Category: Equitablog

Worthy reads from Equitable Growth:

1. Equitable Growth earlier this week convened an event, “Racial and Gender Wage Gaps: Overcoming Structural Barriers to Shared Growth,” that was very much worth attending. In case you missed it, you can find some highlights here. The event featured “a conversation on wage gaps for women and people of color, and what we can do about it. Wage stagnation and falling economic mobility are endemic economic problems in the United States. Their effects fall most severely on communities of color and women, who also face large wage gaps compared with white men. Key to solving wage stagnation and overall income inequality is a recognition that deeply ingrained structural forces keep many Americans from sharing in economic prosperity. This event will feature research and discussion from policy experts on the wage gaps in U.S. society.”
2. Equitable Growth Executive Director Heather Boushey had a “fun chat” on Monday with David Beckworth about their work together on a new book, Recession Ready: Fiscal Policies to Stabilize the American Economy.
3. Boushey also appeared in this piece by PBS Newshour, “Amid Long Economic Expansion, Why so Many Americans Are Still Struggling,” in which she explained: “We need to understand and do more to address the ways that inequality obstructs, subverts, and distorts the processes that lead to growth …. Reams of … evidence … that investments in early childhood are some of the most important … We’re not making the investments that our economic competitors are in early childhood … We’re not making those investments because we haven’t created the tax revenue to do that.”
4. It was the philosopher Santayana who wrote that those who do not remember history are condemned to repeat it. Unfortunately, the rest of us are condemned to repeat it alongside them. Thus, it is very, very important that we stamp out those who do not remember history. How? By educating them. The piece of history we need to remember as we approach the next recession, whenever it starts, is that there never was any evidence that austerity is good or necessary during the bust. Read my “Risks of Debt: The Real Flaw in Reinhart-Rogoff,” in which I write: “Economists … don’t watch just quantities … but prices. And the prices of government debt are the rate of inflation, the nominal interest rate, and the level of the stock market as people trade bonds for commodities, bonds for cash, and bonds for stocks. And all three of these prices are flashing green: saying that markets would prefer and it would be better for the economy if government debt were growing at a faster pace than under current forecasts … The principal mistake Reinhart and Rogoff committed in their analysis and paper—indeed, the only significant mistake in the paper itself—was their use of the word ‘threshold.’”

Worthy reads not from Equitable Growth:

1. Central banks may remain independent if they manage economies in a way that produces a modicum of stability and prosperity. If they fail to do so—if their management produces instability and poverty—I can guarantee you that they will not remain independent. Read Barry Eichengreen, “Unconventional Thinking about Unconventional Monetary Policies,” in which he writes: “Defenders of central-bank independence argue that quantitative easing should have been avoided last time and is best avoided in the future because it opens the door to political interference with the conduct of monetary policy. But political interference is even likelier if central banks shun QE in the next recession.”
2. From the past, and worth highlighting. Why? Because when the next recession comes, the usual suspects will, once again, start claiming that they should not do anything to shorten or cushion it. And the usual suspects will, once again, be wrong. Read Paul Krugman’s 2008 piece, “Hangover Theorists,” in which he writes: “Somehow I missed this: via Steve Levitt, John Cochrane explaining that recessions are ‘good’ for you … The basic idea is that a recession, even a depression, is somehow a necessary thing, part of the process of ‘adapting the structure of production.’ We have to get those people who were pounding nails in Nevada into other places and occupations, which is why unemployment has to be high in the housing bubble states for a while. The trouble … is twofold: 1. It doesn’t explain why there isn’t mass unemployment when bubbles are growing as well as shrinking—why didn’t we need high unemployment elsewhere to get those people into the nail-pounding-in-Nevada business? 2. It doesn’t explain why recessions reduce unemployment across the board, not just in industries that were bloated by a bubble … The current slump is affecting some non-housing-bubble states as or more severely as the epicenters of the bubble … Unemployment is up everywhere. And while the centers of the bubble, Florida and California, are high in the rankings, so are Georgia, Alabama, and the Carolinas. So the liquidationists are still with us. According to Brad DeLong, ‘Milton Friedman would recall that at the Chicago where he went to graduate school such dangerous nonsense was not taught…’ But now, apparently, it is.”
3. Why does our economic system work as well as it does, and why is it as intelligent as it is? This is a deep question in need of much more thought. Michael Jordan thinks it noteworthy that the human brain is not the only system that looks capable of “intelligent behavior.” I wonder if the things that have made our economy appear intelligent in the past may disappear in the future. Read Jordan’s “Dr. AI or: How I Learned to Stop Worrying and Love Economics,” in which he writes: “I view the scientific study of the brain as one of the grandest challenges that science has ever undertaken, and the accompanying engineering discipline of ‘human-imitative AI’ as equally grand and worthy … [But] what else is intelligent on Earth? Perhaps the Martians will notice that in any given city on Earth, most every restaurant has at hand every ingredient it needs for every dish that it offers, day in and day out. They may also realize that, as in the case of neurons and brains, the essential ingredients underlying this capability are local decisions being made by small entities that each possess only a small sliver of the information being processed by the overall system … This system is intelligent by any reasonable definition—it is adaptive (it works rain or shine), it is robust, it works at small scale and large scale, and it has been working for thousands of years … The Martians may be happy to conceive of this system as an ‘entity’—just as much as a collection of neurons is an ‘entity.’ Am I arguing that we should simply bring in microeconomics in place of computer science? And praise markets as the way forward for AI? No, I am instead arguing that we should bring microeconomics in as a first-class citizen into the blend of computer science and statistics that is currently being called ‘AI.’ This blend was hinted at in my discussion piece; let me now elaborate.”

