After 40 years of decline in the frequency and scale of labor strikes, U.S. workers are engaging in walkouts, strikes, and other workplace actions in record numbers. Nearly half a million workers were affected by labor action in 2018, the highest number since 1986. Most notable among these actions were the walkouts by public school teachers in traditionally conservative states that became known as the “Red for Ed” movement. The Chicago Teachers Union also is now on strike for the second time in 10 years.
What’s new about these actions is not just the level of activity but also the scope of their demands. In the Chicago strike, as in the Red for Ed walkouts more generally, teachers are demanding both better working conditions for themselves, as well as more resources for their communities. This new surge in strikes is markedly different from the past several decades of relative quiet labor union action. Several new academic studies examine why U.S. workers’ attitudes are changing toward engaging in strikes, but before we examine those studies, let’s first briefly examine the recent history of strikes.
Strikes in the United States have declined in recent decades for multiple reasons. Since the 1980s—and especially since the unsuccessful 1981 strike by the Professional Air Traffic Controllers Organization—employers are willing to simply replace striking workers. That reflects a more general tendency of U.S. businesses to wage a “no holds barred” offensive against labor organizing—even if it means flouting labor law and counting on weak enforcement and penalties from the federal government.
The minimal protections that remain on the books for labor unions are also poorly matched to cope with an increasingly fissured workplace, in which businesses shed legal responsibility for their workers through franchising or subcontracting relationships. Because labor law bars secondary boycotts or strikes of businesses that are not workers’ direct employers, workers in fissured firms often lack the right to strike.
Workers’ diminished ability to exercise collective action has undercut wages since there is no countervailing power against employers who exploit their workers under conditions of monopsony. This decline in worker power has contributed to wage stagnation even amid the current economic expansion and low unemployment levels. Accordingly, the rise in income inequality has closely tracked the decline in union density.
Workers have recognized these developments. Recent research by William Kimball and Thomas Kochan of the Massachusetts Institute of Technology finds that workers are increasingly supportive of the idea of having unions in their workplaces. The percentage of nonunion workers saying that they would vote for a union at their job increased from about a third in the mid-1990s to nearly half by 2017.
Building off of this, recent Equitable Growth-funded research by one of the authors of this column, Alexander Hertel-Fernandez of Columbia University, along with Kimball and Kochan, looks into the specific aspects of labor organizations in which workers are interested. They find that workers prioritize collective bargaining, portable social benefits and training, and help with searching for jobs. Yet they also find that workers, especially conservative and Republican workers, tend to dislike the use of strikes.
Workers’ ambivalence toward strikes may be driven by the decline of strikes themselves. As fewer unions engage in large-scale labor actions, fewer workers have had an opportunity to understand the connection between strikes, labor power, and gains in wages and working conditions. Just-released research by Hertel-Fernandez along with Suresh Naidu and Adam Reich, also of Columbia University, finds strong support for this idea, examining the families who were directly affected by teacher strikes and walkouts in the 2018 Red for Ed states.
Hertel-Fernandez, Naidu, and Reich conducted an online survey of nearly 4,500 adults living in the six original states that experienced teacher walkouts—Arizona, Colorado, Kentucky, North Carolina, Oklahoma, and West Virginia—in January 2019. The survey thus came about six months to a year after the first strikes and walkouts unfolded. A large proportion of respondents—80 percent—overall still remembered the teacher walkouts and were able to correctly articulate the striking teachers’ demands. Most respondents—about two-thirds across all six states—said that they “strongly” or “somewhat” supported the walkouts and their demands.
Perhaps surprisingly, respondents were equally supportive of future teacher strikes in their states, especially related to school spending. Sixty-eight percent of respondents said that they would approve of future strikes by teachers to boost state funding of schools.
Hertel-Fernandez, Naidu, and Reich also sought to examine the causal effects of firsthand exposure to the strikes on parents’ views about teachers and the labor movement in general. Studying the difference between parents who had firsthand exposure to the strikes because their children’s ages placed them just in or out of school, the authors found that firsthand contact with the strikes in a child’s school made parents more supportive of the strikes and the teachers.
But the most striking finding was that parents exposed to the teacher walkouts also became more interested in taking labor action such as strikes at their own jobs. Parents were not, however, necessarily more interested in joining traditional labor unions.
The effect of firsthand exposure to the walkouts on interest in labor action was especially large for parents who were Republican, conservative, or who lacked friends or family in unions—exactly the groups least likely to support the labor movement before the teacher walkouts. This confirms the idea that greater exposure to strikes can generate public support for the strikes and interest in imitating them, rather than backlash, as some might predict.
Both sets of surveys by Hertel-Fernandez and his co-authors reveal a disconnect in the public’s understanding of unions and strikes. In the first survey about preferences for new forms of labor representation, respondents were interested in collective bargaining but not strikes—even though workers’ strike rights grant the bargaining power needed to make collective demands of employers. In the second survey on the teacher walkouts, parents with firsthand exposure to the teacher walkouts correctly recognized strikes as a tool for advancing worker interests but did not necessarily perceive the role of traditional unions in organizing and/or supporting strikes.
The Red for Ed movement is emblematic of nontraditional forms of labor action. Along with Fight for Fifteen and OUR Walmart, these movements did not conduct traditional collective bargaining over a contract between a union and an employer and using the strike as a threat when the bargaining process faltered. Instead, they waged successful public campaigns that pressured powerful stakeholders to support improved job quality for broad sets of occupations and industries. Ruth Milkman of the City University of New York has noted that these are similar to those actions of workers and unions prior to the passage of the 1935 National Labor Relations Act, which protected the right to strike. While these successes have been heartening, the labor movement and effective pro-labor enforcement can also play a role in supporting collective action to build on these gains.
To rebuild worker power, the labor movement needs new laws that more adequately protect workers’ rights to organize and bargain with employers. One such example are the proposals being developed by Harvard Law School’s Labor and Worklife Program Clean Slate for Worker Power initiative led by Sharon Block and Benjamin Sachs. These ideas buildonrecentresearch highlighting the potential benefits of sectoral or regional bargaining, union-provided social benefits and training, worker representation in corporate governance, wage and working standards boards, and new worker-management councils.
Ultimately, a revived U.S. labor movement will require both greater grassroots energy and collective action—such as the teacher strikes and walkouts—and stronger traditional institutions of bargaining and representation. Widespread grassroots collective action is needed to build public awareness of, and support for, labor reform, while stronger traditional labor organizations are needed to translate worker demands into better wages, benefits, and working conditions at scale across the U.S. economy. Recent research, including the studies reviewed here, can play an important role in understanding how workers think about the labor movement and labor action—and the possibilities for rebuilding worker voice in the United States.
This is a post we publish each Friday 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 relevant and interesting articles 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
Looking only at Gross Domestic Product is no longer an adequate way to measure U.S. economic growth and prosperity across the income ladder because average income no longer reflects the fortunes of most families, writes Austin Clemens. “It does little good to target GDP as an outcome if the majority of GDP growth flows to a small group of families, leaving the rest with scraps,” he continues. But rather than getting rid of GDP—or the dataset to which it belongs, the U.S. National Income and Product Accounts—altogether, the U.S. Bureau of Economic Analysis should instead include a distributional component to its GDP reports. This idea, what Equitable Growth calls the GDP 2.0 project, would report on growth in each quintile of the income distribution, as well as at the very top, in order to adequately show who is prospering when the economy expands, modernizing how we measure growth in the 21st century economy.
Equitable Growth President and CEO Heather Boushey recently participated in a Reddit “Ask Me Anything,” or AMA, focused on economic inequality. People from around the world were able to submit their questions online on topics ranging from the prospect of a wealth tax to the role of the Federal Reserve in warding off the next recession to addressing racial disparities in income and wealth. Check out the AMA’s highlights here.
Young adults today in the United States are not achieving the same financial milestones as in recent past generations, writes Liz Hipple in an essay also published by New America in a collection on the millennial wealth gap. This wealth gap not only affects intergenerational mobility and exacerbates existing racial and economic inequalities in the country, but also impacts the next generation’s human capital development. As such, policymakers need to respond before it’s too late and the window of economic mobility for millennials shuts prematurely.
Brad DeLong provides his takes on recent must-reads from Equitable Growth and around the web in his latest worthy reads.
Links from around the web
Could it be, asks Sam Pizzigati on Inequality.org, that part of why so many Americans distrust government is its (inaccurate) assumption that GDP reflects everyone’s income reality? Quoting testimony from recent congressional hearings—including Heather Boushey’s last week—Pizzigati looks at why disaggregating GDP will provide a better representation of all Americans’ well-being across the income spectrum in light of today’s rampant inequality. He also highlights the policymakers who are already on board with the idea and the legislation they’ve introduced in Congress to get us there.
Before anyone gets too excited about the fact that joblessness is at a 50-year low, and that the most recent U.S. jobs report showed average hourly wages rising in September, keep in mind the wage growth reported is not actually economically significant, writes Teresa Ghilarducci for Forbes. Wages have, in fact, been growing at the same persistently slow rate year over year. Why? “Decades of eroding union membership, unequal trade penetration, rising healthcare costs, increasing tax and investment benefits for the wealthy few, and the wealthy spending of some of those funds on politics and lobbying—all of these are holding back wages,” Ghilarducci argues—while effectively stifling economic growth at the same time.
