Bryan Caplan  

Where Numbers Come From

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Brad DeLong explains the birth of an early pro-NAFTA number:

Here's where I state that the "200,000 net jobs projected from NAFTA" number was mine: we took an estimate of overall economic efficiency gains from tariff reductions and an employment elasticity with respect to the real wage from the Labor Department, and estimated that in the long run stable-inflation employment would grow by 0.14 percent as a result of the deal. I think it was the right answer to the question asked in 1993; I don't think that was the right question to be asking.
I naively assumed numbers like this came from the aggregation of lots of detailed industry studies. Apparently I was way off - Clinton's economists just combined an estimate of the effect of NAFTA on the real wage with an estimate of the effect of the real wage on employment.

Which frankly leaves me a little puzzled: Does the substitution effect exceed the income effect after all? The history of the workweek in the 20th century makes that hard to believe. If it doesn't, then NAFTA destroys jobs - by making people so rich that they don't want to work as much.


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COMMENTS (3 to date)
Brad DeLong writes:

IIRC (and I may not), the belief was that the coming of feminism had put us in a situation where the substitution effect exceeded the income effect.

The bigger point, of course, is that we shouldn't have been in the "number of jobs" game at all. We didn't think that the number of jobs was the important effect; we thought it was the quality of jobs. But the view of our betters was that comparative advantage was too hard to explain, that Ross Perot was out there saying Mexicans will take all your jobs, and that the good guys needed a counter.

Even if what we were doing was trying to project the shadow "deformed rabbit" on the wall of the cave, since we couldn't strike the fetters off the prisoners and lead them outside into the bright sun of Ricardian trade theory.

dearieme writes:

Why would libertarian types be astonished to learn that official government numbers are made of such whimsical stuff?

John Thacker writes:

We didn't think that the number of jobs was the important effect; we thought it was the quality of jobs. But the view of our betters was that comparative advantage was too hard to explain, that Ross Perot was out there saying Mexicans will take all your jobs, and that the good guys needed a counter.

Completely believable answer, certainly. Ah, the life of an economic advisor.

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