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

In a new addition to our In-Conversation series, Economist Kate Bahn and Director of Markets and Competition Policy Michael Kades discuss market concentration and wage stagnation with economist Ioana Marinescu and law professor Herbert Hovenkamp of the University of Pennsylvania. In addition to reviewing recent research documenting how anticompetitive mergers exacerbate monopsony and drive down workers’ wages, they explain the role for antitrust law and policy to reverse this trend. The researchers conclude with suggestions for further research in the law and economics of labor market competition.

In his weekly worthy reads column, economist Brad Delong highlights recent publications by researchers at Equitable Growth and in our network along with other writing on macroeconomics. In particular, he discusses the recent report by Senior Director for Family Economic Security Elisabeth Jacobs and Senior Policy Advisor Liz Hipple detailing the substantial headwinds faced by many Americans seeking upward mobility throughout their childhoods and professional careers. Brad also points out Matt O’Brien’s article citing Equitable Growth grantee and University of California, Berkeley economist Gabriel Zucman’s extensive work on the use of tax havens by multinational corporations and the ultra-rich.

Links from around the web

In The Washington Post, Andrew Van Dam discusses further evidence that upward mobility is stagnant in the United States even for the most high-performing students from low-income families. Van Dam summarizes the findings of two recent genetic and economic studies demonstrating that genetic endowments associated with academic achievement are equally distributed across the income spectrum, but labor market success is concentrated at the top. Indeed, the evidence shows that the least gifted students from high-income families are more likely to graduate from college than the most gifted students from low-income families.

Brendan Greely of the Financial Times dives into another aspect of the mobility divide: social capital. Using frequent Equitable Growth guest authors and economists Raj Chetty, Nathaniel Hendren, and John Friedman’s recently published Opportunity Atlas as a starting point, Greely explains why relationships and communities are more important than the mere availability of jobs in determining economic mobility. Beyond enhancing a neighborhood’s services and amenities such as public schools, growing up in proximity to people with a diversity of highly paid jobs provides children with role models and connections to higher quality jobs and more numerous economic opportunities.

Noah Smith at Bloomberg takes up the individual and corporate tax cuts implemented in 2017 as another case study in the negligible effects of tax cuts on growth and wages. In addition to citing several studies testing this relationship, he contends that the minimal growth effects of tax cuts for the richest taxpayers will only decrease further in the United States as individual rates, which were already among the lowest in the developed world, reach new lows. Finally, Smith leverages several datasets to argue that the corporate tax cuts had virtually no effect on wages and other compensation for most workers.