Despite the wild speculation about robots taking over everyone’s jobs, this prediction has yet to materialize. But what can be studied—and recently has been, reports Shirin Ghaffary for Vox.com’s Recode—is how technology is changing workers’ jobs right now. The new study, focused on warehouse work automation, shows that emerging technology probably won’t actually replace the more than 1 million warehouse workers in the United States anytime soon, and actually may help with the more monotonous and physically strenuous tasks on their plates. The bad news is, robots probably will also make their lives harder over the next decade. The study’s authors argue that automation will likely ratchet up the pressure on workers to complete tasks faster to boost productivity, increasing burnout and stress levels, and will limit the amount of human interactions workers experience on a daily basis. But, the co-authors say, this outcome is not inevitable—policymakers can still enact regulations to support workers as these transitions take place.
While many workers nowadays are lucky enough to have a standard 9-to-5 schedule, nearly one-fifth of U.S. workers’ schedules are volatile and variable, and many others work way beyond the traditional 40-hour week. In fact, writes Judith Shulevitz in The Atlantic, if you combine those with unpredictable schedules and those who work prolonged hours, you’d probably get to about a third of the U.S. workforce. “When so many people have long or unreliable work hours, or worse, long and unreliable work hours,” Shulevitz continues, “the effects ripple far and wide. Families pay the steepest price.”
Read Liz Hipple, “Public Policy Implications of the Millennial Wealth Gap,” in which she writes: “Wealth may shape the behavioral choices of the next generation, thereby shaping opportunity by providing some with a soft cushion for a slip down the economic ladder and others with no cushion at all … The ability to live with one’s parents allows young people to search longer for jobs that have better prospects for future earnings growth, increasing their chances of upward mobility and of successfully beginning to build wealth of their own. Another roadblock to millennials’ ability to fully deploy their human potential is the structural changes in the labor market over the past 30 years, which have depressed wages and thereby delayed wealth building. For example, young adults who replicate their parents’ educational and occupational backgrounds and end up in the same type of work and in the same relative place in the economic distribution earn less in inflation-adjusted terms than their parents did a generation ago.”
Don’t miss the Equitable Growth event “Vision 2020: Evidence for a Stronger Economy,” on November 1, 2019 in Washington: “Vision 2020 will bring together leading voices from the policymaking, academic, and advocacy communities to highlight the most pressing economic issues facing Americans today. This daylong conference will explore recent transformative shifts in economic thinking that demonstrate how inequality obstructs, subverts, and distorts broadly shared economic growth and what we can do to fix it.”
Re-read Heather Boushey’s “In Conversation with Leemore Dafny,” in which Dafny discussed: “How can it possibly be a bad thing for consumers if insurers use some of their bargaining power to bring down the prices of the inputs into the health insurance product? The answer to that question is that it depends on how they are bringing down those prices … From an antitrust enforcement perspective, savings passed through would be considered a benefit to consumers … a change in the division of existing surplus. But now, suppose something different—suppose that the only way the insurers get lower prices is not by taking away the margin, holding quantity constant, but by exercising their market power vis-à-vis these healthcare providers such as purchasing less, as well as paying less … Lower prices in this setting can have an impact on the quantity and/or the quality of services, and that’s called monopsony, and it’s the flipside of monopoly. And just as monopoly benefits the seller of a good, monopsony benefits the buyer, in this case, the insurer, but at the expense not only of the healthcare providers but also of consumers in general.”
Worthy reads not from Equitable Growth:
Read Jed Kolko and Ann Elizabeth Konkel, “Job Search Behavior Changes as US Work Visa Requirements Tighten,” in which they write: “Searches for jobs in the United States that contained visa-related terms like ‘H1B visa’ or ‘work visa’ skyrocketed 673 percent from September 2017 to September 2018. The number of visa-related searches from abroad peaked in November 2018. Job seekers in India accounted for 22 percent of visa-related searches from outside the United States in 2018. The surge in visa-related searches probably reflects 2018 policy changes, which made acquiring a U.S. work visa more complex.”
Yes, the Medicaid expansion part of the Affordable Care Act had a very high benefit-cost ratio. And those states that have blocked it have seen their poor suffer and die in not insignificant numbers for no comprehensible reason. Read Sarah Miller, Sean Altekruse, Norman Johnson, and Laura R. Wherry, “Medicaid and Mortality: New Evidence from Linked Survey and Administrative Data,” in which they examine: “Changes in mortality for near-elderly adults in states with and without Affordable Care Act Medicaid expansions [to] identify adults most likely to benefit using survey information on socioeconomic and citizenship status, and public program participation. We find a 0.13 percentage point decline in annual mortality, a 9.3 percent reduction over the sample mean, associated with Medicaid expansion for this population. The effect is driven by a reduction in disease-related deaths and grows over time. We find no evidence of differential pretreatment trends in outcomes and no effects among placebo groups.”
The market can work well when it is competitive, but I am still waiting to hear the argument made coherently that it works well when it is characterized by monopolies, monopoly platforms, or cozy oligopolies. And I think I will wait a long time. Here, there is news that not only do I not understand what Facebook is trying to do with Libra, but others supposedly on the inside also do not understand it. Read Richard Partington, “How the Wheels Came Off Facebook’s Libra Project,” in which he writes: “Support for Mark Zuckerberg’s mission to reshape global finance is slipping away slowly but surely. When Facebook announced plans to launch a digital currency earlier this summer, it added a full-blown revolution in global finance to its typically vaulting Silicon Valley mission statement: to create a digital currency alongside its efforts to bring the world closer together through networks. Over the past month, that mission has gone badly awry. The Libra cryptocurrency project now faces existential threats from world leaders and central bankers worried about its harmful potential as a vehicle for money laundering, a threat to global financial stability, open to data privacy abuse, dangerous for consumers, and stripping nations of the control of their economies by privatizing the money supply. Seven high-profile partners in the Facebook-led consortium that is building the digital currency—known as the Libra Association—have quit in dramatic fashion in recent weeks, including PayPal, eBay, Visa, and Mastercard, as concerns mount.”
The essay below by Senior Policy Advisor Liz Hipple was published today by New America as part of a collection of essays in its new book, “The Emerging Millennial Wealth Gap: Divergent Trajectories, Elusive Pathways to Progress, and Implications for Social Policy.” While the income of a typical Millennial is only slightly below levels predicted by the experience of past generations, young adults in the United States today are on a lower trajectory in their wealth accumulation than their predecessors. Hipple connects this issue of the millennial wealth gap to the trend of downward intergenerational mobility, explaining how the two can interact to further exacerbate existing racial and economic inequalities as well as the consequences for the human capital development of the next generation.
A broad array of social science research—presented in this volume and elsewhere—presents a clear but troubling picture of the economic state of the Millennial generation. Young adults in America today have not achieved the same financial milestones as recent past generations. Whether measured in terms of income, assets, or net worth, Millennials are behind. If they were likely to catch up, public policy could perhaps stay agnostic. But given the combination of an economy characterized by depressed wages and shrinking benefits with a rising student debt burden, it seems more likely that their window for economic mobility is in danger of prematurely closing and public policy should respond.
The Millennial wealth gap should garner the increased attention of policymakers for a number of reasons, but especially because it is happening alongside trends of declining intergenerational mobility and rising economic inequality. These developments are interrelated and together have long-term consequences that will not only exacerbate existing racial and economic disparities but also limit the human capital development of future generations, which in turn has negative implications for future economic growth.
Recently, popular press attention has focused on the challenges Millennials face in the economy and their evolving relationship to the traditional markers of adulthood.1 For instance, marriage, child rearing, and homeownership rates among 25- to 34-year-olds today lag behind those of the previous generation.2 These are not merely the preferred reordering of life milestones established by their parents and grandparents. Rather, these are visible symptoms of the decline in intergenerational mobility, driven by the lack of financial resources among today’s young adults. Since today’s disadvantages accumulate over time and are passed down to future generations, it is essential for young families with children to be able to access economic resources to invest in their children’s development. The presence or absence of money in a household has huge implications for children’s later-in-life outcomes.
In a recent report, “Are today’s inequalities limiting tomorrow’s opportunities?” my co-author, Elisabeth Jacobs, and I document the accumulating social science research that attests to the relationship between a family’s economic resources and a child’s subsequent outcomes. We further explore the role of parents’ economic resources in the development of children’s human capital, and how economic inequality is undermining not only the development of that potential, but also children’s ability to fully and effectively deploy that human potential, thereby depressing their future upward mobility.3 While the report presents a thorough analysis of research to date, our findings in each of these areas establish a strong foundation for a significant public policy response.
Intergenerational Mobility
It may be helpful to begin by reviewing recent findings about intergenerational mobility in America, as declining mobility is the backdrop against which the emerging generational wealth gap is playing out.
Intergenerational mobility is the relationship between a parent’s and a child’s economic position. It’s an important metric of economic well-being because it indicates whether economic outcomes reflect individual merit and hard work, or whether parental advantage (or disadvantage) dictates outcomes. It’s also a meaningful indicator of whether or not there’s been economic growth, and if that growth has been equitably distributed. If growth has been stagnant, it can tell us if any gains have accrued disproportionately to a small group. Unfortunately, recent and compelling research has found that mobility in the U.S. has been declining. While more than 90 percent of children born in 1940 grew up to earn more than their parents did at age 30, the same could be said at the same age for only about 50 percent of children born in 1984, according to economist Raj Chetty and his co-authors,4 as illustrated in Figure 1.
