Weekend reading: “Juneteenth” edition

Posted on by Maria Monroe

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

Equitable Growth round-up

Wednesday was Juneteenth, the holiday commemorating the end of slavery in the United States. In observance of the holiday, Liz Hipple and Maria Monroe did a round-up of some of Equitable Growth’s research and analysis on both the persistence of economic racial inequality between white and black Americans today and some of the reasons for it.

One overlooked contributor to wage stagnation over the past several decades is the shift from large firms doing many activities in-house to firms buying goods and services from a complex web of other companies, particularly in areas such as logistics, cleaning, and information technology. Susan Helper, an economist at Case Western Reserve University, explains how reliance on these supply chains depresses wages for workers, and recommends “high-road” policy solutions that acknowledge the important role supply chains play in businesses’ operations while addressing some of the consequences of them for workers.

Catch up on Brad DeLong’s latest worthy reads from Equitable Growth and around the web.

Links from around the web

In an essay for Democracy, Equitable Growth’s Executive Director Heather Boushey writes about the paradigm shift in the field of economics away from theory to empiricism and its implications for our understanding of how the economy actually works. [democracy]

The decline of the U.S. retail sector has gotten much less attention than the decline of other industries, such as manufacturing, writes The Washington Post’s Catherine Rampell. Part of that might be due the sector’s lack of a geographic concentration—there’s no equivalent Rust Belt—but also because of the demographics of who works in the different industries, and our gendered and racial views of who deserves sympathy as their industries decline. [wapo]

In an article for The Wall Street Journal about the increase in industry consolidation and concentration, Greg Ip discusses research by the Washington Center for Equitable Growth that finds that the number of enforcement cases brought by the U.S. Justice Department’s antitrust division against alleged anticompetitive agreements and monopolistic behavior has plummeted in the past decade. [wsj]

Gross Domestic Product is used as a default metric of economic growth by policymakers, but it fails not only to capture who is experiencing that growth but also whether it represents any meaningful improvement in people’s well-being. New Zealand has addressed that shortcoming by releasing a “Well-being Budget,” the goal of which is not to boost GDP but to increase the happiness and well-being of its citizens. [wapo]

On Wednesday, Juneteenth, the House Judiciary Committee held a hearing on reparations. Darrick Hamilton, executive director of the Kirwan Institute for the Study of Race and Ethnicity at The Ohio State University and an Equitable Growth grantee, spoke with NPR’s Noel King in advance of the hearing about some of the issues that reparations would address, including the racial wealth gap. [npr]

Friday Figure

Figure is from Equitable Growth’s, “How workplace segregation fosters wage discrimination for African American women” by Will McGrew.

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Brad DeLong: Worthy reads on equitable growth, June 14–20, 2019

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

  1. Relationships between user and supplier firms were never arms-length. But while the assumption that they were may have been a minor error three generations ago, it is a major error today. We need more people like Susan Helper thinking about the consequences of the information and technology flows generated in today’s value-chain economy. Such flows are a very important piece of our community of engineering practice. Read her “Building high-road supply networks in the United States,” in which she writes: “A different kind of outsourcing is possible—’high-road’ supply networks that benefit firms, workers, and consumers … collaboration between management and workers and along the length of the supply chain, sharing of skills and ideas, new and innovative processes, and, ultimately, better products that can deliver higher profits to firms and higher wages to workers. Firms could take a key step by themselves, since it could improve profits. Collaboration among firms along a supply chain can lead to greater productivity and innovation. Lead firms can raise the capabilities of supplier firms and their workers such that even routine operations can benefit from collaboration for continuous improvement.”
  2. This is exactly the kind of work we at Equitable Growth want to fund and see carried out by exactly the kind of young people we ought to be financing. It’s very well done. Read Ellora Derenoncourt and Claire Montialoux, “Minimum Wages and Racial Inequality,” in which they write: “The earnings difference between black and white workers fell dramatically in the United States in the late 1960s and early 1970s. This paper shows that the extension of the minimum wage played a critical role in this decline. The 1966 Fair Labor Standards Act extended federal minimum wage coverage to agriculture, restaurants, nursing homes, and other services which were previously uncovered and where nearly a third of black workers were employed.”
  3. Inequality leads to leverage. Leverage leads to instability. Instability leads to depression. Read Heather Boushey’s piece in Democracy, “A New Economic Paradigm,” in which she writes: “We should let go of the workhorse macroeconomic models … [that] have all but ignored inequality in their thinking … [making the] ‘implicit, if not explicit, assumption … that inequality doesn’t matter much when gauging the macroeconomic outlook’… [In] the long-term picture or consider[ing] the potential for the system to spin out of control … higher inequality increases the likelihood of instability.”
  4. I am trying to think through what the issues we should be talking about really are when we talk about “manufacturing jobs.” I am not having a great deal of success. Read my reponse to Noah Smith, in which I write: “Yes, Susan [Houseman] is right; yes, the index-number problem rears its ugly head; yes, there are absolute numbers and there are employment shares; yes, there is manufacturing; yes, there is noncomputer manufacturing; yes, there are traditional blue-collar occupations. One reading of Susan is ‘traditional blue-collar occupations are of special concern, and manufacturing excluding computers is important because computer manufacturing is not really a blue-collar semi-skilled easy-to-unionize source of employment.’ That characterization of computer manufacturing is increasingly true over time—but it also applies increasingly over time to sunbelt manufacturing as well.”

