Category: Equitablog

For American men, the black-white wage gap is at levels last seen in the 1950s

Posted on by Bridget Ansel
Workers assemble Volkswagen Passat sedans at the automaker’s plant in Chattanooga, Tenn.

The median earnings gap between black and white men now stands at levels last seen more than 60 years ago, according to a new working paper by Patrick Bayer of Duke University and Kerwin Kofi Charles of University of Chicago. The finding represents a reversal of years of progress, with wage disparities similar to what they were in 1950—four years before the Brown v. Board of Education ruling, 14 years before the passage of the Civil Rights Act, and a time when Jim Crow still dominated much of the country.

The paper tracks the earnings gap for black and white men ages 25 to 54 from 1940 through 2014. Previous research suggested this gap shrunk substantially through the 1970s, before stagnating since then. Clearly, a wage gap that hasn’t budged since the 1970s is disturbing. But previous literature missed a major piece of the equation: The rise in incarceration and a general decline in working class jobs over the past three decades that devastated blue collar careers and resulted in a growing group of men who aren’t working whatsoever.

By including all men in the analysis, not just those who are working, Bayer and Charles found that the black-white wage gap for men hasn’t simply stagnated since the 1970s, it has gotten worse—much worse. Black men are earning less and also are less likely to be employed compared to their white counterparts. At the height of the Great Recession, for example, 37.8 percent of black men were not working vs. 18.6 percent of white men (compared to 18 percent for black men in 1960 versus 8 percent for white men).

This reversal in progress isn’t due to differences in education levels. Black men today are much better educated than they were in 1950s. The rising level of education among black men was a significant driver of the initial narrowing of the racial wage gap in the 1950s and 1970s. While black men today have slightly less education than their white counterparts (about a year less), the discrepancy is much smaller than it was 70 years ago.

But in today’s economy, one’s level of education is more important than ever in determining whether you have a job, and whether that job is high quality. So even though the black-white gap in educational attainment today is narrow, any gap that exists matters much more for earnings. In fact, had black men not made such large gains in education, the earnings gap would have been even larger. Other research points out that factors such as the decline in unions, the failure to raise the minimum wage, and the failure to enforce anti-discrimination laws also played a role.

Bayer and Charles also find that there is growing inequality among black men themselves. While there has been a remarkable lack of progress and even a relapse in terms of closing the earnings gaps between middle- and lower-class black men, black men in the top quarter of the earnings distribution have made sizeable gains—and continue to see an increase in their earnings both in absolute terms as well as relative to their white male peers. The two researchers suggest that this could be due to more equal access to certain high-skilled occupations and universities.

Recent media attention has tended to focus on the plight of the white working class, whose financial security has been shattered over the past 30 years. There is no doubt that the experiences of the white working class should be a cause for concern, but we must acknowledge that the same economic forces affecting all working-class men—rising inequality, the decline of unions, the greater risk of unemployment, and the rise in incarceration—have been especially destructive for black men and have all but reversed years of progress.

Must-Read: Tony Judt (1994): The New Old Nationalism

Posted on by Brad DeLong

Must-Read: Tony Judt (1994): The New Old Nationalism: “Québecois today have few of the grievances expressed thirty years ago, when the region was economically depressed and its language and culture in decline…

…The educated francophone population is no longer so afraid of losing its children to an English-speaking world…. And yet nationalism in Quebec is a very real thing, drawing on past grievances that, as Ignatieff writes, “do not cease to be actual, just because they are in the past.” Everywhere he goes, at least within the nationalist orbit, people tell him the same thing: “We just want to be at home, with ourselves… a majority in our own place.” If that is what nationalism means in a French-speaking province of federal Canada, one of the world’s more fortunate places and with little to fear, then the prospects for nonterritorial, state-sharing, overlapping cultural nationalisms of a liberal (or any other) kind seem slim indeed. If the electors of the Italian Northern League don’t feel “at home in their own place” with Sicilians, what hope is there for Greeks and Macedonians, Slovaks and Hungarians, Estonians and Russians, Armenians and Azerbaijanis, Israelis and Palestinians?