Figure 1. Intergenerational Mobility.
Furthermore, mobility differs significantly between different racial and ethnic groups in the United States, with black Americans in particular experiencing unusually high rates of downward mobility and low rates of upward mobility. For example, black children born into the bottom household income quintile (the lowest 20 percent ranked by income) have a 2.5 percent chance of going on to be in the top income quintile as adults, whereas white children of the same economic status have a 10.6 percent chance. And while white children born into the top income quintile are almost five times as likely to still be in the top income quintile as adults as they are to fall to the bottom, black children born to parents in the top income quintile are just as likely to fall to the very bottom as they are to stay at the top.5
Despite the prevalence of explanations for these differences that emphasize factors that supposedly represent individual choices or hard work—such as marriage patterns or educational attainment—Chetty and his co-authors find that differences in family characteristics, including wealth, explain very little of this gap in intergenerational mobility for black and white Americans. In other words, all else equal, these findings of mobility outcomes indicate that racial discrimination clearly plays a role in explaining why these differences persist.
In our full paper, Jacobs and I explore more of the facts and statistics on intergenerational mobility in the United States, including how it has changed over time and manifests in different places and geographies. For the purposes of this discussion, though, the key takeaways to keep in mind are that the decline in mobility from the 1940 to the 1980 cohort means that young adults today are entering adulthood with lower earnings than previous generations. Consequently, they have less to save from. Additionally, the opportunity to save and build wealth in America is distributed differentially depending on your race and ethnicity. This should be the context for any policy discussion of the Millennial wealth gap.
Economic Inequality and Wealth Gaps Limits the Development and the Deployment of Human Potential
A large body of research indicates that in the U.S. the extent of economic resources at a family’s disposal impacts their children’s economic outcomes later in life. To give just one example, research has found that even just $1,000 in additional income from the EITC increases a host of positive indicators, including higher reading and math scores; increased probability of high school graduation, college completion, and employment; and increased earnings.6 While this example uses income, rather than wealth, as the measured financial resource, it demonstrates the importance of financial resources today on outcomes tomorrow.
To understand the connection between parental economic resources and children’s adult outcomes—and how economic inequality could be intermediating that relationship—Jacobs and I developed a framework for making sense of the channels linking the two concepts. One of those channels is the development of human potential. On a fundamental level, every individual is born with a certain amount of human potential, but the opportunity to develop that potential to its fullest varies dramatically based on the circumstances of family, community, institutional factors, and myriad other structural constraints. These inequalities of opportunity are often compounded across multiple realms, with major lines of research demonstrating the links between inequality and access to health, parental investments of time and money in their children, and the quality of early childhood education, as well primary and secondary schooling—all of which are critical pathways for the development of the human potential necessary for upward mobility.
As families have fewer resources to invest in their children today, the consequences of the Millennial wealth gap will extend into the generations of tomorrow. This dynamic has already been apparent in the relationship between wealth, educational opportunities, and the realization of long-term human potential. A case in point is the unfortunate reality that in the United States, buying a home in a “good” school district is often the single biggest way a parent invests in their child’s human capital development. In this process, it is wealth, rather than income, that is the means through which the home is purchased, making it especially consequential in determining the future outcomes of the next generation.
This dynamic reflects how the Millennial wealth gap risks exacerbating existing economic and racial inequalities. If, as explained in the chapter by William Emmons, Ana Kent, and Lowell Ricketts, Millennials have lower than expected wealth by a certain age, then it will be more difficult to self-finance a first home purchase. Those who can tap down payment assistance from their parents are at a distinct advantage. Winning the birth lottery takes on a whole new significance, as only those lucky enough to be born into families with enough wealth to be able to pass it along can get their own start in the wealth accumulation process.
It also means that policies that have historically and systemically blocked black Americans from building wealth continue to have consequences that reverberate today for black Millennials. For example, federal redlining7 denied black Americans access to traditional mortgages and therefore forced them into contract buying,8 which did not build equity. This means that racist policies that prevented the purchase of a house by grandparents or parents 50 years ago continue to have an impact. Not only is there less wealth to transfer directly, there is less wealth to invest in their children’s human capital development, whether it is through supporting education or jump-starting wealth building through the purchase of a home. Indeed, while 34 percent of white adult children receive financial support from their parents for higher education and 12 percent for homeownership, the same is true for only 14 percent and 2 percent of black adult children, respectively.9 Discrimination in the past, reflected in the racial wealth gap, continues to reverberate today and into the future.
But even if there were true equality of opportunity to fully develop one’s human potential, the development of human potential is insufficient on its own if individuals are not able to fully deploy their talents. And family economic resources—particularly wealth—also play a vital role in young adults’ ability to fully deploy their potential. For example, in addition to the relevance of parental resources for attendance and completion of postsecondary education, wealth can shape how an individual is able to get the most out of a college education and make use of that investment. Family wealth may provide an insurance function, allowing those with greater access to the cushion of family assets (and the absence of debt) to take risks that ultimately pay off with greater rewards. As sociologists Fabian Pfeffer of the University of Michigan and Martin Hällsten of Stockholm University explain:
[C]hildren who are able to fall back on their parents’ wealth when, for example, they drop out of college or experience a prolonged school-to-work transition period, or have early episodes of unemployment, are more likely to opt for long-term human capital investments, such as college attendance, or choose particularly competitive or protracted career paths that they may be able to sustain even in the face of early set-backs.10
These findings show that wealth may shape the behavioral choices of the next generation, thereby shaping opportunity by providing some with a soft cushion for a slip down the economic ladder and others with no cushion at all. Indeed, economist Greg Kaplan finds that the ability to live with one’s parents allows young people to search longer for jobs that have better prospects for future earnings growth, increasing their chances of upward mobility and of successfully beginning to build wealth of their own.11
Another roadblock to Millennials’ ability to fully deploy their human potential is the structural changes in the labor market over the past 30 years, which have depressed wages and thereby delayed wealth building. For example, young adults who replicate their parents’ educational and occupational backgrounds and end up in the same type of work and in the same relative place in the economic distribution earn less in inflation-adjusted terms than their parents did a generation ago.12 There are a number of reasons for these changes, including the fissuring of the workplace and the decline in job ladders, which we consider in depth elsewhere.13 What is relevant here is that these structural changes, coupled with the fact that Millennials entered the labor market during the Great Recession, threaten to cause long-term and persistent negative effects for Millennials’ earning potential, which will further weaken their ability to build wealth down the road.14
Policy Implications
Policymakers need to take these structural changes into account—and acknowledge this history of discrimination—as they craft future public policies to promote wealth building. Traditionally, the pillars of wealth building in America have been grounded in being able to access education, skills, and training; secure steady employment; increase ownership of assets over time; and receive family gifts, transfers, and inheritances. We’ve seen how these pathways are not open to everyone, and how the current cohort of young adults is faring poorly. For Millennials, education and skills have increased, but steady employment has gotten more precarious, especially for those who graduated into the Great Recession,15 which limits the income with which to increase ownership of assets over time. This leaves the fourth pillar—the receipt of family transfers—to take on a larger and increasingly disproportionate role in future wealth accumulation.
It is a problem for our democracy and our economy if family wealth determines long-term child outcomes. If the cushion of family assets (and the absence of debt) allows young adults to disproportionately take risks that can ultimately pay off with greater rewards, then those without such assets are needlessly disadvantaged. This creates a feedback mechanism in which privilege begets privilege. To prevent such a scenario from gaining momentum, policymakers must work to level the playing field. In doing so, they should push beyond solutions that emphasize merely equalizing access to activities that support human capital development, such as education and skills attainment. As we have seen, the development of human potential is insufficient on its own to address the forces depressing economic mobility and opportunities for wealth accumulation. Rather, policymakers must grapple with ways to remove the roadblocks young adults face when they seek to deploy their potential in the economy.
A forward-looking policy agenda should be grounded in a recognition that the structure of the U.S. labor market has changed in ways that fundamentally thwart upward mobility. Wage stagnation, fissuring of the workplace, and a decline in job ladders depress workers’ earning power. Discrimination, particularly racial discrimination, persists in ways that run afoul of basic principles of equity, disempowering some workers and advantaging others. Growing inequalities in household balance sheets shape behavior and risk preferences, allowing those born into wealth to accumulate additional advantages over a lifetime while those who enter the labor market further down the economic ladder face limited pathways upward.
None of these dynamics are inherently natural. Many have the potential to be fundamentally reshaped by policy. Familial advantage—or disadvantage—can be passed along to children in multiple ways. While this might seem daunting to policymakers contemplating solutions, it also means that there are multiple angles from which to tackle the problem. There will be no silver bullet or quick fixes, but the emerging Millennial wealth gap is too large to ignore. Instead, there should be a concerted effort to develop and implement policies to ensure that access to opportunity is truly equitable. Our collective goal should be to ensure that all members of our society are able to fully deploy their potential. To do so requires that wealth is not passed along mechanically from generation to generation, but that our collective resources support an economy where the human capital, innovation, and dynamic economic growth are unleashed rather than left by the wayside.
The Washington Center for Equitable Growth President and CEO Heather Boushey earlier this month answered questions from across the world on economic inequality via the social networking platform Reddit as part of the “Ask Me Anything” series.