Worthy reads not from Equitable Growth:

  1. The Fed now seems to be saying: “We misjudged the situation late last year. We are going to reverse our policy. But not quite yet.” And I do not understand the frame of mind in which that is a coherent system of thought. I wish they would explain. Read Tim Duy’s take on the matter, “Rate Cut On The Way,” in which he writes: ‘The Fed turned … dovish … basically announcing a July rate cut … The proximity to the lower bound coupled with low inflation was always going to lead the Fed to err on the side of a rate cut. It just took them some time to find their way there … It would be exceedingly difficult to pull back on a rate cut now. Nor is there any reason to.”
  2. The evidence for the position that minimum wage increases can often be an effective policy for equitable growth continues to pile up. Read Péter Harasztosi and Attila Lindner, “Who Pays for the Minimum Wage?,” in which they write: “A large and persistent minimum wage increase in Hungary … Employment elasticities are negative but small even four years after the reform … 75 percent of the minimum wage increase was paid by consumers and 25 percent by firm owners; that firms responded to the minimum wage by substituting labor with capital; and that dis-employment effects were greater in industries where passing the wage costs to consumers is more difficult.”
  3. In very important dimensions, Europe is handling the coming of the Second Gilded Age significantly better than we are handling it here in the United States. Read Thomas Blanchet, Lucas Chancel, and Amory Gethin, “Forty Years of Inequality in Europe,” in which they write: “Despite the growing importance of inequalities in policy debates, it is still difficult to compare inequality levels across European countries and to tell how European growth has been shared across income groups. This column draws on new evidence combining surveys, tax data, and national accounts to document a rise in income inequality in most European countries between 1980 and 2017. It finds that income disparities on the old continent have increased less than in the United States and shows that this is essentially due to ‘predistribution’ policies.”
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Building high-road supply networks in the United States

Posted on by Maria Monroe

The lagging wages of workers in the United States is one of the most significant economic trends of the past several decades. Even with some signs of revival, wages are still lower than they were a decade ago. It is increasingly clear that increasing market concentration (“monopsony power”) and reduced labor union clout have played key roles in this decline of worker bargaining power.

But another important reason for stagnating wages is the outsourcing of work during this same time period. Large firms shifted from doing many activities in-house to buying goods and services from a complex web of other companies. These outside suppliers manufacture components and provide services in areas such as logistics, cleaning, and information technology. (See Figure 1.)

Figure 1

Some of this restructuring contributes to innovation. As final products have become more complex, it makes sense for large firms to purchase key components from firms that specialize in that technology or process. Supply networks based on product specialization do not necessarily reduce wages and could have the opposite effect.

But in other cases, firms outsource so as to offload production onto firms with weak bargaining power. These firms have little ability to compete except by aggressively holding down wages. David Weil has called this kind of separation of product markets and labor markets “fissuring.” This “low-road” model for the U.S. economy has weakened innovation and suppressed wages, and is contributing to the erosion of U.S. workers’ standard of living.

Decisions about how to structure supply chains matter greatly for working Americans, yet this topic rarely takes a front seat in discussions of policies to address income inequality. To remedy this oversight and stimulate equitable growth, policymakers must understand how the economic pie is created—not just how it is divided. Because of the size and importance of supply chains to the U.S. economy, their structure and governance are key determinants of the viability of efforts to improve job quality.

Overall, domestic U.S. firms purchase intermediate inputs equal to about 50 percent of their overall output, while intermediate outputs comprise 75 percent of the output of U.S.-based multinationals. Because of deregulation, market failures, and corporate policies, the providers of these intermediate goods are often small, weak firms that compete by cutting corners on existing products and processes and thus innovate less and pay less.

Low-road outsourcing is found in services such as payroll, janitorial work, and security, and now includes “employment activities that could be regarded as core to the company: housekeeping in hotels; cooking in restaurants; loading and unloading in retail distribution centers; even basic legal research in law firms,” as Weil has written. Some of these workers are in “alternative” forms of employment, such as independent contractors (whose work is often, in fact, overseen in quite a lot of detail by the employing firm, as at the giant shipping firm FedEx Corp.), temporary help, or other forms of gig work. A related phenomenon occurs when franchisors (for example, the fast food giants) use their market power to impose restrictions on their franchisees that result in suppression of wages. But much of the employment is in full-time, year-round employment—just at low wages and low benefits.