In the words of Daniel Bell, “Nationalism is potent because it recapitulates psychologically the family structure. There is authority for protection and there is identification and warmth.” If this is so, then it is here to stay…. There is no reassuringly convergent relationship between international economic trends and domestic political practices. The liberal interlude of the past two centuries has been confined to a few fortunate peoples and places. That interlude, the world of the European Enlightenment, rested upon an optimistic universalism which bequeathed us both liberalism and socialism, competing versions of a progressive, emancipatory project. The demise of socialism is for many people a cause for optimism; but it is also a reminder that liberalism, too, may be mortal.

As Michael Ignatieff notes, it may be that liberal civilization “runs deeply against the human grain and is only achieved and sustained by the most unremitting struggle against human nature.” If that is true, and if nationalist particularism is the more familiar mold into which most human beings pour themselves, then we need to learn not only how to understand it but also when and by what criteria to encourage or curtail its aspirations. Some multinational states will continue to survive and thrive, their citizens finding security not in common ethnic affinities but in the rule of law and its recognition and enforcement of individual rights and duties. This will probably be the case for Great Britain, Switzerland, Spain, Belgium, and others besides. However, these may not be readily exportable models….

The one option that scholars and diplomats alike do not now have is to ignore the problem of nationalism, or call it something else and pass by on the other side. For many people today, nationalism tells the most convincing story about their condition—more realistic than socialism, more immediately reassuring than liberalism. One reason for this is that nationalists acknowledge, indeed thrive upon, the apparent incompatibility of competing claims and values…. The unequal and conflicted division of the world into nations and peoples is not about to wither and shrivel or be overcome by goodwill or progress. The revolutions of 1789 and 1917 were born of the benevolent illusion that such untidy and unpleasing features of our world are transient and of secondary importance in the great scheme of things. The revolutions of 1989 and their aftermath offer a timely opportunity to think again.

Should-Read: Miriam Burstein: Two Cheers for Academic Blogging?

Posted on by Brad DeLong

Should-Read: Miriam Burstein: Two Cheers for Academic Blogging?: “The most important changes, it seems to me, have taken place outside individual university folds, not within…

…Blogging has helped some academics loosen up their clogged prose… facilitated networking… promoted public outreach…. The flip side of such popular appeal, of course, is that it may bring the university what we might politely call “unwanted attention,” from all political sides…. Institutions do love their publicity, except when they find it inconvenient, at which point they don’t…. Research universities… have not shown much in the way of similar fondness for anything that carries the faintest whiff of “the popular.”… Teaching-centered campuses… want to know [where] is… the guardian at the academic gate?…

European Fiscal Policy: And All Does Not Go Merry as a Marriage Bell

Posted on by Brad DeLong

I find myself thinking of Ludger Schuknecht’s very powerful and apposite comments about just what, even if you believe–as I do–that there are substantial spillovers for Germany and for the world for Germany to use its fiscal space for expansionary policies right now, it is supposed to use its fiscal space for…

The fiscal space is in Germany. The infrastructure needs are in Sicily. This is in the end the political and also the political-economic dealbreaker. It does speak to necessary reforms of the European Union so that things like this do not happen again.

I remember Maury Obstfeld saying once that at the start of the 1990s California and New York had no problem using the United States’s fiscal space to transfer 25% of a year’s Texas GDP to Texas to clean up the Savings and Loan financial crisis mess. This just was not an issue in American politics or political economy. Texas had bet wrongly on the real estate sector via lax regulation–both at the federal and state level–and financial engineering. It was regarded as a proper use of America’s fiscal space to spend money on this and pull Texas out of what was a shallow national but would have been a very deep regional recession.

The fact that the Chair of the Senate Finance Committee at the time was from Texas may, however, have had something to do with it.

The American institutions then were, somehow, a better set of institutions for dealing with this kind of crisis. That there was an alignment of interests, and that the prosperity of each would redound to the prosperity of all in the long even if not always in the short run was taken for granted.

In fact, perhaps, Europe’s institutions today are inferior along some aspects of this dimension than Europe’s institutions in the past. Back in 1200, say, the question of how Germany should use its fiscal space, if in fact the desired location of spending was in Sicily, was finessed. A Germany Hohenstaufen princeling would be married to a Viking-Sicilian princess, and she would then bring Sicily along with her into the Holy Roman Empire as her dowry, and Germany–at least Germany’s rulers–would have an obvious interest in upgrading Sicily’s infrastructure.