In her new book, Unbound: How Inequality Constricts Our Economy and What We Can Do About It, Boushey presents cutting-edge knowledge with journalistic verve, showing how inequality in the United States has become a drag on growth and an impediment to free market efficiency. She argues that policymakers can preserve the best of our economic and political traditions, and improve on them, by pursuing policies that reduce inequality and boost growth.
Boushey took questions for two hours on all things related to inequality, including the prospect of a wealth tax, the role of the Federal Reserve in warding off the next recession, addressing racial disparities in income and wealth, and more. Read more highlights of that discussion below.
This is a post we publish each Friday 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 relevant and interesting articles 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
How do scheduling practices affect working families, particularly families of color, in the United States? A series of working papers released this week shows that not only are low-quality and unpredictable schedules pervasive among low-wage workers, but also that these schedules perpetuate racial and ethnic inequality across the country. The researchers surveyed 30,000 workers at 120 of the largest retail and food-service companies in the United States to find out who suffers the most from these schedules, and discovered that black and Hispanic women tend to have the worst schedules, while white men have the best ones. They also discovered that the children of those with the worst schedules behave worse and have less consistent childcare than those with parents who have better schedules. Cesar Perez and Alix Gould-Werth put together 10 charts highlighting the main findings of the research, which was also covered in The New York TimesThe Upshot blog.
Despite the evidence that desegregation boosts outcomes for low-income and minority students without negatively affecting their better-off and white peers’ outcomes, school segregation remains a problem across the nation. In fact, though the United States saw a large decline in black-white school segregation from the 1960s through the 1980s, in the years since then, desegregation has stalled and resegregation has actually increased, according to a report by former Research Assistant Will McGrew. In a blog post covering the report, Liz Hipple describes how McGrew makes it clear that school segregation is not an inevitable outcome of individual choices or preferences for “good” school districts, but rather that policy and legal decisions shape these preferences by continuing to tie school funding to local property taxes. Not only does this limit opportunities for individual students to achieve their own full potential, it also obstructs future dynamism and growth in the U.S. economy. McGrew recommends various policy options to reverse the trend of resegregation and put us back on the path to progress.
Equitable Growth President and CEO Heather Boushey testified before the Joint Economic Committee this week in a hearing on “Measuring Economic Inequality in the United States.” In her testimony, Boushey argued that one of the most important ways to fight inequality in the United States today is to properly track and measure it—namely, by adding measures of growth within income quantiles to the Bureau of Economy Analysis’ National Income and Product Accounts to better reflect the realities of the modern economy.
Equitable Growth Steering Committee member Jason Furman testified today before the House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law. He discussed concentration in digital platforms, and how competition would benefit consumers, touching on ways to protect this competition such as more robust merger enforcement and regulations.
Be sure to head over to Brad DeLong’s latest worthy reads for his takes on must-see content from Equitable Growth and around the web.
Links from around the web
More than 9 million people work in food service, and 16 million more work in the retail sector, and according to estimates one-third of these workers receive less than one week’s notice for their schedules. As a result, these workers tend to have higher stress levels, more volatile income, less stable childcare options, and often have to get second jobs in order to make ends meet. Stephanie Wykstra explains on Vox the fight for fair workweek policies, who would be most affected, how these policies would help workers, and the challenges facing supporters in getting companies to comply.
The United States has never been richer, writes Eric Levitz in New York Magazine’s The Intelligencer. In fact, if wealth were evenly distributed across the United States today, each individual would have close to $300,000 and every family of four would be millionaires. So, why is it that middle- and working-class households are working way more and earning way less than they were a few decades ago? Levitz argues that three policy failures that have led us here: the dramatic decline in wages and worker bargaining power; the ever-increasing and unaffordable costs of housing, healthcare, and education; and the failure to modernize the social safety net.
At least half of the Democratic candidates for president in the 2020 race have put forward robust labor platforms touching on ideas from broadening union membership to banning noncompete agreements to treating independent contractors as employees, reports Noam Scheiber for The New York Times. One of the more striking of these proposals is the idea known as sectoral bargaining, which would allow workers to bargain with employers on an industrywise basis rather than with individual employers, potentially increasing wages for millions of workers at a time—even those who aren’t unionized. Scheiber hypothesizes that the large number of candidates supporting sectoral bargaining and other labor platforms likely reflects stagnant wage growth, increasing economic insecurity, and deepening inequality in the United States.
Rather than hitting the glass ceiling at the very top of the management ladder, new research suggests that women may face obstacles to advancing higher up much earlier in their careers—namely, at the very first rung of the management ladder. In fact, writes Vanessa Fuhrmans for The Wall Street Journal, “men outnumber women nearly 2 to 1 when they reach that first step up—the manager jobs that are the bridge to more senior leadership roles.” And, according to the study, it’s not because women are pausing there to raise children or that they have less ambition than men.
Antitrust and competition issues are receiving renewed interest, and for good reason. So far, the discussion has occurred at a high level of generality. To address important specific antitrust enforcement and competition issues, the Washington Center for Equitable Growth has launched this blog, which we call “Competitive Edge.” This series features leading experts in antitrust enforcement on a broad range of topics: potential areas for antitrust enforcement, concerns about existing doctrine, practical realities enforcers face, proposals for reform, and broader policies to promote competition. Jason Furman has authored this contribution.
The octopus image, above, updates an iconic editorial cartoon first published in 1904 in the magazine Puck to portray the Standard Oil monopoly. Please note the harpoon. Our goal for Competitive Edge is to promote the development of sharp and effective tools to increase competition in the United States economy.
Washington Center for Equitable Growth Steering Committee member Jason Furman, a professor of the practice of economic policy at the Harvard Kennedy School and a nonresident senior fellow at the Peterson Institute for International Economics, testifies today about “Online Platforms and Market Power: The Role of Data and Privacy in Competition” before the House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law. Furman, who previously served as a top economic adviser to President Barack Obama, including as chair of the Council of Economic Advisers, was deeply involved in competition policy, issuing reports on concentration and promoting inclusive growth and employment monopsony in the U.S. labor market, during his time in the White House.
In his testimony today, Furman makes four points to congressional members of the subcommittee:
Digital platforms are highly concentrated.
Competition will benefit consumers.
More robust merger enforcement is needed to protect competition.
—Michael Kades, director of Markets and Competition Policy at Equitable Growth
Prepared Testimony for the Hearing “Online Platforms and Market Power, Part 3: The Role of Data and Privacy in Competition”
Jason Furman
Professor of the Practice of Economic Policy, Harvard Kennedy School
U.S. House of Representatives
Committee on the Judiciary, Subcommittee on Antitrust, Commercial and Administrative Law
October 18, 2019
Chairman Cicilline, Ranking Member Sensenbrenner, and Members of the Committee:
Thank you for the opportunity to testify on the important topic of online platforms and market power. I am a professor of the practice of economic policy at the Harvard Kennedy School, where I focus on a wide range of economic policy issues. I recently chaired the Digital Competition Expert Panel for the U.K. government that produced a report titled “Unlocking Digital Competition.”16 I am currently advising the U.K. as they move forward with a key set of recommendations from this report, including the establishment of a Digital Markets Unit to act as a procompetition regulator. Many of the recommendations in our report are applicable to the United States and I appreciate the opportunity to share some of those ideas with you today.
In my testimony today, I will make four points:
The major digital platforms are highly concentrated and, absent policy changes, this concentration will likely persist with detrimental consequences for consumers.
More robust competition policy can benefit consumers by helping to lower prices, improve quality, expand choices, and accelerate innovation. These improvements would likely include greater privacy protections given that these are valued by consumers. However, it is not clear that competition will be sufficient to adequately address privacy and several other digital issues.
More robust merger enforcement should be part of the solution to expanding competition, including better technical capacity on the part of regulators, more forward-looking merger enforcement that is focused on potential competition and innovation, and legal changes to clarify these processes for the courts.
A regulatory approach that is oriented toward increasing competition by establishing and enforcing a code of conduct, promoting systems with open standards and data mobility, and supporting data openness is essential. This is because more robust merger enforcement is too late to prevent the harms from previous mergers, and antitrust enforcement can take too long in a fast-moving market.
I also want to recommend to the Committee the recommendations in the recent report by the University of Chicago’s Stigler Center Committee on Digital Platforms on the economy and market structure, many of which dovetail with the suggestions in the report I chaired and with the recommendations in my testimony today.17
I will now elaborate on each of my four points.
Point #1: The major digital platforms are highly concentrated and, absent policy changes, there is a high likelihood that this concentration will persist with detrimental consequences for consumers.
The major online platforms, including online search, mobile operating systems, digital advertising, and social media, are each dominated by two players. Moreover, the two players in each of these markets are generally drawn from the same five major companies. A number of economic features of digital markets have helped to greatly reduce what economists call “competition in the market” by leading to tipping that results in a winner-take-most situation. These economic features include the combination of economies of scale and scope, the network externalities associated with having many users on the same platform, behavioral biases on the part of consumers, the data advantages of incumbents, the importance of raising capital, and brands. While many of these individual features are found in a wide range of markets, their combination in digital markets is unique.
It is more difficult to provide a definitive answer to the question of whether there is “competition for the market” in the digital sector. This is the idea that even if at any given moment only one or two major platforms are viable, over time these incumbents can be toppled and replaced by newer and more innovative competitors. Many of the dominant technology companies of the past seemed unassailable but then faced unexpected competition due to technological changes that created new markets and new companies. For example, IBM’s dominance of hardware in the 1960s and early 1970s was rendered less important by the emergence of the PC and software. Microsoft’s dominance of operating systems and browsers gave way to a shift to the internet and an expansion of choice. But these changes were facilitated, in part, by government policy, in particular, antitrust cases against these companies, without which the changes may never have happened.