In manufacturing, supply chains made up of independent firms are now the largest driver of manufacturers’ costs, as detailed in Figure 2. Firms with fewer than 500 employees are an increasing share of manufacturing employment, accounting for 42 percent of such workers in 2012. These small firms struggle at each phase of the innovation process. They are only 15 percent as likely to conduct research and development as large firms. Small firms also struggle to obtain financing and a first customer to help them commercialize a new product or process. Finally, small manufacturers have trouble adopting new products or processes developed by others, due to difficulty in learning about and financing new technology. As a result, small manufacturers are only 60 percent as productive as large firms. (See Figure 2.)

Figure 2

These forms of outsourcing of employment, especially as carried out in the United States, typically create undesirable outcomes for workers in areas such as wages, benefits, job security, and safety. Job quality is typically lower at suppliers than at lead firms because of the barriers to innovation discussed above, which reduce productivity; the absence of pressures to reduce wage differentials within a firm due to norms of fairness; and greater pressure on wages at outside suppliers, which are more easily replaced than are internal divisions.

If purchasing firms focus only on price per unit, one of the few profit-making strategies available to firms lower down the chain is to keep wages as low as possible. Even though investments might yield productivity improvements, such firms often don’t make them because they lack the capability to do so or would not capture much of the benefit due to fierce competition. Their customers are often unwilling to help because some of the profits from implementing those processes might accrue to the supplier’s other customers, including competitors. This keeps workers in low-skill, low-wage positions and, because this model prevails through much of the U.S. economy, contributes to lagging wages nationally.

A different kind of outsourcing is possible—“high-road” supply networks that benefit firms, workers, and consumers. Under this model, there is greater collaboration between management and workers and along the length of the supply chain, sharing of skills and ideas, new and innovative processes, and, ultimately, better products that can deliver higher profits to firms and higher wages to workers.

Firms could take a key step by themselves, since it could improve profits. Collaboration among firms along a supply chain can lead to greater productivity and innovation. Lead firms can raise the capabilities of supplier firms and their workers such that even routine operations can benefit from collaboration for continuous improvement. By breaking down the usual silos within and between firms, they can ensure that workers along the chain are exposed to ideas and training to the ultimate benefit of all. Companies can, on their own, offer suppliers assurance that they will receive a fair return on their investments in new technologies and in upgrading their capabilities. Firms also could promote information-sharing and make changes based on suppliers’ suggestions. And firms could use a total-cost-of-ownership approach in their own purchasing decisions, adopting a holistic perspective on supplier companies rather than relying on price-per-unit alone.

Yet a variety of market failures prevent many firms from fully adopting these and other policies on their own, which is why public policies are needed to realize this vision. Government policies and actions to promote supply chain structures would stimulate equitable growth—that is, these policies would both promote innovation and ensure that the gains from innovation are broadly shared. There are a number of potential solutions at the national, state, and local levels.

Start by using the convening power of the U.S. government

The U.S. government, for example, could convene a broad range of stakeholders to create and continuously update strategic roadmaps of capabilities needed to address climate change. Recent strategies haven’t been coordinated, which has undermined our ability to lead internationally on key industries. One big case in point: The United States is still weak in battery technology. The U.S. government has done better in the past, with coordinated roadmapping, innovation, and government purchasing policies that created innovative industries in sectors ranging from agriculture to semiconductors. These policies were not perfect, denying African Americans access to policies that promoted decent incomes for family farmers, for example. But they could be easily improved upon today. The convening power could also share best practices in thinking about hidden risks and problems with lowest-unit-cost sourcing, hidden benefits of higher wages for workers and quicker reimbursement of suppliers.

The federal government could act as a high-road purchaser

Government can buy preferentially from companies that are innovative (as U.S. government purchasing jumpstarted the semiconductor industry). It can require its suppliers to pay “prevailing wages,” as is required in government-funded construction by the Davis-Bacon Act, a requirement that helps support the apprenticeships and training centers mentioned above. The Obama administration issued an executive order (which has now been overturned) blocking government purchases from companies with recent violations of labor laws. Government could also offer technical assistance to its own and others’ suppliers by expanding the Manufacturing Extension Partnership, which provides technical support for small and medium-sized manufacturers, and the Department of Energy’s Industrial Assessment Centers, which help firms redesign their operations to conserve energy.