Admittedly, the German Emperor might then decide that he would rather spend time in his palace in Palermo than in Burg Hohenstaufen twenty miles east of Stuttgart.

Somehow, national borders and national communities constrain us in Europe in ways that are not the wisest today…

Fiscal Policy in the New Normal: IMF Panel

Weekend reading: “Distributional national accounts and declining mobility” edition

Posted on by Nick Bunker

This is a weekly post we publish on Fridays with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth published this week and the second is the work we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.

Equitable Growth round-up

Did minimum wage increases during the Great Recession reduce employment for low-wage workers? A new paper by Ben Zipperer at the Economic Policy Institute argues that they did not and previous studies looking at this question have a flawed research design.

Economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman released new groundbreaking data on income trends in the United States. This new dataset, the Distributional National Accounts, allows researchers to look at trends in both pre-tax and post-tax incomes.

Heather Boushey argues that the Distributional National Accounts could do for our understanding of economic growth in the 21st century what the National Income and Product Accounts—the source of GDP—did for the 20th century.

The U.S. labor market is on its way toward full employment. But how close is it? A look at new data on quitting, job openings, and hiring gives some more information on how much stronger the labor market can get.

New research by a team of researchers from Stanford University, Harvard University, and the University of California-Berkeley shows a precipitous decline in U.S. income mobility. The authors summarize their results for Equitable Growth.

This research also shows something interesting about the relationship between U.S. absolute and relative mobility. Income growth was so strong and broad-based from 1940 to 1970 that the amount of relative mobility didn’t matter: Absolute mobility was going to be very high.

Links from around the web

The loss of manufacturing jobs became a central part of U.S. politics over the past year and even more so after the presidential election. How much of the job loss can be attributed to more foreign competition? Matt Klein works out an estimate of about half of all lost jobs scine 1990. [ft alphaville]

In 2011, Wisconsin enacted a law that reduced the bargaining power of public sector unions. What was the result? According to a new study, an 8 percent drop in compensation for public school teachers. Alana Semuels writes up the impact of declining union power on wages. [the atlantic]

The sectors that increasingly provide jobs in the U.S. labor market are in the service sector and are traditionally dominated by women. Betsey Stevenson argues that men need to be more willing to take “girly” jobs. [bloomberg view]

How much would it cost to boost the incomes of low-income American families directly so that they had shared in economic growth since 1979? Neil Irwin asked some budget experts and they came up with a price: $1 trillion over 10 years. [the upshot]

Martin Sandbu makes the optimistic case for policy to boost economic growth in the short term, pointing to business investment, fiscal policy, and potential increases in labor supply. [free lunch]

Friday figure

Figure from “How tight is the U.S. labor market? And how tight do we want it?” by Nick Bunker

Must-Read: Tony Yates: The Perceived-Grievance-Wrong-Headed Sop Vortex

Posted on by Brad DeLong

Must-Read: Tony Yates: The Perceived-Grievance-Wrong-Headed Sop Vortex: “A desire to respond to the perceived grievances of those who voted to give incumbent governments a kick…

…But in so far as these grievances are not genuine, responding to them in ways that harm everyone and don’t address the economy’s underlying problems sets us all up for a vortex of ever diminishing prosperity and more spiteful policies and politics…. The UK is embarked on Brexit, voted for by the older, less educated, less skilled… likely to pitch us into a protracted period of weak growth or recession to which we are ill-placed to respond. Both… will be disproportionately felt by those at the bottom of the pile whose Brexit vote got us here… will not benefit those who voted for Brexit, except in their imaginations. In fact the process of reallocation may well, if past such experiences are to be repeated, hit hardest those who are oldest, and have least time or aptitude to retrain, or are least able to relocate….

Several risks…. The policy response shrinks the aggregate… pie… does not help the aggrieved constituency.  In the next round, the wounded group takes aim at a new component of the status quo, dismantling our wealth creating machine even further. Another risk is that responding legitimises unfounded prejudice…. Yet another risk of the unfounded-sop response to the perceived grievance is that it rewards dishonest political opportunism….