Similar changes have been seen in the platform space, including Google replacing Yahoo and Facebook replacing MySpace. However, these and other similar examples all took place in the early days of the World Wide Web. Moreover, to the degree that the next technological revolution centers around artificial intelligence and machine learning, then the companies most able to take advantage of it may well be the existing large companies because of the importance of data for the successful use of these tools. New entry may still be possible in some markets, but to the degree that entrants are acquired by the largest companies with little or no scrutiny, anticompetitive behavior is tolerated, and open standards are limited, the channel of competition for the market is not fully operative.
Point #2: More robust competition policy can benefit consumers by helping to lower prices, improve quality, expand choices, and accelerate innovation.
This lack of competition is costly. Consumers may think they are receiving “free” products, but they are paying a price for these products in a number of ways. First, the competitive price for some of these products might have been negative, so the fact that consumers are not being paid for the use of their data may reflect a failure of competition. Second, to the degree that the highly concentrated advertising market results in higher ad prices than would otherwise be the case, these higher costs are passed along by sellers in the form of higher prices for consumers. Third, consumers pay in the form of quality reductions. Finally, consumers pay in the form of reduced innovation in a world in which the major platforms have reduced incentives to innovate and incumbents have distorted incentives to make more incremental improvements that can be incorporated into the dominant platforms rather than more paradigmatic changes that could challenge these platforms.
Competition policy is very good at helping consumers get more of what they want. To the degree that public policy interests are aligned with those of consumers, that means that competition policy can be an effective tool in increasing social welfare. That is generally the case in the economy, and the digital sector is no exception. Many consumers want more privacy. Right now, with so few platform choices, they have limited options in this regard—a consumer can delete Facebook, for example, but will not have another place to go to connect with her friends. More choice would create more incentives for privacy protections.
There is an alternative perspective on privacy that is the basis for the European Union’s General Data Protection Regulation, or GDPR, which is that privacy is grounded in human rights and is generally applicable—it is not just something that should be provided to the degree that consumers want it in a competitive marketplace. This perspective would say that in addition to ensuring robust choices for consumers, regulators should also explicitly set minimal standards and rules for privacy, based on these human rights concerns or the worry that consumers will not be sufficiently attentive for competition to serve their needs. The United States already has such rules in areas like healthcare and banking, and understanding whether a generalized set of privacy rules is necessary—as a complement to competition policy and taking into account their impact on competition—is an important issue to resolve.
Beyond privacy, there are some issues that cannot be solved by competition. Some consumers value harmful content, like child pornography or instructions on assembling weapons of mass destruction. Competition, by itself, would deliver more of this content. While competition is an essential component of policy toward digital platforms, these other issues make clear that competition cannot be the only element of such a strategy.
Point #3: More robust merger enforcement should be part of the solution to expanding competition, including better technical capacity on the part of regulators, more forward-looking merger enforcement that is focused on potential competition and innovation, and legal changes to clarify these processes for the courts.
Competition policy generally recognizes a distinction between companies that grow organically, presumably reflecting efficiencies, and companies that grow through mergers, where regulators need to weigh the efficiencies against the harms from lessened competition.
In the past decade, Amazon, Apple, Facebook, Google, and Microsoft combined have made mor than 400 acquisitions globally. Many, if not most, of the major features of these companies have not been developed internally but acquired. Many of these acquisitions are small and almost certainly efficiency enhancing, but several have been quite big—the largest being Microsoft paying $26.2 billion for LinkedIn.
Merger control is subject to two types of errors: false positives, when a merger that should have been allowed to go through is blocked, and false negatives, when a merger that should have been blocked is allowed to go through. No enforcement can be perfect given all of the uncertainties inherent with forward-looking merger assessments, so some balancing of these types of errors is necessary.
To date, there have been no false positives in mergers involving the major digital platforms for the simple reason that all of them have been permitted. Meanwhile, it is likely that some false negatives will have occurred during this time. This suggests that there has been underenforcement of digital mergers, both in the United States and globally. Remedying this underenforcement is not just a matter of greater focus by the enforcer, as it will also need to be assisted by legislative change. Had such a change been in effect, it is likely that the vast majority of these mergers would still have gone through based on their minimal impact on competition and their potentially large benefits for consumers. But some would likely have been blocked, resulting in more competition today.
A better approach involves three elements. First, the Federal Trade Commission, or FTC, and the Department of Justice’s Antitrust Division need expanded resources to develop greater technical expertise in the digital space. Economics and law are essential, but so is computer science. Doing this will require more staff and an increased focus on digital expertise.
Second, merger analysis cannot simply be focused on short-run, static price effects, but must also consider the effects on innovation in the future. This can involve consideration of the role of data as a potential barrier to entry and the role of potential competition in the market. This is further complicated by the fluid definitions of digital markets, which continue to evolve over time. Economists have tools to assess some of these issues, but in many cases this can be very difficult and can lead to some ambiguity and uncertainty in any given case.
Third, in recent decades, courts have established an increasingly high bar for blocking mergers. This is likely inappropriate in the economy as a whole, but it is especially problematic in the digital sector, where a strong presumption in favor of mergers runs up against the necessity of considering what are inherently more speculative—but still very real and important—issues, like potential competition and innovation. As a result, the legal standards for merger review need to be clarified, either more generally or specifically for the digital space, including shifting some of the burdens of proof.
Point #4: A regulatory approach that is oriented toward increasing competition by establishing and enforcing a code of conduct, promoting systems with open standards and data mobility, and supporting data openness is essential.
Expanded merger enforcement would be helpful, but it is not sufficient since many of the horses have already left the barn. Antitrust scrutiny of the major platforms, like the valuable work being undertaken by this committee and the efforts by the FTC and Department of Justice, are important as well. But in a fast-moving technological landscape, none of these efforts are sufficient to ensure adequate competition—by the time enforcement happens, the competition may have been wiped out and the major platforms have moved on. Moreover, the fines associated with enforcement may not be a sufficient deterrent, especially when they are levied for very specific conduct and do not set a clear precedent for other companies operating in the future.
That is why my panel recommended the establishment of a “Digital Markets Unit,” a step the U.K. government announced it is taking and that I am currently helping them to implement. I believe this recommendation is fully applicable in the United States. I will describe the three main functions that regulation should undertake, recognizing that this could be housed in an existing regulator like the FTC or in a new body like the “Digital Authority” floated by the Stigler Center commission.
The first function is a code of conduct that would apply to companies that were deemed to have “strategic market status,” a designation that would be applied based on transparent criteria that would be re-evaluated every 3 to 5 years and would be focused not just on traditional criteria like market shares but also on the degree to which a platform acted as a “gateway” or a “bottleneck.” Companies with strategic market status should be subject to a code of conduct that would be developed through a multistakeholder process and should be enforceable. The elements of the code of conduct would be similar to existing antitrust law, including ensuring that business users are provided with access to designated platforms on a fair, consistent, and transparent basis; provided with prominence, rankings, and reviews on designated platforms on a fair, consistent, and transparent basis; and not unfairly restricted from, or penalized for, utilizing alternative platforms or routes to market. Importantly, smaller businesses and new entrants would not be subject to these rules—the goal of these rules is the establishment of a level playing field but not inhibiting innovation and choice by emerging competitors.
The second function is promoting systems with open standards and data mobility. These steps would benefit consumers by allowing them to access and engage with a wider range of people in a simpler manner, fostering more competition and entry—including enabling consumers to multihome by using multiple systems simultaneously or to switch more easily to alternative platforms. This step is not self-executing; you cannot just order it and expect it to happen. It will require hard work to identify relevant areas, like messaging or social networks, collaboration with companies on necessary technical standards, and careful consideration to ensure that it is done in a manner that is compatible with other objectives like protecting privacy. Much of this is happening already, including through initiatives like the Digital Transfer Project organized by many of the major tech companies. Companies do not, however, have a fully aligned incentive to facilitate competition through open standards, so further pressure can help by providing further incentive for private efforts to continue to become even more robust and/or by creating a more formal regulatory requirement.
The third function is data. Companies active in the digital economy generate and hold significant volumes of customers’ personal data. This data represents an asset which enables companies to engage in data-driven innovation, helping them improve their understanding of customers’ demands, habits, and needs. Enabling personal data mobility may provide a consumer-led tool that will increase use of new digital services, providing companies with an easier way to compete and grow in data-driven markets. However, in some markets, the key to effective competition may be to grant potential competitors access to privately held data. Such efforts, however, need to be very carefully balanced against both commercial rights and concerns about privacy. Digital platforms are already making an increasing amount of data open. Continuing to encourage this is important, but so is understanding additional steps that could foster more open data.
Thank you very much for your work on these important issues and I look forward to your questions.
Heather Boushey “On Reddit”: “I’m Heather Boushey, president and CEO of the Washington Center for Equitable Growth, and author of the forthcoming book, Unbound: How Inequality Constricts Our Economy and What We Can Do About It. The latest economic research from across academic disciplines shows the many ways that high economic inequality—in incomes, wealth, and across firms—serves to obstruct, subvert, and distort the processes that lead to widespread improved economic well-being.”
