Contributing Writer: Charlie Fahey | May, 2022
Professor Noah Williams is the Curt and Sue Culver Professor of Economics and an Adjunct Fellow at the Manhattan Institute. A graduate of the University of Chicago, he was formerly an Assistant Professor at Princeton University and is currently the director and founder of CROWE, the Center for Research on the Wisconsin Economy. In this interview we discuss the state of the Wisconsin economy, lessons learned from the pandemic, advice for undergraduates, and his upcoming research. Since this interview, Professor Williams released a paper exploring the effects of eliminating Wisconsin’s state income tax.
When did you discover economics?
I took an economics course in high school; It was really just personal finance like balancing your checkbook, but they called it economics. We also watched Milton Friedman’s PBS series Free to Choose, which focused on a number of economic and policy problems at the time. I kept that in the back of my mind, but when I arrived at college I wanted to major in math and physics. After a year, I realized I was a bit over my head, so I was going to major in public policy and do something more applied. Economics seemed like a happy medium between the two using mathematical tools but then applying them to policy and politics.
After your undergrad at the University of Chicago, you were a research assistant at the Fed’s Board of Governors. Is this what led you to pursue graduate school?
Coming out of undergrad, I was fairly sure I wanted to do it. I had actually applied to a few programs directly and thought about going straight through, but wanted to be sure and get a broader experience. I went to the Fed for two years and had a great experience there. I was able to learn more directly from economists and I worked on a couple of papers. One paper actually ended up getting published in the AER (American Economic Review) and it kind of became well-known in the area of banking crises—I was involved with some of the empirical work with that. Even though I was an economics major interested in math, I actually didn’t have that strong of a math background. So in my time off, I took some additional classes at George Washington University. It was a good transitional period, and I met my wife there.
Much of your research centers around macroeconomics, monetary policy, and state-level policy. Why those topics specifically?
Well, I think for a lot of people, the main interface between economics and the policy world comes through monetary policy. There’s fiscal policy as well, but that’s much more indirect and mediated through Congress with long delays. Economists have the most direct influence on monetary policy, so it seemed like a natural question. I guess it also ties into the theoretical questions about how we operate in the world of uncertainty or imperfect information—because this is something policymakers have to face.
What is the Center for Research on the Wisconsin Economy (CROWE) and your role within it?
CROWE is an economic research/policy center and I am currently the director. I was really the force in getting it off the ground. As a part of the Economics Department, our focus is on state-level economic and policy issues with an obvious focus on Wisconsin, but not solely. I got interested in starting this because there were a number of questions that came about by some local consulting groups and by the Economic Advisors Roundtable, organized with state agencies and commerce groups, regarding the regional economy. There’s a whole wealth of literature to draw on nationally or internationally to tackle these problems, but not much on the state level. So, aside from research, we also have an outreach component to businesses, policymakers, and community groups around the state.
We also run a number of student research groups. At both the undergraduate and master’s levels, people start off by assisting on papers but ultimately we’ve had a number of papers co-authored with students in the past couple of years. If anyone is interested, they can reach out to me. We’ve also had activities where we bring speakers to campus, and that’s something we’re looking to continue as well.
In August, CROWE published a brief that found that in states which terminated their enhanced COVID unemployment benefits, there were positive effects on their labor market. Can you elaborate on your findings?
Yeah, so first a little background on the policy: The unemployment rate hit nearly 15% in April 2020 coming off record lows. As a policy response, Congress passed the CARES Act, and there were later variations that provided enhanced unemployment benefits. Unemployment benefits are a joint Federal and state program administered at the state level. A typical unemployment benefits program (in the absence of Federal interventions) provides six months of benefits and there’s a maximum you get in Wisconsin. On top of that, the Federal government provided an additional $600 per week, which continued through the fall. Later there was an extension which cut it to $300 that was extended again at the beginning of 2021. They also expanded the pool of people who could apply, including gig workers, part-time workers, and people with shorter work histories. So, alongside massive unemployment, we saw massive unemployment claims. With all social insurance programs, there’s a tradeoff between insurance and incentives. We want to provide insurance for people who were thrown out of work through no fault of their own. At the same time, we want to provide incentives for people to go back to work, understanding that all benefits provide somewhat of a disincentive. Then it’s just a question of how big that effect is and how do we balance the insurance versus incentives component. So with the $300 top-up, there were various calculations that found 40% of people who were unemployed earned more on unemployment than they did while they were working. So, at least for that class of people, it seems like these benefits provided a disincentive. Why go back to work if you’re earning more than you did on the job and you don’t have to pay taxes on it? You don’t have to commute, you don’t have to pay for childcare, and all these other side effects as well. The flip side is that these benefits were shorter duration. If you have a job offer out there, you may not want to leave that hanging to claim these benefits.