Policymakers could nurture more productive ecosystems of firms, universities, communities, and unions

One reason for the struggles that small and medium-sized U.S. firms face is that they are “home alone,” with few institutions to help with innovation, training, and finance. For reasons of both equity and efficiency, these firms should not depend solely on their customers for strategic support. Germany’s Mittelstand (medium-sized firms) are the backbone of the German manufacturing sector due to the help they get from community banks, applied research institutes, and unions. In the United States, the unionized construction sector has developed structures that create good jobs and fast diffusion of new techniques, even though the industry remains characterized by small firms and work that is often intermittent.

Building-trades unions work with signatory employers to provide apprenticeships, continuing-education programs, and portable benefits. Other unions have begun similar efforts to create career ladders for workers in the hotel and hospital sectors. A century ago, the federal government created an innovative farming sector by funding land grant universities, which led not only to the creation of knowledge, but also created durable networks of researchers and practitioners through which such knowledge could quickly spread.

Higher wages and worker participation are key for high-road supply chains

Much research documents the ways that firms can utilize “high-road” policies or “good-jobs” strategies to tap the knowledge of all their workers to create innovative products and processes. High-road firms remain in business while paying higher wages than their competitors because their highly skilled workers help these firms achieve high rates of innovation, quality, and fast response to unexpected situations. The resulting high productivity allows these firms to pay high wages while still making profits that are acceptable to the firms’ owners.

Collaborative supply chain governance plays an important role in providing the stability needed to support these strategies, from which lead firms also benefit. To begin to restore wages and worker power, policymakers could raise minimum wages and make it easier for workers to choose a union. Knowing the need for supply chains always to be prepared to make “just-in-time” deliveries, the administration used that knowledge to make the threat of temporary shutdowns a more potent enforcement tool.

Policymakers should explore sectoral collective bargaining

Under the National Labor Relations Act, unions must negotiate with individual companies. Some have proposed amending the law to permit sectoral bargaining, in which negotiations between workers and employers cover an entire sector. This is how a number of European countries carry out collective bargaining, and it results in stronger union membership, greater worker influence over wages, conditions, and company operations, and less income inequality.

Policymakers could provide direct government services, as well as tax breaks

Simply taxing carbon isn’t sufficient to develop capabilities needed for a low-carbon economy. A coordinated approach is necessary to strengthen productive low-carbon ecosystems, simultaneously building both the demand for and the supply of assets needed for green operations such as trained workers, energy-conscious customers, capable suppliers, and producers with an understanding of energy-efficient production techniques. Similarly, simply taxing foreign producers via tariffs does not, by itself, revive supply chains that have been hollowed out over past decades.

One way of raising funds for government initiatives such as these detailed above would be to recoup the precious resources state and local governments spend seeking to attract firms to locate within their jurisdictions. Such subsidies amount to approximately $80 billion annually. A substantial portion of these expenditures goes to companies for doing something they would have done without the subsidies. Certainly, the country as a whole does not benefit when tax dollars are used to bribe private companies to locate in one U.S. location versus another. The federal government could discourage these competitions—and raise revenue—by subjecting the benefits companies receive to federal taxation. Between discouraging wasteful state and local expenditures and recouping some of the remaining expenditures, such a step could help government at all levels fund programs that genuinely support high-skill, high-wage employment.

The growth of low-road supply chains has contributed to lagging wages for U.S. workers. This decentralization of employers and processes, whether for services or products, is probably here to stay. When its purpose is to buttress quality and innovation through specialization, then this is a good thing. But policymakers at all levels of government can encourage companies, especially wise ones, with a combination of carrots and sticks, to ameliorate negative effects on innovation, profits, and, most importantly, wages, benefits, and other working conditions. These actions should be high on the list of actions taken in the next few years to strengthen the U.S. economy.

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For Juneteenth: A look at economic racial inequality between white and black Americans

Posted on by Maria Monroe
Juneteenth celebrations began in Galveston, Texas, in 1865 to commemorate freedom granted to U.S. slaves.

This Wednesday, June 19, is Juneteenth, the United States’ second independence day, marking the day in 1865 that many black American communities celebrate as the anniversary of their freedom. Juneteenth is now recognized as a holiday or special day of observance in 45 states and the District of Columbia, but these celebrations, while acknowledging how far we have come, also call out how far we still have to go.

Juneteenth is a holiday known to many people, but perhaps not to enough. It marks the day in 1865 when Union Major General Gordon Granger issued General Orders Number 3 in Galveston, Texas, announcing to the people of Texas that “in accordance with a proclamation from the Executive of the United States, all slaves are free.” While technically the Emancipation Proclamation had freed slaves living in the Confederacy on January 1, 1863, it wasn’t until Union troops arrived in an area that the law actually started being enforced. And so it was June 19 that the black residents of Galveston—and later, communities across the country—began celebrating as the anniversary of their freedom.