Unpredictable and chaotic work schedules are turning out to be an extra source of inequity that is, at least to me, surprisingly large. About the only half-silver lining is that Great Britain appears to be even worse. Read Cesar Perez and Alix Gould-Werth, “How U.S. workers’ just-in-time schedules perpetuate racial and ethnic inequality,” in which they write: “In an attempt to minimize labor costs, employers in today’s U.S. economy saddle workers with last-minute and low-quality schedules. These schedules, sometimes referred to as ‘just-in-time schedules,’ are unpredictable, unstable, and often provide workers with an insufficient number of hours. Today, sociologists Kristen Harknett at the University of California, San Francisco and Daniel Schneider at the University of California, Berkeley released new analyses drawing from surveys with 30,000 retail and food workers at 120 of the largest retail and food service companies in the United States to show who suffers from these schedules.”
An excellent piece from Fiona Scott Morton on the current state-of-play in antitrust is well worth re-elevating amid rising concern about market power among U.S. policymakers. Read her “Modern U.S. antitrust theory and evidence amid rising concerns of market power and its effects: An overview of recent academic literature,” in which she writes: “The experiment of enforcing the antitrust laws a little bit less each year has run for 40 years, and scholars are now in a position to assess the evidence. The accompanying interactive database of research papers for the first time assembles in one place the most recent economic literature bearing on antitrust enforcement … Horizontal mergers … Vertical mergers … Exclusionary conduct … Loyalty rebates … Most Favored Nation clause … Predation … Common ownership … Monopsony power … Macroeconomics and market power.”
Worthy reads not from Equitable Growth:
Let me highlight this once again: The very sharp Martin Wolf reacts to the Business Roundtable’s recognition that it and the corporations of which it consists need to take on a much broader system-stabilization role. In my view, the first thing the Business Roundtable and its fellow travelers need to do is to recover control of the political right from the armies of political and media grifters. They need to weigh in on what right-wing politicians ought to stand for. So far they have not. Read Martin Wolf, “Why rigged capitalism is damaging liberal democracy,” in which he writes: “Economies are not delivering for most citizens because of weak competition, feeble productivity growth, and tax loopholes … The U.S. Business Roundtable, which represents the chief executives of 181 of the world’s largest companies, abandoned their longstanding view that ‘corporations exist principally to serve their shareholders’ … What does—and should—[this] moment mean? The answer needs to start with acknowledgment of the fact that something has gone very wrong. Over the past four decades, and especially in the United States, the most important country of all, we have observed an unholy trinity of slowing productivity growth, soaring inequality, and huge financial shocks … The economy [is] not delivering … in large part … [because of] the rise of rentier capitalism … Market and political power allows privileged individuals and businesses to extract a great deal of such rent from everybody else … If one listens to the political debates in many countries, notably the United States and the United Kingdom, one would conclude that the disappointment is mainly the fault of imports from China or low-wage immigrants, or both. Foreigners are ideal scapegoats. But the notion that rising inequality and slow productivity growth are due to foreigners is simply false … Members of the Business Roundtable and their peers have tough questions to ask themselves. They are right: Seeking to maximize shareholder value has proved a doubtful guide to managing corporations. But that realization is the beginning, not the end … We need a dynamic capitalist economy that gives everybody a justified belief that they can share in the benefits. What we increasingly seem to have instead is an unstable rentier capitalism, weakened competition, feeble productivity growth, high inequality, and, not coincidentally, an increasingly degraded democracy. Fixing this is a challenge for us all, but especially for those who run the world’s most important businesses.”
There is no single effect of “automation” on the workforce and the labor market. It is long past time for us to dig deeper, and here is a good piece of spadework. Read Sotiris Blanas, Gino Gancia, and Tim Lee, “How different technologies affect different workers,” in which they write: “Since the early 1980s, technology has reduced the demand for low- and medium-skill workers, the young, and women, especially in manufacturing industries. The column investigates which technologies have had the largest effect, and on which types of worker. It finds that robots and software raised the demand for high-skill workers, older workers, and men, especially in service industries … From 1982 to 2005, using data from 30 industries spanning roughly the entire economies of 10 high-income countries … We used the Dictionary of Occupational Titles and the Occupational Information Network to evaluate which jobs are more prone to automation based on the type of tasks they require … Industrial robots decrease low-skill employment, while they increase the income shares of high- and medium-skill workers, old workers, and men … In manufacturing, robots lower low-skill, young, and female employment, while in services, they increase medium-skill and male employment. In both sectors, robots increase the income shares of high-skill, old, and male workers. Our results are consistent with the view that robots replace workers who perform routine tasks, especially in sectors where automation is more widespread, such as manufacturing. By contrast, they increase employment and incomes in sectors where automation has started more recently, such as in services, a sector in which new occupations are appearing. Given the industrial and occupational composition of these sectors, that robots are likely to complement engineers, product designers, and managers—that is, occupations that are dominated by high-skill, more senior, and male workers. Software has a similar effect to robots, whereas Information and Communications Technology, or ITC, capital is associated with employment gains mostly for medium- and low-skill workers.”
Moving to carbon-free electricity by 2050 is remarkably cheap, argues Geoffrey Heal. Read his “The Cost of a Carbon-Free Electricity System in the U.S.,” in which he writes: “I calculate the cost of replacing all power stations in the United States using coal and gas by wind and solar power stations by 2050, leaving electric power generation in the country carbon free. Allowing for the savings in the cost of fossil fuel arising from the replacement of fossil fuel plants, this is roughly $55 billion annually. Allowing, in addition, for the fact that most fossil plants in the United States are already old and would have to be replaced before 2050 even if we were not to go fossil free, this annual cost is reduced to $23 billion.”
Yes, rural Kansas is now, in some ways, reminiscent of 17th century England. Read Cory Doctorow, “In Kansas’s poor, sick places, hospitals and debt collectors send the ailing to debtor’s prison,” in which he writes: “Kansas is a living laboratory for far-right experimentation with extreme economic cruelty: a state where Medicare expansions were thwarted, where xenophobia has penetrated the state bureaucracy, where a grifty, incompetent lawyer has apologized for slavery and driven women out of his own party, even as neighboring states thrive by tending to the needs of working people, rather than the super-rich. As Kansas sinks into poverty and ruin, its people are growing ever-sicker: Poverty is strongly correlated with poor health outcomes, especially in America, where being poor means you can’t afford preventative care, and even more especially in Kansas, where limits on Medicare expansion exclude even very poor people from access to subsidized care. Enter hospital debt collectors. Propublica’s Lizzie Presser reports from Coffeyville, Kansas, home to Coffeyville Regional Medical Center, the only hospital for 40 miles, now that its rivals have all shut down. In Coffeyville, magistrate judges are appointed, and need no special training to hold the office. Judge David Casement—a cattle rancher who never studied law—presides over medical debt cases, which he hears quarterly at ‘debtor’s exam’ days. At these proceedings, debt collectors—who do have law degrees, and whom the judge relies heavily on for legal advice—are allowed to quiz sick people, or the parents or spouses of critically ill or dying people, about their assets and income and to ask the judge to order them to divert what little they have to Coffeyville Regional Medical Center, minus the debt collector’s healthy cut. But sick, poor people can’t always afford to travel to the courthouse: Sometimes, it’s because they have to go see a specialist (or take their kid or spouse to see one); sometimes it’s because they had to sell their car to make a previous debt payment. When this happens, debt collectors like Michael Hassenplug from Account Recovery Specialists Inc. can ask the judge to issue a warrant for the debtor, who is taken to the local jail and hit with $500 in bail. Many can’t pay it, and stay in jail (Hassenplug insists that they’re not in jail for their debts, but rather for their failure to appear), while others who manage to borrow the $500 often find that it is then surrendered to the hospital and its arm-breakers. Meanwhile, the debts mount: In addition to punitive, usurious interest, the hospital and its debt-collectors reserve the right to lard on fees, fines, and penalties.”
Heather Boushey
Washington Center for Equitable Growth
Testimony before the Joint Economic Committee,
Hearing on “Measuring Economic Inequality in the United States”
October 16, 2019
Thank you, Chairman Lee and Vice Chair Maloney, for inviting me to speak today. It’s an honor to be here.
My name is Heather Boushey and I am President and CEO of the Washington Center for Equitable Growth. We seek to advance evidence-backed ideas and policies that promote strong, stable, and broad-based economic growth.
By any measure, income inequality in the United States has increased significantly over the past 40 years. This increase in inequality has constricted the growth of our economy and had an insidious effect on our political institutions. The topic of today’s hearing speaks to a small but significant step we can take toward more equitable growth.
One of the most important things we can do to fight inequality in the United States right now is to start keeping track of it. Government statistics—Gross Domestic Product growth, inflation, jobs added, wage increases—drive economic policymaking in Congress, the Federal Reserve, and executive agencies. Better measurements of inequality are overdue additions to this list.
To properly contextualize economic growth, policymakers should ask the U.S. Bureau of Economic Analysis, or BEA, to add measures of growth within income quantiles to the National Income and Product Accounts. This is what we at Equitable Growth call “GDP 2.0”—an extension to our existing National Income accounts that updates them to better reflect the realities of our 21st century economy.
I want to thank Vice Chair Maloney and Sen. Heinrich, as well as Senator Schumer, for introducing a bill in 2018 that would do just that and for continuing their efforts in this Congress. The Measuring Real Income Growth Act of 2018 would tell us what growth looks like for low-, middle-, and high-income Americans.