So, taking all of this into account, was there a measurable effect of these enhanced benefits on unemployment? I think the earliest programs terminated around June—about half of states opted out early. So, what I did in that brief was I just looked comparatively at those states which ended benefits to see whether there was a notable effect. Adjusting for state and regional differences, what I found was there was a significant—but I would stay modest—impact on employment in the states that did end their benefits early. The effect was larger where you would expect it to be: in the industries that were the lowest-paying and hardest-hit by the pandemic, particularly hotels and restaurants.
How would you describe the current state of the Wisconsin economy?
I like to think of where we were before the pandemic, where we’ve been, and where we are now. Late 2019, early 2020, we had record low unemployment rates. The number one complaint of businesses then was finding people to fill open jobs. That’s the current complaint again even though unemployment is higher now than it was. Wisconsin bounced back from the pandemic relatively rapidly in the fall of 2020, but really since the beginning of this year we’ve seen relatively slow growth. The unemployment rate has been basically flat since December 2020. I think the last month (September) there were net zero jobs created—I think there was actually a slight decline. Still, employment has bounced back, but we’re still below where we were during the pandemic. Generally, there’s a lot of focus on the labor market because of all the anomalies we’ve seen. If we look more broadly at the economy, output is above pre-pandemic levels. There are big distributional questions there, but on average, incomes are up substantially, some of that coming from Federal transfers but also increased wages. It’s really the labor market where we’re seeing a lot of difficulties.
What assumptions in your research did the pandemic test? How has it changed your thinking?
Oh, that’s a good question. Coming back to the labor market, people argue about how responsive people are to changes in wages and changes in benefits. I think that there’s been a more general consensus over the past decade in economics that some of these effects aren’t as large as we first thought. So, like I said, there was a modest impact of these unemployment benefit programs. It’s probably smaller in the data than I would’ve expected, ex-ante. Another economic outcome that surprised me was how rapidly people adapted. If you look at measures of consumption and retail spending, that had a very short dip but bounced back relatively quickly because people had many more margins of adjustment than we generally give them credit for. People went to the store less often, but when they did go to the store, they bought more. People move their purchases from in-store to online—that’s a huge change. They also change what they spent their money on, so instead of going out to restaurants, people bought things at home. So in the aggregate it doesn’t look big, but behind the scenes there’s a lot of variation.
How do you close the gap between policymakers and economists?
Overall, I think the gap has been narrowing over time in the sense that economic ideas seem to be circulated more rapidly and implemented faster than in the past. Maybe this is social media, maybe it’s the internet more broadly. Sometimes that’s good, sometimes the ideas aren’t fully worked out yet. There’s now a new infrastructure of various websites and publications which do a better job at translating some of the academic research into lay speak, like Vox. So I think the ideas are filtering out from the academy to the broader public much better. In monetary policy, the central bankers are becoming more academic. So a number of regional Fed Presidents are economics PhDs, whereas before many more of them had been drawn from the banking industry. It still seems like lawyers ended up in a lot of these top positions too, like Jerome Powell.
UW-Madison is one of the largest undergraduate producers of eventual economics PhDs in the country. Any advice for the many students here interested in pursuing further education in economics?
10 or 15 years ago, my advice would have been to take as much math as you can, particularly if you’re interested in a PhD. I think that’s still sound advice, but to be honest, that is less crucial than it used to be. I think there’s been a change in the profession more towards applied and empirical topics. So, I think developing a better sense of the world and what you want to study is equally important as learning the tools. It’s not just the technique, economics is about applying those to interesting real-world questions. Previously, I think people with a more real-world focus may have been dissuaded but I think we’re seeing that come back now.
What’s coming next in your research?
There’s one project that I’ve been working on for a while. Some of it is related to the Center (CROWE). Some of it is gonna have an applied side and some of it gonna have an academic side. Broadly, the academic side is looking at models of state-level economies and the impact of policy at the state level doing theoretical modeling but also counterfactuals. So, if we were to change tax policy in Wisconsin, how would that affect output, employment, consumption, and so on? We will have some work on that coming out relatively soon. We’re thinking of a policy proposal about changing the tax structure in Wisconsin. Wisconsin is a relatively high income tax, low sales tax state. So we want to look at what would happen if we change that around—lowering income taxes and making up some of the revenue with an increased sales tax.