Development of the American Economy

March 7, 2009
Claudia Goldin, Organizer

Dora Costa, UC, Los Angeles and NBER
The Rise of Retirement among African Americans: Wealth and Social Security Effects

Costa examines the effects of an unearned income transfer on the retirement rates and living arrangements of a very poor population by studying the effects of pensions on the decisions of black Union Army veterans. She finds that blacks were 2 to 5 times as responsive as whites to income transfers in their retirement decisions and 6 to 8 times as responsive in their choice of independent living arrangements. She argues that blacks’ greater poverty explains their responsiveness to pensions. Her findings have implications for understanding racial differences in trends in retirement and independent living. She shows that the retirement rates of both blacks and whites rose between 1900 and 1930 but that convergence in black and white rates and in living arrangements only occurred between 1930 and 1950. She argues that income effects from the institution of Social Security explain up to half of the convergence in black-white retirement rates and in living arrangements.

Jeremy Atack, Vanderbilt University and NBER, Fred Bateman, University of Georgia, Michael Haines, Colgate University and NBER, and Robert Margo, Boston University and NBER
Did Railroads Induce or Follow Economic Growth? Urbanization and Population Growth in the American Midwest, 1850-60

For generations of scholars and observers, the "transportation revolution," especially the railroad, has loomed large as a dominant factor in the settlement and development of the United States in the nineteenth century. However, there has been considerable debate as to whether transportation improvements led economic development or simply followed it. Using a newly developed GIS transportation database Atack and his co-authors examine this issue in the context of the American Midwest, focusing on two indicators of broader economic change: population density and the fraction of the population living in urban areas. Their difference-in-differences estimates strongly suggest that the coming of the railroad had little or no impact on population densities, just as Albert Fishlow concluded some 40 years ago. But, their results also imply that the railroad was the "cause" of midwestern urbanization, accounting for more than half of the increase in the fraction of population living in urban areas during the 1850s.

Chiaki Moriguchi, Northwestern University and NBER
From Pragmatic to Sentimental Adoption? Child Adoption in the United States, 1880-1930

Adoption, as an alternative to childbearing, is a widely accepted means of creating a family in the United States today. According to the historical literature, a modern form of adoption was a legal innovation in the mid-nineteenth century, which evolved over time and had profound implications for the welfare of adopted children and adoptive parents. Because of the lack of quantitative data, however, we know little about the extent and nature of adoption in the United States before WWII. How widely was adoption practiced before its widespread social acceptance? Who adopted children, and what motivated them to adopt? How did adopted children fare compared to biological children? Using microdata from the federal censuses in 1880-1930 and 2000, Moriguchi documents the prevalence of adoption and studies the characteristics of adoptive children and their households. Among other things, this research re-evaluates the commonly held hypothesis that, during the early twentieth century, adoption evolved from “pragmatic” to “sentimental” as adoptive parents began to demand children not for their potential labor value but for the utility of parenting itself. This paper provides the first empirical analysis of adoption in the pre-WWII United States using nationally representative data.

Trevon Logan, Ohio State University and NBER, and Paul Rhode, University of Arizona and NBER
Moveable Feasts: A New Approach to Endogenizing Tastes

Logan and Rhode argue that tastes can be understood as the result of utility maximizing behavior in the distant past. This behavior may have long lived consequences, usually taken to mean tastes, or preferences. Because the old maximization problem depends critically on old relative prices, the authors use old relative prices to endogenize tastes, overcoming many of the criticisms of the literature on taste formation. They begin by illustrating how current prices and income fail to explain significant amounts of variation in demand. They estimate that as much as half of the variation in prices and income are attributable to taste differences. To test the implications of this theory, they estimate the demand for food using unique household consumption and price data from the nineteenth century. They use contemporaneous prices and prices in the home countries of immigrants measured 15 years prior to their consumption survey. They establish that the old relative prices are uncorrelated with the contemporaneous relative prices. They conclude by noting how their empirical strategy can be used to measure changes in taste in both microeconomic and macroeconomic contexts.

Petra Moser, Stanford University and NBER (Joint with Alessandra Voena)
Compulsory Licensing: Evidence from the Trading-with-the-Enemy Act

Compulsory licensing, which is permissible under the Trade Related Intellectual Property Rights (TRIPS) agreement, allows domestic firms to produce inventions that are patented by foreign nationals, without the consent of patent owners. As an emergency measure, compulsory licensing offers clear benefits: it helps to deliver life-saving drugs to millions of patients. The long-run effects of compulsory licensing, however, are unclear. Moser and Voena use an exogenous event of compulsory licensing after World War I to measure the long-run effects of compulsory licensing on domestic invention. Specifically, they compare changes in patents by domestic inventors across technologies that were differentially affected by compulsory licensing under the Trading with the Enemy Act (TWEA). Their data suggest that compulsory licensing has a large positive effect on domestic invention. Firm-level analyses indicate that most of the increase in domestic invention results from learning-by-doing, as compulsory licensing enables a new set of firms to produce an invention. Their data also show that the full effects of compulsory licensing take up to ten years to materialize, suggesting that they will be missed in analyses of contemporary data.

Peter Temin, MIT and NBER
Changes in Labor Relations during the New Deal and War

The Depression and the New Deal generated dramatic changes in American labor relations. Temin argues that the changes began with the NIRA of 1933 and took a decade and a half to reach a new equilibrium. The process of change included multitudinous legislation, court decisions, and administrative actions; it continued through labor surplus in the Depression and labor scarcity in the Second World War. Temin organizes this complex story by employing an economic model of Richard Freeman to produce a middle-level narrative that resolves conflicts between the simple-although conflicting-views of economists and the highly detailed views of historians.

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