This bill would task the Bureau of Economic Analysis with adding distributional measures of growth to its quarterly National Income and Product Account releases so we could see not just that the economy grew by 2 percent or 3 percent, but also how much it grew for Americans of different incomes.
Publishing this information would have four important effects.
First, it will connect the idea of aggregate economic data to the real-life circumstances of families in the economy. When members of the working class see politicians touting strong growth but look around and see no evidence of it in their communities, they are right to feel that their economic needs are not being paid attention to.
Second, by highlighting differences in how the economy is working for different groups of workers, it will focus our attention on the economic well-being of most families.
Third, distributional measures of growth will guide policymakers in designing policies that both raise output and do it in a way in which everyone gains.
Finally, these metrics will allow citizens to hold their elected representatives accountable to delivering an economy that works for all.
It is critical to start capturing this data so we can ensure strong, stable, and broad-based economic growth. There is a large—and growing—body of empirical research that shows we cannot create strong or broadly shared economic gains through a policy agenda that presumes growth follows from allowing those at the top to reap the bulk of the gains. The policy agenda we have pursued for decades, driven largely by the desire to maximize GDP growth at any cost, is not delivering for American families and is creating inequities in the economy that actually constrict growth.
In the sections that follow, I will explain why GDP growth became such an important indicator of economic success, how it became a poor proxy for the success of the average American family, and why we need a GDP 2.0 to better capture the full range of economic progress that is experienced by Americans up and down the income ladder. In the final section, I explain how inequality is constricting growth in the economy.
One number for an entire economy
The National Income and Product Accounts were pioneered in the 1930s by the economist Simon Kuznets. At the time, it was a radical new development in economic measurement. It let policymakers see for the first time just how much had been lost in the Great Depression and later helped them understand how the U.S. economy could be harnessed to go to war. For this groundbreaking work, Kuznets won the Nobel Memorial Prize in economics.
The member nations of the Organisation for Economic Co-operation and Development, or OECD, at the time adopted Kuznets’ principals as a general framework and National Accounts became a global phenomenon. GDP, the most prominent measure of aggregate output in the National Accounts, has attained a unique level of authority to the exclusion of other markers of a nation’s development. Because it is standardized across nations and available as a relatively long time series, economists and policymakers alike have latched onto GDP as a way to adjudicate which national economies are best and to conduct inquiries into what makes some economies grow faster than others.
But this was never the intent of Kuznets himself. In a section of his 1934 report to Congress titled “Uses and Abuses of National Income Measurements,” Kuznets noted that, “The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income.”18 This is true for many reasons, but Kuznets was especially concerned with the distribution of resources in society. He understood that high aggregate output was not necessarily indicative of well-being if the underlying distribution of income was highly unequal. To address this concern, he helped compile some of the very first breakdowns of inequality by income quintile. For a short time in the 1950s, BEA regularly produced these statistics, but they were abandoned due to a lack of funding.19
Kuznets’ warnings have been repeated many times in the 85 years since he authored his report to Congress. Robert Kennedy famously echoed Kuznets’ warning when he said that GDP “measures everything … except that which makes life worthwhile.”20
GDP growth has been treated for decades by pundits and policymakers alike as synonymous with prosperity, but this is no longer a useful indicator of well-being. President John F. Kennedy famously alluded to it when he said that “a rising tide lifts all boats.” In the decades since, economists and commentators have used the metaphor of “growing the pie” to indicate that we should first and foremost be concerned with growing the economy rather than concerning ourselves with who gets a slice. But the pie is no longer growing for many Americans because much of the growth of the past four decades has been captured largely by Americans at the top of the income distribution.
Rising inequality means less informative aggregate statistics
Over the period from 1980 to 2016, average growth was about 1.4 percent annually. Yet the bottom 85 percent of all adults saw income growth lower than this. Only those in the top 15 percent experienced better-than-average growth.21 (See Figure 2.)
Figure 2
This is a new phenomenon. Prior to this period, there was little need to disaggregate national growth because the headline GDP growth statistic was broadly representative of the economy as experienced by most Americans. Average growth was around 1.7 percent between 1963 and 1979—higher than in the years since. And that growth was broadly shared, as the scatter plots of pretax and post-tax income growth for each percentile of income show in Figure 2. Most Americans saw income growth at or above that average.
Today, GDP growth is decoupled from the fortunes of most Americans. What was once a useful indicator of how most families were faring is now unmoored from the experience of most families. Today’s economy is growing slower than in the past, and much of this growth benefits only those at the very top of the economic ladder. Incomes for the working class and the middle class have grown slowly for decades while incomes at the very top have exploded.
Between 1980 and 2016, the bottom half of Americans by income saw average annual income growth of just 0.6 percent. The richest 10 percent of Americans, by contrast, enjoyed annual income growth of 2 percent, resulting in this group doubling their income over the 35-year period. But even they were left behind by the top 1 percent, who saw their income increase by 162 percent over the same period.22
The result is that the pretax distribution of income has returned to the Gilded Age levels of the 1920s. The story is not quite so dramatic after government taxes and transfers, but by either measure, the share of total national income held by the top 1 percent has nearly doubled since hitting lows in the 1970s. (See Figure 3.)
Figure 3
We see these same divergent trends across multiple measures of economic well-being: wages, income, and wealth. The implication for how we evaluate the economy is that mean economic progress is pulling away from median economic progress. Almost all of our national economic statistics are becoming less representative of the experience of most Americans. Reforming our national statistical infrastructure to account for this reality is long overdue.
GDP 2.0: Measuring what matters
GDP 2.0 refers to adding subpopulation estimates of income growth to our existing National Income and Product Accounts reports. Currently, the Bureau of Economic Analysis releases a new estimate of quarterly or annual GDP growth every month. Distributional national accounts would add to some of these releases 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 Distributional National Accounts (or DINA) dataset constructed by economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman disaggregates National Income growth from 1962 to 2016.23 This dataset gives us a complete picture of how inequality has changed in the United States over time and how recent growth in national output is being shared by Americans. In 2014, for example, total National Income growth was 2.1 percent. According to the DINA dataset, income growth for the lowest-earning 50 percent of all Americans was just 0.4 percent, while growth for the richest 1 percent of Americans was 5.3 percent.
The Bureau of Economic Analysis has begun studying how it could create its own similar dataset and has published preliminary findings for a small number of years in its Survey of Current Business.24
Members of Congress have also realized the importance of constructing these new indicators. In 2018, Sens. Charles Schumer (D-NY) and Martin Heinrich (D-NM) and Rep. Carolyn Maloney (D-NY) introduced the Measuring Real Income Growth Act of 2018 in both chambers. The Senate bill garnered 24 co-sponsors.
This initial legislative action has been followed by a flurry of further congressional interest. In March 2019, the conference report accompanying the Consolidated Appropriations Act of 2019 included a clause instructing Bureau of Economic Analysis to report income growth within deciles of income starting in 2020.25 In their appropriations bill for the Department of Commerce for FY2020, House appropriators instructed the agency to report on its progress toward the FY2019 appropriations language.26 Most recently, Senate appropriators allocated $1 million to the effort.27
It is expected that Bureau of Economic Analysis will publish a prototype set of distributional growth figures in 2020 in accordance with these instructions from Congress.
GDP 2.0 will inform policy
Distributional national accounts will be an important tool for crafting policy in today’s unequal economy. To give one powerful example, distributional national accounts might have allowed policymakers to spot and correct the significant decline in absolute intergenerational income mobility in the United States that occurred over the past 60 years.
It is intuitively unsurprising that societies with higher inequality are also societies with low economic mobility. Economist Miles Corak created what former Chair of the Council of Economic Advisers Alan Krueger called “The Great Gatsby Curve,” which plots the relationship between inequality and intergenerational mobility across countries. Countries with higher inequality tend to have lower economic mobility. Figure 4 shows one version of this curve.
Figure 4
While critics often suggest that the relationship is not causal, more recent research shows that increasing inequality in the United States has significantly reduced absolute intergenerational mobility. Economist Raj Chetty has shown that children born in 1940—just before the baby boom, when inequality was low and growth was high—had a 90 percent chance of earning more than their parents. In contrast, Generation Xers born in 1980, when income inequality was high and growth was low, have just a 50 percent chance of surpassing their parents’ income.28
More importantly, the evidence shows that even if children born in 1980 had experienced the same higher growth experienced by children born in 1940, this would have closed only about one-third of the mobility gap. But if children born in 1980 had instead faced the same levels of inequality as children in 1940 (even with the lower growth), this would have closed two-thirds of the mobility gap. Figure 5 illustrates rates of absolute mobility by parent income percentile and shows these counterfactuals.
Figure 5
The implication is clear: Growth alone is not enough to produce strong absolute mobility. Distributional national accounts would allow us to track how growth is distributed annually and manage the economy accordingly to increase economic mobility. Notably, to diagnose this problem, it is not enough to know that median household income is stagnant. Understanding how mobility might be changing requires a complete picture of how growth is accruing to families all along the income curve, including at the very top.
GDP 2.0 will help families understand the economy
In addition to helping policymakers craft responses to changes in our economy, GDP 2.0 will also help families across the country understand how economic growth is related to their own personal circumstances. The separation of average growth from the experience of most Americans, as demonstrated above, leaves many feeling alienated when media trumpets high growth that does not reflect their own situation or the situation of those in their communities. GDP 2.0 will help people understand how the economy is working for them.
