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The Digest

Electric Utilities Anticipated Clean Air Act Regulations
Article
Well before the legislation was passed, the industry began revamping plans for new construction and developing innovative abatement technology. The landmark Clean Air Act of 1970 did not take effect until 1972, but the electric power industry began taking steps to reduce pollution from power generation a decade earlier. In Impacts of the Clean Air Act on the Power Sector from 1938–1994: Anticipation and Adaptation (NBER Working Paper 28962), Karen Clay, Akshaya...

Facing Troubled Waters, Shippers Trimmed Their Sails
Article
In a period of high uncertainty, shipping lines slowed the upgrading of their fleets and concentrated on a narrower and less-productive asset mix. A wave of Somali pirate attacks between 2009 and 2011 created substantial uncertainty for cargo shippers using the Suez Canal. In those three years, companies with ships sized to use the canal reduced their investment in new vessels by an estimated 38 percent, and reduced vessel retirements by 18 percent. The...

The Reporter

Long-Run Trends and the Natural Rate of Unemployment
Article
Author(s): Ayşegül Şahin
Starting with Milton Friedman and Edmund Phelps, academics and policymakers have endeavored to measure a sustainable level of unemployment and the implications that deviations from this level have for inflation of prices and wages. This natural rate of unemployment, u*, is broadly defined as the unemployment rate at which, controlling for supply shocks, inflation remains stable. Long-run trends in the labor market and changes in inflation expectations make it hard to pin...

Dynamic Corporate Finance under Costly Equity Issuance
Article
Author(s): Patrick Bolton & Neng Wang
Two fundamental concepts in corporate finance are the net present value (NPV) rule and the Modigliani-Miller (MM) irrelevance proposition. When financial markets operate without frictions, when investors can trade securities that correspond to all relevant risks, when investors and managers share the same information, when incentives are aligned, and when there are no tax distortions, then corporate finance boils down to a valuation exercise and a simple investment decision...

The Bulletin on Retirement & Disability

The Evolution of Firms’ Retirement Plan Offerings
Article
Two-thirds of private-sector workers in the US have access to an employer-sponsored defined contribution plan. Annual contributions to such plans by employers and employees are about $500 billion. Retirees will increasingly rely on defined contribution plan wealth to supplement Social Security and maintain living standards in retirement, due to the long-term shift in employer pension plans from defined benefit to defined contribution type plans. While employer-sponsored...

Misperceptions of the Social Security Earnings Test and the Actuarial Adjustment
Article
The Social Security Retirement Earnings Test (RET) applies to people before the full retirement age (FRA), which is age 67 for those turning 62 in 2022 and beyond. For individuals who claim retired worker benefits before the FRA, Social Security withholds benefits if earnings exceed a certain exempt amount. In 2021, the exempt amount is $18,960, although a higher amount applies in the year of attaining the FRA. Benefits are withheld at a rate of $1 for each $2 in earnings...

The Bulletin on Health

School Reopenings Contribute to Modest, but Heterogeneous, Rise in COVID-19 Transmission
Article
Uncertainty about the risk of COVID-19 transmission from school reopenings has confounded educational decision-making during the pandemic. Research on this topic has been affected by research design complications and a lack of data. In Back to School: The Effect of School Visits during COVID-19 on COVID-19 Transmission (NBER Working Paper 28645), researchers Dena Bravata, Jonathan H. Cantor, Neeraj Sood, and Christopher M. Whaley overcome several of these challenges to...

Higher Prescription Drug Cost-Sharing Raises Mortality among Medicare Beneficiaries
Article
What are the health consequences when patients reduce their use of prescribed medications in response to higher out-of-pocket costs? In The Health Costs of Cost-Sharing (NBER Working Paper 28439), researchers Amitabh Chandra, Evan Flack and Ziad Obermeyer use the distinctive out-of-pocket cost-sharing features of Medicare Part D to demonstrate that such reductions can increase mortality. Their analysis makes use of the fact that two 65-year-old Medicare enrollees with...

The Bulletin on Entrepreneurship

The COVID-19 Pandemic and Labor Supply to Startups
Article
After the outbreak of COVID-19, more-experienced and higher-quality job applicants shifted from early-stage companies to the safety of more-established firms. Like investors who reallocate their portfolios toward safer assets during volatile times in financial markets, job seekers during the COVID-19 pandemic have shifted their focus from startup businesses to larger firms. During the pandemic, small and young entrepreneurial firms have had fewer job applicants —...

Measuring the Employment Impact of Immigrant Entrepreneurs
Article
Analysis of a million firms founded between 2005 and 2010 finds that immigrants are more likely than native-born Americans to launch new enterprises of all sizes. In "Immigration and Entrepreneurship in the United States" (NBER Working Paper 27778), Pierre Azoulay, Benjamin Jones, J. Daniel Kim, and Javier Miranda show that compared with native-born Americans, immigrants play a larger role as employers than as employees. The researchers analyze data on more...