In observance of the holiday, the Washington Center for Equitable Growth is highlighting some of the research and analysis that both we and members of our academic network have done to explore both the persistence of economic racial inequality between white and black Americans today and some of the reasons for it.

In a working paper for Equitable Growth’s Working Paper Series, economists William J. Collins of Vanderbilt University and Marianne H. Wanamaker of the University of Tennessee analyzed the earnings gap between white and black men to see what its intergenerational persistence says about its causes. They looked specifically at whether poor white families experienced “slow convergence toward the population’s mean earnings historically,” because, as they explain in the accompanying column about their paper, if this is the case, “that would suggest that poverty’s historical legacy has been powerful and that the slow pace of black men’s advance may largely reflect their initial concentration at the bottom of the U.S. economic and social ladders. If not, then it would suggest that race-specific factors have been paramount.”

Collins and Wanamaker find that when you look at the sons of men who were in the 10th percentile of the income distribution, black sons grew up to rank approximately 20 percentile points lower than white sons, on average, across the 20th century, demonstrating the large and persistent role that race—rather than class—has played in the earnings gap between white and black men. (See Figure 1.)

Figure 1

Another Equitable Growth working paper illustrates the extra burden that black women bear because of the wage gaps—plural—that they experience: both the racial wage gap and the gender wage gap. The co-authors, Mark Paul of the New College of Florida, Khaing Zaw of Duke University, Darrick Hamilton of The Ohio State University, and William Darity, Jr. of Duke University, seek to quantify the cumulative impact of being both black and female, and find that the wage gap faced by black women is greater than the sum of its parts, as they explain in an accompanying column. Black women earn just 64 cents for every dollar that white men earn, which is above and beyond the wage penalty they experience when compared to black men and to white women.

Furthermore, Paul and his co-authors find that 55.5 percent of this gap cannot be explained by variables such as education, family structure, occupation, and industry. Differences in education and skills are often thought of as explanations for wage gaps between different groups of workers—and they are, to an extent. But, as this analysis shows us, wage gaps persist, even after controlling for these factors.

But talking about controlling for factors that could be logical reasons why one worker earns less than another overlooks the role that race and gender play in pushing people into certain occupations and industries and in influencing what is deemed to be the economic value of one job versus another job. As Equitable Growth Research Assistant Will McGrew explains, occupational segregation—the over- or underrepresentation of a demographic group in an occupation or industry relative to its share of the population—is one of the largest causes of the “explainable” wage gap black women face. (See Figure 2.)

Figure 2

The racial wealth gap is even larger than the racial income gap. While white families have median wealth of $171,000, black families have median wealth of only $17,600. Differences in income or education cannot entirely explain the wealth gap between white and black American families—the net worth of black families in the top income quintile is only $262,800, which is barely more than half that of white families in the top income quintile. In a Value Added blog post, former Equitable Growth Policy Analyst Bridget Ansel examined the wealth gap between white and black women, citing a report by Equitable Growth grantees William Darity, Jr. and Darrick Hamilton, among others, that found that even after controlling for education and income, black women had significantly less wealth than white women. For example, “The median wealth levels of single black women ages 60 and older with a college degree is $11,000, compared to a whopping median of $384,400 for their white counterparts, nearly 35 times the black median.”

Just one example of the power of policy to diminish economic racial inequality comes from the job market paper of Claire Montialoux, a Ph.D. candidate at CREST, currently visiting the University of California, Berkeley, and an Equitable Growth grantee. In the paper, co-authored with Ellora Derenoncourt, a postdoctoral research associate in economics at Princeton University and another Equitable Growth grantee, Montialoux and Derenoncourt find that the 1966 Fair Labor Standards Act—which extended the minimum wage to jobs in sectors previously excluded from minimum wage requirements, such as agriculture, restaurants, and nursing homes, and in which black workers were disproportionately overrepresented—can explain more than 20 percent of the decline in the racial earnings gap during the late 1960s and early 1970s.

In the more than 150 years since the first celebration of Juneteenth, legal barriers, policy choices, and discrimination have contributed to ongoing economic disparities between white and black Americans. While policy is responsible for many of the causes of the racial income and wealth gaps, that means it also can be used to close them.

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Weekend reading: “Inequality on the rise, recession on the horizon?” edition

Posted on by Maria Monroe

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

Equitable Growth round-up

Senior Director for Family Economic Security Elisabeth Jacobs introduced a new comprehensive report for Equitable Growth by Columbia University economist Jane Waldfogel and MPH student Emma Liebman on family care leave, which they emphasize includes, but is not limited to, parental care leave. Waldfogel and Liebman review the evidence on the advantages and costs of family care leave and argue that there is an urgent need for policy change to help Americans remain afloat while caring for seriously ill loved ones.

