrate that Housing First can be rehabilitative and cost-effective. 

Impacts of Basic Income on Health and Economic Well-Being: Evidence from the VA's Disability Compensation Program
David Silver & Jonathan Zhang
NBER Working Paper, March 2022

We study impacts of a cash transfer program with no means-test and no work restrictions: the US Department of Veteran Affairs (VA) Disability Compensation program. Our empirical strategy leverages quasi-random assignment of veterans claiming mental disorder disability to examiners who vary in their assessing tendencies. We find that an additional $1,000 per year in transfers decreases food insecurity and homelessness by 4.1% and 1.3% over five years, while the number of collections on VA debts declines by 6.4%. Despite facing virtually no direct monetary costs, healthcare utilization increases by 2.5% over the first five years, with greater engagement in preventive care and improved medication adherence. This demand response is in part explained by the ability to overcome indirect costs of accessing care ("ordeals"). Additionally, VA-conducted surveys suggest that transfers improve communication and trust between veterans and VA clinicians, leading to greater overall satisfaction. Apart from a reduction in self-reported pain, we estimate precise null effects on mental and physical health, including depression, alcohol and substance use disorders, body mass index, blood pressure, and glucose levels. Effects on mortality are small: we can rule out reductions greater than 0.011 percentage points (0.14%) over five years. 

Quasi-Experimental Evidence on the Effects of Expanding Cash Welfare
Matthew Freedman & Yoonjung Kim
Journal of Policy Analysis and Management, forthcoming

We study the labor supply and consumption responses to cash assistance delivered through the Temporary Assistance to Needy Families (TANF) Program in the United States. Exploiting a sharp increase in cash benefit generosity for low-income single-parent families in New Hampshire due to a legislative revision to payment calculations, we implement difference-in-differences and triple-differences to estimate the impacts of greater benefits on work behavior as well as on food expenditures and food security. Our results suggest that more generous cash assistance reduces labor supply among likely TANF-eligible individuals. At the same time, greater cash benefits increase household food spending and reduce the incidence of food insecurity. Our findings speak to individual and family responses to expanded cash assistance in an era in which cash welfare is at historically low levels, is time limited, and imposes work requirements. 

An Equilibrium Analysis of the Effects of Neighborhood-based Interventions on Children
Eric Chyn & Diego Daruich
NBER Working Paper, April 2022

To study the effects of neighborhood and place-based interventions, this paper incorporates neighborhood effects into a general equilibrium (GE) heterogeneous-agent overlapping-generations model with endogenous location choice and child skill development. Importantly, housing costs as well as neighborhood effects are endogenously determined in equilibrium. Having calibrated the model based on U.S. data, we use simulations to show that predictions from the model match reduced form evidence from experimental and quasi-experimental studies of housing mobility and urban development programs. After this validation exercise, we study the long-run and large-scale impacts of vouchers and place-based subsidies. Both policies result in welfare gains by reducing inequality and generating improvements in average skills and productivity, all of which offset higher levels of taxes and other GE effects. We find that a voucher program generates larger long-run welfare gains relative to place-based policies. Our analysis of transition dynamics, however, suggests there may be more political support for place-based policies. 

Why Does Disability Increase During Recessions? Evidence from Medicare
Colleen Carey, Nolan Miller & David Molitor
NBER Working Paper, April 2022

Social Security Disability Insurance (DI) awards rise in recessions and fall in expansions, especially for older adults. Using Medicare administrative data for DI entrants between 1991 and 2015, we provide new evidence on the health of DI recipients who enter at different ages and points in the business cycle. We find that each percentage point increase in unemployment at the time of application corresponds to 4.2% more awards and 0.4% lower Medicare spending among new entrants. We then investigate whether this relationship is driven by changes in health, with deteriorating economic conditions making individuals less healthy, or by changes in the cost of entering DI. To separate these two channels, we leverage a feature of the DI determination process that sharply relaxes the eligibility criteria at ages 50 and 55. We find that marginal DI entrants have similar spending regardless of whether they were induced to enter by poor economic conditions or by the age discontinuities in the eligibility criteria. The findings suggest that changes in entry costs can fully account for cyclical DI entry. 

Effects of Concentrated LIHTC Development on Surrounding House Prices
Richard Voith et al.
Journal of Housing Economics, forthcoming

The Low-Income Housing Tax Credit is the largest supply-side housing subsidy in the United States, with more than $8 billion worth of credits allocated per year. For a variety of reasons, LIHTC properties tend to be geographically concentrated in low-income urban communities. While numerous studies have examined the spillover effects of these properties on local property values, they have not accounted for the cumulative effects of clustering multiple LIHTC properties within an area. This paper examines the effects of introducing additional LIHTC developments in urban neighborhoods to determine whether the concentration of these affordable housing properties negatively affects local home values. We combine an interrupted time series model with a difference-in-difference approach to estimate the price effects in Chicago and surrounding Cook County, Illinois. We find some evidence that both stand-alone and clustered LIHTC developments generate positive price spillover effects on the surrounding neighborhoods; subsequent LIHTC projects do not affect prices negatively. The benefits are strongest within one quarter mile of the development, but smaller impacts prevail for up to a half mile from the LIHTC property. The positive impacts remain strong for at least 10 years after the initial development. The cumulative price effect is positive and significant in both lower and higher-income areas.


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