Maureen Callahan at the New York Post points out that Amazon.com Inc.’s recent staff compensation decisions provide evidence of the firm’s growing market (and monopsony) power. While focusing on Amazon’s rapid expansion in a variety of markets in the past decade, Callahan considers the roles of a variety of prominent technology companies in driving market concentration. Callahan concludes with a quote from NYU business professor Scott Galloway positing that innovation in the workplace of the future will require the existence of truly competitive markets.

Friday Figure

Figure is from Equitable Growth’s, “Are today’s inequalities limiting tomorrow’s opportunities?”

Worthy reads from Equitable Growth:

1. One thing making me hopeful for our future is that as our technological powers and capabilities grow, our ideas of what people need to be fully included members of society also grow to keep pace. Just think of how high-speed computer access is becoming something that it is obvious that all Americans—and especially all American children—very much need to have. The fact that we (or some of us, at least) think that the failure to make sure this is provided is a “gap” is something I—at least, in historical perspective—find very heartening. Read Delaney Crampton, “Why Accessibility To High-Quality Broadband Matters To U.S. Schoolchildren,” in which he writes: “Nearly 5 million households with school-aged children in the United States lack high-quality broadband access at home … 31.4 percent of households earning an annual income lower than $50,000 with school-aged children … 40 percent of those with annual incomes lower than $25,000.”
2. Heather Boushey said wise things about distributional national accounts before the U.S. Congress’ Joint Economic Committee: Read her “Testimony Before the Joint Economic Committee,” in which she says: “The U.S. Bureau of Economic Analysis releases a new estimate of quarterly or annual GDP growth every month. Distributional national accounts would add to this release an estimate that disaggregates the topline number and tells us what growth was experienced by low-, middle-, and high-income Americans. Academics have already constructed such a measure. The so-called DINA dataset constructed by economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman…”
3. I was tremendously disappointed to find myself trapped in Berkeley, California, and so I missed Ellora Derenoncourt, David Grusky, Trevon Logan, and Kimberly Adams at Equitable Growth’s “Research on Tap: Economic mobility—The Impact of Race and Place,” where they discussed how “place-based disparities and structural barriers based on race shape economic outcomes.”
4. This may well be the most interesting working paper we released last month. Read Daniel Schneider and Kristen Harknett’s “Consequences of Routine Work Schedule Instability for Worker Health and Wellbeing,” in which they write: “Wages certainly matter for outcomes like sleep and happiness, but schedules in our data matter much more … Research has overwhelmingly focused on the economic dimension of precarity, epitomized by low and stagnant wages. But the rise in precarious work has also involved a major shift in the temporal dimension of work such that many workers now experience routine instability in their work schedules.”

Worthy reads not from Equitable Growth:
 

1. One might, naively, think that the economies of scale that companies such as Walmart Inc. possess should redound to the benefit of workers, as well as consumers. More efficiencies from economies of scale should leave a bigger pie for everyone else, which would be shared, right? Apparently not. When a business earns more by selling to large buyers, its workers’ wages appear not to go up, but to go down. Something to watch very closely. The Wall Street Journal’s Sharon Nunn sends us to a report by Nathan Wilmers in her “Big Businesses Push Down Prices, and Perhaps Wages,” in which she notes: “As large firms … command increasing market share in the retail industry, they narrow the field of buyers for companies that make and move consumer products.” She then references Wilmers’ report, which “found that since the late 1970s … a 10 percent increase in [corporate] earnings that depend on larger buyers is associated with a 1.2 percent decline in wage growth.”
2. Hal Varian writes in “Bots vs. Tots” that the “U.S. labor market is already beginning to tighten. Expect a tight labor market for the next 15-25 years. Retirees continue to consume. Robots don’t consume. Labor supply is growing more slowly than labor demand. Old intuitions no longer helpful.”
3. Read Bradley L. Hardy, Trevon D. Logan, and John Parman’s “The Historical Role of Race and Policy for Regional Inequality,” in which they write: “Contemporary racial inequality can be thought of as the product of a long historical process with at least two reinforcing sets of policies: First are the policies governing the spatial distribution of the black population, and second are the policies that had a disparate impact on black individuals because of their locations.”
4. Very clever article by Benjamin Born, Gernot Müller, Moritz Schularick, and Petr Sedláček, “£350 Million a Week: The Output Cost of the Brexit Vote,” and this certainly looks right: 2 percent of GDP as the (ongoing) cost of the Boris Johnson Brexit clown show. The four authors write: “The current cost of Brexit … counterfactual … a matching algorithm … combination of comparison economies best resembles the pre-referendum growth path of the UK economy … The negative drag from the Brexit vote now appears to be roughly £350 million a week.”