Economist Kate Bahn and Research Assistant Raksha Kopparam produced our monthly data analysis on the Job Openings and Labor Turnover Survey, or JOLTS, from the U.S. Bureau of Labor Statistics. While these figures document one of the tightest labor markets of this century, improvements in recent months have been marginal, begging the question of whether there remains any slack for further tightening.

Research Assistant Somin Park discussed the findings of a new paper on heterogeneous returns to wealth by economists Andreas Fagereng of Statistics Norway, Luigi Guiso of the Einaudi Institute for Economics and Finance, Davide Malacrino of the International Monetary Fund, and Equitable Growth grantee Luigi Pistaferri. Among other findings, Park highlights that risk compensation is insufficient to explain the substantially higher returns to wealth for the wealthiest taxpayers and mentions potential implications of this paper for future research and tax policy.

Park also penned a blog this week on new research from IMF economists Jonathan D. Ostry, Prakash Loungani, and Davide Furceri on the importance of distributional considerations in economic policymaking. In particular, the authors argue that policies that reduce inequality can strengthen growth and social cohesion, and they focus on the negative impacts of capital market liberalization and excessive fiscal consolidation on inequality in many contemporary economies.

In his weekly Worthy Reads column, Brad DeLong provides his take on recent research and writing in macroeconomics. While DeLong links to Bahn and Kopparam’s analysis showing a persistently tight labor market, he also notes that bond markets are increasingly concerned about a recession in the not-too-distant future.

In honor of Fathers’ Day, Equitable Growth released a working paper today on some unexpected benefits of workplace flexibility for fathers. The paper by economists Petra Persson and Maya Rossin-Slater at Stanford University leverages a difference-in-differences regression discontinuity design to show that postpartum and mental health improved for mothers whose male partners had access to an intermittent paid leave policy in Sweden. Equitable Growth also published a blog summarizing these finding in the context of other research and policy debates.

Links from around the web

Jeff Sommer wrote a column in The New York Times to mark 10 years of growth without a recession in the United States. Despite this positive momentum, Sommer points out that the economy faces headwinds in the form of trade wars, dramatic inequality, and other uncertainties—all of which have been reflected in inverted bond yields, sluggish job growth last month, and uneasy futures markets. [nyt]

Despite having experienced a decade of economic expansion, Sarah Foster of Bankrate summarized recent survey evidence that many Americans have yet to recover to their previous financial situations. Specifically, the survey data from Bankrate shows that 25 percent of Americans report having experienced no improvement from their prerecession financial state, while 23 percent of respondents reported that their circumstances have worsened. [bankrate]

Also in The New York Times, Jenna Smialek reports on the research and advocacy efforts of a new group, Employ America, to encourage the Federal Reserve to pursue loose monetary policy. From Employ America’s perspective, this is the most effective means of maintaining employment and encouraging wage growth for disadvantaged workers as the economy begins to show signs of weakness. The founder of the group, Sam Bell, notes in the article that these efforts are aimed at changing the mindset of monetary policymakers to have an inequality-conscious response through the next recession and expansion—and beyond. [nyt]

In Reuters, Edward Hadas likewise offers policy recommendations for more innovative fiscal and monetary responses to the next recession. Hadas argues that central bankers should shift their focus exclusively from setting the right policy interest rates to engaging in effective lending that increases capital investments and job creation in the real economy, as opposed to simply inflating financial asset prices. On the other hand, Hadas posits that federal politicians should look to jumpstart private activity and consumer demand by enacting certain tax changes (including potential job creation incentives), making effective public investments, and providing debt relief (especially for low-income workers). [reuters]

Friday Figure

Figure is from Equitable Growth’s,“JOLTS Day Graphs: April 2019 Report Edition.”

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For Father’s Day: Evidence from three countries on the importance of paid parental leave for new dads

Posted on by Maria Monroe

As we celebrate Father’s Day this weekend, in California, Rhode Island, and other states with operating paid leave policies, you may find fathers taking time away from the construction sites, office desks, restaurant kitchens, and hospital rooms where they are employed. They may be spending time caring for their new children—with pay. Sadly, many new fathers elsewhere in the United States do not have access to guaranteed paid leave to care for a new child. But evidence from recent studies conducted in three different countries—Sweden, Denmark, and Canada—shows that a paternal set-aside in paid parental leave programs can be beneficial for both fathers and mothers.

Paid parental leave—the ability of new parents to take paid time off from work after the birth or adoption of a child—is one of the fundamental benefits a society provides to workers to help them balance the challenges of work with the responsibilities and joys of parenthood. The United States, unfortunately, has no such federal program, although several states have begun to implement their own paid leave programs, and some 2020 presidential candidates have begun incorporating a national paid leave program into their campaign platforms.

