Janet Yellen and the “building blocks” of opportunity

Janet Yellen, the chair of the Federal Reserve, spoke at a conference earlier today hosted by the Federal Reserve Bank of Boston on the topic of economic opportunity in the United States. Yellen centered her speech on various “building blocks” of opportunity she believes are important, then highlighted some ways that economic inequality interacts with those opportunities.

Anyone interested in learning about Yellen’s views on inflation or labor markets will be disappointed. Yet Yellen’s speech drew immediate attention precisely because it didn’t touch on the usual macroeconomic topics that previous chairs of the Federal Reserve often talked about. The one exception—Ben Bernanke, her predecessor, gave a speech on economic inequality over seven years ago.

Yellen’s speech today was more expansive because of its focus on opportunity. She lists four building blocks of opportunity that she says are important for boosting opportunities for U.S. workers. The first two (and the more important of the four) are related to education and skill development—resources for children and affordable higher education. We often hear about these factors when it comes to differences in opportunity. Children from wealthier families have more access to resources in life and are more likely to receive higher education.

But Yellen’s two other pillars are not commonly talked about. One of these is business ownership. Unsurprisingly, owning a business is a feat that only a few Americans will ever achieve. Only 3 percent of households in the bottom 50 percent of wealth-holders have any ownership stake in a private company. But owning a business, she noted, can lead to significant opportunity and increased wealth.

Unfortunately, the rate at which Americans are creating new businesses is on the decline, according to research by economists Ryan Decker, John Haltiwanger, Ron Jarmin, and Javier Miranda. And according the Survey of Consumer Finances, the share of Americans between the 50^th and 95^th wealth percentiles who own a business is at a 25-year low. If Americans are less likely to start businesses then a source of opportunity for them and their potential employees is disappearing.

Yellen also argues that inheritance—her final pillar of success—can be a source of opportunity. We often think about inheritance as a way for the rich to perpetuate their wealth across generations. That characterization is at the heart of Thomas Piketty’s “Capital in the 21^st Century.” But Yellen argues that inheritances can be a great source of opportunity for the broader public. To quote her:

“The average age for receiving an inheritance is 40, when many parents are trying to save for and secure the opportunities of higher education for their children, move up to a larger home or one in a better neighborhood, launch a business, switch careers, or perhaps relocate to seek more opportunity.”

Given the low rate of growth in wealth for average Americans, inheritances can help boost opportunity for a broad swath of the population.

The Boston Fed conference will continue for the rest of today and end tomorrow as researchers discuss the various ways that opportunity and inequality have changed and interacted in the U.S. economy over the years. And as Yellen concluded her speech, many of those factors are not totally understood. We know a lot about the intersection of inequality and opportunity, but we could and need to know more.