Is there a way out of this?… Our state capacity should focus on the real problems: improving its insurance functions… redistributing to the young… addressing the housing and planning problem… doubling down on the functions where there is a comparative advantage and need, like health and education… [recognize] that migration, whatever focus groups and opinion polls say, is almost entirely beneficial…

Should-Read: Roberto Bonfatti and Kevin Hjortshøj O’Rourke: Growth, Import Dependence and War

Posted on by Brad DeLong

Should-Read: Roberto Bonfatti and Kevin Hjortshøj O’Rourke: Growth, Import Dependence and War: “Existing theories of pre-emptive war typically predict that the leading country may choose to launch a war on a follower who is catching up…

…since the follower cannot credibly commit to not use their increased power in the future. But it was Japan who launched a war against the West in 1941, not the West that pre-emptively attacked Japan. Similarly, many have argued that trade makes war less likely, yet World War I erupted at a time of unprecedented globalization. This paper develops a theoretical model of the relationship between trade and war which can help to explain both these observations. Dependence on strategic imports can lead follower nations to launch pre-emptive wars when they are potentially subject to blockade.

The importance of equitable growth to absolute mobility in the United States

Posted on by Bridget Ansel
Earning more than your parents is far less likely today than it was half a century ago.

A new study released today by several researchers, led by Raj Chetty of Stanford University reveals a large and significant decline in economic mobility in the United States. The paper shows a precipitous decline in the probability that a person will earn more than their parents, what researchers call “absolute mobility.” Specifically, Chetty and his coauthors look at income levels when a worker is 30 years old, for both parents and children. (For more details on the paper, check out the authors’ summary for Equitable Growth as well as a piece on the new paper from David Leonhardt at the New York Times.)

The paper by Chetty and his co-authors has many interesting findings that researchers and policymakers will certainly dig into. For now, let’s examine the role of relative mobility—the movement up and down the income distribution—in determining absolute mobility. The results of the paper shows a path toward boosting mobility that points toward stronger, more equitable economic growth

One way to think about absolute mobility is that depends on two trends. First, how quickly has income grown at different points in the income distribution for those 30-year-olds from when their parents were 30? Second, how likely it is for the younger generation to be at a point in the income spectrum that is different than their parents? We call the second “relative mobility” because a child could move up or down the income spectrum relative to their parents, but still earn more or less than their parents. We can think absolute mobility is a function of relative mobility, the strength of income growth, and the distribution of income growth.

Whether absolute mobility is higher or lower depends on where the child ends up and how income growth has been at that position. When there is a low level of relative mobility, a child’s absolute mobility is essentially tied to the rate of income growth at their parent’s income level. When there is more relative mobility, it’s less tied.

Previously, Chetty and his co-authors in another project did the work of figuring out the trends in relative mobility for the United States going back to children born in the early 1970s. What they found is that relative mobility hasn’t changed that much—that a parent’s income position has the same relationships with their children’s as it did 40 years ago. With this information in hand, the authors of this new paper can directly calculate absolute mobility for groups of children born after the early 1970s. They find that it’s been on the decline since that time.

But it’s the data before the 1970s where their story gets even more interesting. The researchers have data on income growth going back to the cohort born in 1940, but no data on relative mobility for that era. Any calculation of absolute mobility would have to make assumptions about the levels of relative mobility during the years between 1940 and 1970.

Yet Chetty and his coauthors show that regardless of the assumption one makes about relative mobility during this time, absolute mobility fell. They calculate what absolute mobility would have been for children born in 1940 for every possible level of relative mobility. The result is that absolute mobility would have ranged from 84 percent to 98 percent, depending upon the level of absolute mobility. Regardless of the level of relative mobility, the average worker had at least an 84 percent chance of earning more than their parents. That entire range is well above the level of observed average absolute mobility for the generation born in the early 1970s of about 60 percent.