Workers across the United States who are able to access leave rely on a patchwork of unpaid leave, employer-provided paid leave, or paid leave from state programs. Across these programs, the vast majority of parental leave is taken by mothers, in much the same way that women do a disproportionate amount of home work—both parenting and housework. According to Equitable Growth grantee Joan C. Williams of the University of California, Hastings College of Law, men “face as many struggles [as women] when it comes to using flexible work policies—if not more—because childcare, fairly or unfairly, is still seen as being a feminine role.”

But there is considerable evidence that greater involvement in parenting by fathers benefits child development and heightens fathers’ short- and long-term engagement with their children, among other upsides. Most developed countries have national paid leave programs, with varying parameters and revenue sources, and a number of countries are zeroing in on caretaking by dads and revising their programs to designate a portion of the benefit specifically for fathers—what some experts refer to as the “daddy quota.” The purpose of setting aside time for fathers specifically is to encourage them to take leave by ensuring that their taking time does not take paid leave away from mothers—mothers are not allowed to use these weeks—and to make clear that fathers taking time is seen as a societal good.

In 2012, for example, Sweden adopted a reform of its existing paid parental leave policy that effectively made it easier for fathers to take leave. Prior to this change, Sweden provided a total of 16 months of paid parental leave, but only permitted one parent to stay at home at a time, other than the first 10 days following the birth of a child, when both parents were allowed to be home together. The reform added flexibility by granting 30 days during which both parents could take paid leave, with the timing up to the parents and no requirement that the days be consecutive. Since mothers overwhelmingly were the individual parent who was at home, it is fair to assume that these 30 days of joint time effectively were additional time for fathers.

In their 2019 paper titled “When Dad Can Stay Home: Fathers’ Workplace Flexibility and Maternal Health,” Petra Persson and Equitable Growth grantee Maya Rossin-Slater, both of Stanford University, used this change as a way of determining what impact paternal leave-taking can have on mothers’ postpartum physical and mental health. Using Sweden’s administrative data, the authors compared the use and timing of fathers’ days off with mothers’ encounters with the healthcare system, and found that fathers’ leave-taking had a significant association with mothers’ reduced medical visits for childbirth-related complications, reduced prescriptions for antibiotics in the first six months post-childbirth, and reduced prescriptions for anti-anxiety drugs in the first six months after childbirth, particularly in the first three months.

Persson and Rossin-Slater write that the results suggest that simultaneous leave allows fathers to stay home and care for infants while mothers get the medical care they need, and that it reduces health complications that require medical visits. They write that even though fathers may only take a small amount of additional leave, the simultaneous-leave reform contributed in meaningful ways to mothers’ postpartum health by enabling mothers to get care when they need it, to get preventive care, or even just to get additional hours of sleep.

Benefits of paid paternal leave were also seen in Denmark after various changes were made to the Danish parental leave program between 1989 and 2002. In a 2018 paper, “Paternity Leave and the Motherhood Penalty: New Causal Evidence,” Signe Hald Andersen of the Rockwool Foundation Research Unit studied whether incentivizing fathers to take paid parental leave affects gender pay disparities within homes—in other words, does it encourage mothers to work more and have greater earnings and stronger careers, and does it have the opposite effect on fathers? Andersen suggests that childbirth drives the household gender wage gap—that there is a “motherhood penalty,” in which mothers suffer for their time away from the workforce and their need or desire for flexible or fewer work hours, while fathers experience a so-called fatherhood premium and tend to be more successful in terms of earnings and careers than nonfathers.

In order to determine if paternal leave reduces gender pay disparities from childbirth, Andersen studied various changes to the Danish paid leave program, including increasing and then decreasing the existing “daddy quota,” as well as compensation changes that increased incentives to take paid leave, which benefitted fathers more since they tended to earn more, among other reforms. Andersen concludes that Danish fathers nearly doubled their average leave time, from eight weeks to 15 weeks, and found that the overall impact on family wages, as well as on narrowing the within-household wage gap, is positive, mainly due to increases in mothers’ wages.

Likewise, a recent study of the Quebec Parental Insurance Program, or QPIP, not only finds significant impacts on paternal leave-taking, but also uses time diaries to explore whether fathers’ leave-taking has an equalizing effect on gender roles inside the home and in work outside the home. “Reserving Time for Daddy: the Consequences of Fathers’ Quotas,” a 2018 paper by Ankita Patnaik of Mathematica, looks at Quebec’s 2006 decision to leave Canada’s national family leave program, which is housed in the country’s Employment Insurance program, and establish the QPIP, the only provincial-level family leave program in the country.