Worthy reads from Equitable Growth:

1. This may well be the most important paper we publish this year: Suresh Naidu, Eric A. Posner, and E. Glen Weyl, “Antitrust Remedies for Labor Market Power,” in which the authors examine how “labor market power has contributed to wage inequality and economic stagnation.”
2. Kate Bahn puts her finger on something that has long, long bothered me about the labor market literature on inequality. She writes that “good jobs” are jobs that are well-paid, “respected occupations” are occupations that lead to good jobs, and that the “intrinsic” characteristics of the work have very little to do with whether a job is well-paid or not, and thus has little to do with whether it is a “good job” or not. Check out Kate @lipstickecon.
3. Equitable Growth Research Advisory Board member Arindrajit Dube and friends have a pick-up discussion on how to characterize the impact of employer monopsony power. Dube kicks it off with: “I think growing evidence suggests “laissez faire” equilibrium is monopsonistic. So shocks like de-unionization, outsourcing and eroding wage norms can push down pay  in ways hard to understand with competitive lab mkts. But the shock may not be increased concentration itself.”
4. Equitable Growth Research Advisory Board member Lisa D. Cook is worried that the quantity of Big Data cannot compensate for its low quality. Statistics gives us lots of power with representative random samples. Nothing can give us power without the tools to do what representativeness does. She writes: “Without taking data quality into account, population inferences with Big Data are subject to a Big Data Paradox.”

Worthy reads not from Equitable Growth:

1. Laura Tyson and Lenny Mendonca in their “Universal Basic Income or Universal Living Wage?” write that “the challenge for the future of work is not really about the quantity of jobs, but their quality, and whether they pay enough to provide a decent standard of living … A universal basic income (UBI) would be both regressive and prohibitively expensive. Yet the idea continues to attract a motley crew.”
2. Rob Johnson and George Soros in “A Better Bailout Was Possible,” argue that “a critical opportunity was missed when the burden of post-crisis adjustment was tilted heavily in favor of creditors relative to debtors …. When President Barack Obama’s administration arrived, one of us (Soros) repeatedly appealed to Summers … [for] equity injection into fragile financial institutions and … writ[ing] down mortgages to a realistic market value … Summers objected that … such a policy reeked of socialism and America is not a socialist country.”
3. I highlighted this two years ago. I am highlighting it again as I think it has not received the attention it deserves. Read Ernest Liu, “Industrial Policies in Production Networks,” in which he asks: “Many developing countries adopt industrial policies favoring selected sectors. Is there an economic logic to this type of interventions?”
4. Paul Krugman writes in “What Do We Actually Know About the Economy?” that “among macroeconomists, the self-criticism seems to me to be mainly too narrow: people berate themselves for, say, not giving financial markets a bigger role in their models, but few have done what they should, which is to question the whole direction macroeconomics has gone these past four decades or so.”
5. Silvia Merler writes in “Economy of Intangibles” that “over the past 20 years, there has been a steady rise in the importance of intangible investments … Intangibles share four economic features: scalability, sunkenness, spillovers, and synergies. Haskel and Westlake argue that—taken together—these measurements and economic properties might help us understand secular stagnation.”
6. Lawrence Mishel in “Further Evidence That the Tax Cuts Have Not Led to Widespread Bonuses, Wage or Compensation Growth” writes that “following the bill’s passage, a number of corporations made conveniently-timed announcements that their workers would be getting raises or bonuses … Newly released Bureau of Labor Statistics’ Employer Costs for Employee Compensation data allow us to examine nonproduction bonuses in the first two quarters of 2018.”