Why does relative mobility not seem to matter for the trend in absolute mobility for the generation born in the 1940s? Well, the level of income growth was so high and broadly shared during the period between 1940 to 1970 that almost all positions on the income distribution of 1970s were richer than those in the 1940 distribution. A worker could stay at, for example, the 20th percentile of income like their father and still see absolute mobility rise because overall income growth in the United States was so strong and equitable.

A worker born in the 1940s could end up pretty much anywhere in the 1970 income distribution as a 30-year-old and have a very good chance of having a higher income than their parents. Strong, equitable growth resulted in high levels of mobility regardless of the levels of relative mobility. These results indicate that while higher levels of relative mobility may be a good thing in and of itself, it’s not necessary for higher levels of absolute mobility. If we want to insure rising living standards for most Americans, strong and equitable growth across the income distribution seems the best path forward.

The fading American dream: trends in absolute income mobility since 1940

Posted on by Bridget Ansel
Zenobia Bechtol and her seven-month-old baby girl live in the dining room of her mother’s apartment in Austin, Texas, after Bechtol and her boyfriend were evicted from their apartment following the loss of his job.

One of the defining features of the “American Dream” is the ideal that children have a higher standard of living than their parents. We assess whether the United States is living up to this ideal by estimating rates of “absolute income mobility,” or the fraction of children who earn more than their parents, since 1940.

We measure absolute mobility by comparing children’s household incomes at age 30 (adjusted for inflation using the U.S. Consumer Price Index) with their parents’ household incomes at age 30. We find that rates of absolute mobility have fallen from approximately 90 percent for children born in 1940 to 50 percent for children born in the 1980s. Absolute income mobility has fallen across the entire income distribution, with the largest declines for families in the middle class. (See Figure 1.) These findings are unaffected by using alternative price indices to adjust for inflation, accounting for taxes and transfers, measuring income at later ages, and adjusting for changes in household size.

Figure 1

Absolute mobility fell in all 50 states although the rate of decline varied, with the largest declines concentrated in states in the eastern Midwest, such as Michigan and Illinois. The decline in absolute mobility is especially steep—from 95 percent for children born in 1940 to 41 percent for children born in 1984—when we compare sons’ earnings to their fathers’.

Why have rates of upward income mobility fallen so sharply over the past half century? There have been two important trends that have affected the incomes of children born in the 1980s relative to those born in the 1940s and 1950s: lower Gross Domestic Product growth rates and greater inequality in the distribution of growth. We find that most of the decline in absolute mobility is driven by the more unequal distribution of economic growth rather than the slowdown in aggregate growth rates.

When we simulate an economy that restores GDP growth to the levels experienced in the 1940s and 1950s but distributes that growth across income groups as it is distributed today, absolute mobility only increases to 62 percent. In contrast, maintaining GDP at its current level but distributing it more broadly across income groups at it was distributed for children born in the 1940s – would increase absolute mobility to 80 percent, thereby reversing more than two-thirds of the decline in absolute mobility.

These findings show that higher growth rates alone are insufficient to restore absolute mobility to the levels experienced in mid-century America. Under the current distribution of GDP, we would need real GDP growth rates (after accounting for inflation) above 6 percent per year to return to rates of absolute mobility in the 1940s. Intuitively, because a large fraction of GDP goes to a small fraction of high-income households today, higher GDP growth does not substantially increase the number of children who earn more than their parents. Of course, this does not mean that GDP growth does not matter: Changing the distribution of growth naturally has smaller effects on absolute mobility when there is very little growth to be distributed. The key point is that increasing absolute mobility substantially would require more broad-based economic growth.

We conclude that absolute mobility has declined sharply in the United States over the past half century primarily because of the growth in inequality. If one wants to revive the “American Dream” of high rates of absolute mobility, one must have an interest in growth that is shared more broadly across the income distribution.

—Raj Chetty is an economics professor at Stanford University. David Grusky is a sociology professor at Stanford University. Maximilian Hell is a Ph.D. student in sociology at Stanford University. Nathaniel Hendren is an assistant professor of economics at Harvard University. Robert Manduca is a Ph.D. student in sociology and social policy at Harvard University. Jimmy Narang is a Ph.D. student in economics at the University of California-Berkeley.

This column is a summary of the authors’ findings in their working paper originally published here.