Population and Welfare: The Greatest Good for the Greatest Number, September 2023
(Joint with Mark Bils, Chad Jones, and Pete Klenow) [slides] [paper]
Economic growth is typically measured in per capita terms. But social welfare should arguably include the number of people as well as their standard of living. We decompose social welfare growth — measured in consumption equivalent (CE) units — into contributions from rising population and rising per capita consumption. Because of the diminishing marginal utility of consumption, population growth is scaled up by a value-of-life factor that substantially exceeds one and empirically averages around 3 across countries since 1960. Population increases are therefore a major contributor, and CE welfare growth around the world averages more than 6% per year since 1960 as opposed to 2% per year for consumption growth. Countries such as Mexico and South Africa rise sharply in the growth rankings whereas China, Germany, and Japan plummet. We show the robustness of these results to incorporating time use and fertility decisions using data from the U.S., Mexico, the Netherlands, Japan, South Africa, and South Korea. The effects of falling parental utility from having fewer kids are roughly offset by increases in the “quality” of kids associated with rising time investment per child.
Work in Progress
Markups, Market Size, and Distorted Economic Growth, Draft coming soon
(Joint with Jean-Felix Brouillette and Emma Rockall)
We study the dynamic consequences of markups for long-run economic growth in a general equilibrium theory of firm-driven endogenous technological change. In this environment, differentiated firms engage in monopolistic competition, charge heterogeneous markups and make forward-looking investments in R&D to improve their process efficiency. Markups constrain the scale at which these firms operate and therefore distort their “market size” incentive to invest in R&D. With dispersion in markups, both the aggregate and cross-firm allocations of such investments are thus inefficient. Using firm-level administrative data from France to discipline our model, we find that transfers inciting firms to operate at the efficient scale increase the long-run growth rate of total-factor productivity by 1.5 percentage points. Our analysis shows that this faster productivity growth is achieved by eliminating the dispersion in markups rather than their average level.
Elevating the Role of Human Capital in Growth Accounting, Draft coming soon
The Duration of Rents and R&D Misallocation