Equitable Growth round-up

Equitable Growth this week released a new factsheet breaking down how gross GDP statistics obscure other metrics that better track the ways growth affects Americans’ standards of living up and down the income ladder. In addition to recommending that a distributional component be incorporated into the National Income and Product Accounts collected by the federal government, this factsheet assembles Equitable Growth’s various research products on “disaggregating growth,” including Heather Boushey and Austin Clemens’ recent report on the topic.

Kate Bahn wrote a column this week reflecting on the recent Freedom & Justice Conference jointly hosted by the National Economic Association and the American Society of Hispanic Economists at Salish Kootenai College. The conference elevated contemporary research on economic challenges and opportunities facing Native American communities. In addition to reviewing several recent research papers in this field, Kate concludes with recommendations for policymakers for improving economic data collection on Native American communities.

In his weekly “worthy reads” column, Brad Delong highlights the work of our new wages lead economist Kate Bahn as well as a blog on U.S. wage growth by Equitable Growth alumnus Nick Bunker. Brad also summarizes recent research papers in macroeconomics, including work on optimal taxation by University of California, Berkeley economist and Equitable Growth steering committee member Emmanuel Saez and Harvard University economist and Equitable Growth grantee Stefanie Stantcheva as well as papers on tax evasion by UC-Berkeley economist and frequent Equitable Growth guest author Gabriel Zucman.

Capping off the week, we launched “Competitive Edge,” our new blog focused on antitrust enforcement, with Yale University economist Fiona Scott Morton’s inaugural post. In addition to introducing the aims of this new initiative, Professor Scott Morton discusses some of the avenues for reinvigorated antitrust enforcement, grounded in economic theory and legal precedent, that were highlighted by a recent volume of The Yale Law Journal. This volume brought together papers by top antitrust scholars from a conference last fall co-hosted by Equitable Growth and the American University Washington College of Law.

Links from around the web

Reflecting on the current state of the job market, Patricia Cohen points out that wages remain stagnant despite soaring corporate profits and almost eight years of consistent job growth. As this state of affairs stands in contrast to the heightened wage pressure typically expected from low unemployment numbers, Equitable Growth’s researchers have emphasized the role of monopsony—the labor market condition in which a small number of employers boast disproportionate power to set low wages without having to compete for workers. [nyt]

Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, delves into other causes of persistent wage stagnation. In particular, Bernstein points to inflation risks from a potential trade war, interest rate risks from the Federal Reserve’s expected monetary policy, and legal and policy decisions driving declining worker power vis-à-vis employers. [nyt]

Chandra Bozelko and Ryan Lo illustrate another widespread problem created by skewed power within labor markets: employment discrimination, in this case against formerly incarcerated workers. Despite evidence that ex-offenders are no more likely to be fired than other workers and that these workers are in many cases more productive than other workers, this population of Americans has an unemployment rate of 27 percent—higher than the total U.S. unemployment rate during the Great Recession—largely due to pervasive stereotypes among employers. [nbc news]

Unfounded sex stereotypes also persist in the contemporary U.S. labor market with negative consequences for women’s wages—consequences that in one case were challenged in court with facts and data. Tyler Pager details how nurses in New York state received a $20.8 million settlement after filing a lawsuit against the state for its exclusion of nurses from its male-dominated list of physically taxing jobs entitled to a wage premium. This case is consistent with Equitable Growth research demonstrating that wage penalties for female-dominated occupations are widespread and without basis in objective productivity levels. [nyt]

Claire Cain Miller summarizes recent research verifying that sex stereotypes persist in the home as well. Indeed, a new study by U.S. Census Bureau economist and Equitable Growth grantee Marta Murray-Close and her colleague Misty L. Heggeness comparing Census Bureau data with IRS tax returns finds that gender norms influence women and men’s self-reporting of their incomes. Notably, in heterosexual couples in which the woman earns more than her husband, the IRS data show that women report incomes 1.5 percentage points less than their true incomes whereas men report incomes 2.9 percentages points greater than their true level. [nyt]

Friday figure

Figure is from Equitable Growth’s, “Measuring U.S. economic growth.”