Equally importantly, when the economy is not working for families up and down the income curve, that information will be widely known and voters will be empowered to hold policymakers accountable if the economy is not performing for all Americans. This link is important, because inequality isn’t simply bad for some families at the bottom of the income distribution. Inequality is bad for the economy itself.
Economic inequality is bad for the economy
The most critical reason we need to measure who is prospering from growth is because the levels of inequality we see now are harming our economy. Inequality constricts growth by:
Obstructing the supply of people and ideas into our economy and limiting opportunity for those not already at the top, which slows productivity growth over time
Subverting the institutions that manage the market, making our political system ineffective and our labor markets dysfunctional
Distorting demand through its effects on consumption and investment, which both drags down and destabilizes short- and long-term growth in economic output
Inequality obstructs the supply of talent, ideas, and capital
The economic circumstances into which children are born affect children’s development in everything from their health to their ability to focus at school to their educational opportunities, and these, in turn, affect their economic outcomes as adults. Research by economists shows the links between factors such as children’s varying birth weights and their different levels of school performance, job-holding, and earnings as adults, relative to others with similar skillsets.
Even when children have access to skills, inequality obstructs their contributing to the economy to the best of their abilities, and these obstructions hinder productivity and growth. Research led by Harvard’s Chetty measured what is more important to earning a patent later in life: scoring high on childhood aptitude tests or parental income. Disturbingly, the richer the family, the more likely the child will be to earn a patent—far outweighing demonstrated intelligence. If a child who shows aptitude early on cannot climb the income and wealth ladder, then there’s something broken in the way our economy works. Inequality has blocked the process and, as result, drags down national productivity by making our workforce less capable than it could be and our economy less innovative.
Inequality subverts the institutions that manage the market
Growing inequality is subverting the public institutions and the policymaking processes we need to support our economy. It discourages a focus on the public interest and promotes the efforts of firms to accrue larger profits than truly competitive markets would allow.
Today, firms are able to manipulate the functioning of the marketplace because economic inequality gives their owners the financial wherewithal to wield political influence. By exerting pressure on political processes, they can minimize the taxes on firms, owners of capital, and top-salaried workers. And they can rewrite laws and regulations in their favor. Research shows that lower taxes on those at the top of the income ladder do not lead to the kinds of beneficial outcomes some economists and policymakers suggest. The evidence is that when the rich pay less in taxes, it encourages them to act in unproductive ways. (See Figure 6.)
Figure 6
When a firm has too much power in its product or services market, it has monopoly power, which means it can raise prices with impunity and stymie competition. Indeed, our economy is increasingly dominated by a few firms in many industries. In healthcare markets, the biggest healthcare companies are increasing their stronghold by merging and then charging higher prices, which, in turn, leads to higher profits for managers and shareholders alongside less affordable—and sometimes lower quality—healthcare for everyone else. It also means lower wages for those working increasingly in what economists call “monopsony labor markets,” where there’s only one or a handful of employers in a given market, giving these firms outsized wage-setting power. What’s happening in healthcare is emblematic of changes across our economy.
By subverting our economy in various ways, inequality undermines confidence that institutions of governance can deliver for the majority. But for the economy to function, the public sector needs to function, and function well. In the 19th and 20th centuries, the U.S. government implemented policies that launched many families into prosperity with a solid financial foundation, including the Homestead Act, the estate tax, universal primary and secondary schools and land grant colleges across the nation, and the GI Bill. These policies weren’t perfect and were discriminatory in multiple ways, but they showed that the federal government could embark on big agendas to reduce inequality. Today, however, inequality in wealth and power is thwarting the government from taking on collective endeavors that provide the foundation for broad-based economic growth while promoting the interests of monopolists and oligopolists over others.
Inequality distorts both consumption and investment
Inequality distorts everyday decision-making by consumers and businesses. These outcomes are evident at the macroeconomic level. People’s spending drives business investment, as consumers account for nearly 70 cents of every dollar spent in the United States. But for the past several decades, U.S. families in the bottom half of the income distribution have seen no income gains, and the gains for those families not among the top 10 percent of income earners have been meager. This means that if firms were to invest more, they may not be able to sell additional goods and services because consumers might not be in positions to buy them.
Many businesses, eyeing demand, have understandably not invested much over this period. U.S. firms are sitting on record-high piles of cash, which have been steadily accumulating since the 1980s.29 Others have found customers willing to purchase their wares, but only because of the financially unstable expansion of household debt—as seen especially in the run-up to the Great Recession in the middle of the past decade, and as is occurring again today.30 Growing economic inequality thus destabilizes spending because everyday consumers either don’t have enough money to spend or are borrowing beyond their means to buy what they need.
Inequality is even driving changes in what firms are producing, with a number of economic implications for innovation and even inflation. Xavier Jaravel at the London School of Economics finds that businesses are investing in new products targeted at high-end consumers while developing fewer products for those in the lower end of the market. For those at the low end, there’s less competition for their business, which means lower productivity, lower innovation, and higher prices and inflation. This shows up in the data: Jaravel found that between 2004 and 2013, families with incomes greater than $100,000 per year saw yearly prices rise by 0.65 percent less than for families earning below $30,000 in the respective bundles of goods that those families bought.
With consumption dragged down by flagging middle-class incomes, too much money in the hands of those at the top, and investors sitting on the sidelines, conditions are ripe for an increase in the supply of credit. The deregulation of the financial sector over the past 40 years has made it easier to lend to U.S. households—in no small part due to the influence of the financial services industry. Empirical research and the U.S. experience over the past several decades show the consequences of these distortions and how credit-driven economic growth both increases economic instability and leads to lost economic opportunity.
Conclusion: Measure who prospers when the economy grows
Simon Kuznets knew that tracking GDP growth was not the endpoint for his National Income and Product Accounts. Much more needed to be done to ensure that the National Accounts were not just accounting tables but also could, in fact, say something meaningful about the well-being of American families. But despite some early progress toward adding a distributional component to the accounts in the 1950s, little changed over the next seven decades. It is time to fulfill this promise. Implementing GDP 2.0 will change our economic narrative and focus us on achieving broad-based growth. A new commitment to fighting inequality will, in turn, yield dividends for our economy.
In an attempt to minimize labor costs, employers in today’s U.S. economy saddle workers with last-minute and low-quality schedules. These schedules, sometimes referred to as “just-in-time schedules,” are unpredictable, unstable, and often provide workers with an insufficient number of hours. Today, sociologists Kristen Harknett at the University of California, San Francisco and Daniel Schneider at the University of California, Berkeley released new analyses drawing from surveys with 30,000 retail and food workers at 120 of the largest retail and food service companies in the United States to show who suffers from these schedules, and how.
Bad schedules, sometimes referred to as “just-in-time schedules,” are common for low-wage workers: Nearly 3 in 4 workers experience last-minute shift changes, two-thirds have less than 2 weeks’ notice of their schedules, and many face back-to-back closing and opening shifts, or “clopening” shifts, and on-call shifts.
Figure 2
Employers often talk about these practices as being “flexible,” which implies that schedules bend to the needs of workers. In reality, workers have little control over their schedules.
Figure 3
Bad schedules are prevalent, but they’re not distributed equally across the population. Workers of color experience more schedule instability than white workers, and the disparity is largest for women of color and Latinx workers. The disparity remains even when looking at similar workers employed by the same companies.
Figure 4
When hours fluctuate unpredictably, it is hard for workers to budget for necessities. Workers with just-in-time schedules are more likely to skip meals or rely on food pantries.
Figure 5
They are also more likely to find themselves moving in with other people to save money, or staying in shelters, cars, or abandoned buildings.
Figure 6
The problems posed by unstable and unpredictable work schedules ripple to the next generation. Parents with just-in-time schedules are more likely to rely on a patchwork of childcare providers, which can undermine childrens’ relationships to caregivers and increase stress, especially for very young children.
Figure 7
They also struggle to find satisfactory childcare at all: Their children experience moments in which they are cared for by a young sibling or have no childcare six more times per year than workers with better schedules.
Figure 8
Children suffer in ways that extend beyond childcare. Parental instability is linked to child behavioral problems such as worrying and arguing. The more schedule instability the parent experiences, the more common behavioral problems are.
Figure 9
When you think about it, the connection between parents’ schedule instability and their children’s behavioral problems makes sense. Just-in-time schedules are linked to economic insecurity for the entire household, lack of quality time with parents, and high parental stress. All of these factors affect child behavior.
Note: Chart 9 decomposes association between child behavior problems and a dichotomous variable indicating any scheduling problems. This association is not depicted in Chart 8.
Figure 10
With all these problems, it’s probably not a surprise that workers with low-quality schedules are more likely to leave their jobs.
Yet it’s also important to remember that leaving their jobs doesn’t enable workers to escape the problem—other research shows that turnover is associated with lower wages going forward in a worker’s career.
Back to Figure 3
Again, the negative impacts of just-in-time scheduling are more likely to be felt by workers of color, who have worse schedules than similar white workers employed at their same companies.
That means that workers of color and their families, also disproportionately experience the consequences of just-in-time schedules: hunger and housing hardship, difficulty arranging childcare, child behavioral problems, and job turnover. Just-in-time schedules thus amplify and perpetuate inequality along lines of race and ethnicity.