The nationwide EI program offers maternity benefits in the weeks immediately following the birth of a child, plus parental benefits to be shared, however a couple decides, between mothers and fathers. QPIP goes a few significant steps further, providing greater flexibility by permitting parents to take their overall financial benefit in a shorter period of time, imposing less stringent eligibility criteria, and providing more generous compensation by replacing a larger percentage of lost income. Finally, and crucially, QPIP includes a paternal set-aside: five weeks of leave for the father that cannot be transferred to the mother.

Patnaik found that fathers responded in fairly dramatic fashion to the offer of paid paternity leave. Additional compensation was certainly a factor, but interestingly, dads also seemed to be responding to the fact that the leave was directed specifically at them. Even in families where the two parents had not been taking their full allotment of nongender-specific leave, men still increased their leave in response to the new program. Indeed, the average father took exactly five additional weeks of leave.

Patnaik also discovered that QPIP contributed to greater equality in and out of the home. Mothers spent more time in paid work and physically in the workplace, and were more likely to be employed full time. Both fathers and, to a lesser extent, mothers increased the number of hours they contributed to responsibilities at home, with mothers spending more of this additional time with their children and fathers primarily using the additional time for housework. Patnaik concludes that paternity leave can contribute to more equitable distribution of household duties, additional time for women in the workplace, and greater time spent with children. “Paternity leave,” she writes, “may present us with a rare win-win scenario.”

These new studies, and other evidence from countries around the world and from the states with paid leave programs, suggest that establishing a federal program in the United States to provide paid parental, caregiving, and personal medical leave would benefit workers, families, businesses, and the economy.

So, this Father’s Day, as we celebrate the fathers and father-figures in our lives, those who are lucky enough to be on parental leave can be grateful not only for the time they are spending with their new children, but also for the other benefits this leave brings to them and their families. The evidence clearly shows that paid leave policies can increase caregiving by dads, reduce gender pay disparities, and benefit society as a whole in the process.

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Brad DeLong: Worthy reads on equitable growth, June 7–13, 2019

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

  1. The aging of America and the provision of illness-care workers is no longer a within-family matter, posing great problems that policymakers have not done nearly enough to think about. Read Jane Waldfogel and Emma Liebman, “Paid Family Care Leave,” in which they write: “The unmet need for leave to care for a family member with a serious illness is actually more widespread and more frequent than it is for the other types of family leave. This is why its relative neglect in research and its uneven treatment by policymakers is all the more striking. For these reasons, this paper focuses on reviewing what we know and do not know about family care leave. In particular, this paper contributes to an understanding of the need for paid leave to care for a seriously ill family member and the current state of policy and research. In doing so, we draw on the best available research on family care leave where available, but because such research is often lacking, we also draw on evidence about family and medical leave more generally when necessary.”
  2. On the eve of the 2001 recession, the ratio of unemployed workers to job openings was higher than it is now—and yet there is still next to no upward wage pressure now. This is a puzzle. Read Raksha Kopparam and Kate Bahn, “JOLTS Day Graphs: April 2019 Report Edition,” in which they write: “The ratio of unemployed workers to job openings hit a new low of 0.78, with fewer than one person looking for a job for each open position.”
  3. “Statement on the Passing of Our Founding Funder, Herb Sandler”: “The Washington Center for Equitable Growth … would not exist without the support and leadership of Herb and the Sandler Foundation … He was generous with the resources of the Sandler Foundation and equally demanding when it came to creating, developing, and implementing their mutual vision of a nonprofit grantmaking organization that would fund original academic research and convey the evidence and policy ideas that emerged … The sadness felt by all of us at Equitable Growth is leavened by the knowledge that Herb lived to see the organization walk and then break into a run.”

Worthy reads not from Equitable Growth:

  1. I confess I do not understand what is to be done here—these internet platforms are not utilities (the technology is not stable and investments are not large enough), so rate regulation would seem inappropriate. The economies of scale on the production side and the economies of scope on the consumption side are very large, so it would seem inappropriate to sacrifice them to generate competition at the core services of each platform. Consumer surplus appears to be very large, so reducing the profits to successful innovators seems a very bad idea. And there is the question of whether these firms are giving their customers what they need instead of what they think they want—but do recall that, in early generations, one socialist critique of the market was that the market economy was making people unfree by failing to force them to wear identical blue overalls, drive identical utilitarian black cars, and listen to properly uplifting music: Read Ben Thompson, “Tech and Antitrust,” in which he writes: “That is not to say that tech deserves no regulation: questions of privacy, for example, are something else entirely. Nor, for that matter, is antitrust irrelevant in the United States generally: concentration has increased dramatically throughout the economy. What is driving that concentration matters, though: at the end of the day tech companies are powerful because consumers like them, not because they are the only option. Consumer welfare still matters, both in a court of law and in the court of public opinion.”
  2. The bond market thinks a recession is likely. The National Bureau of Economic Research—if it still paid attention to anything but payroll—would now be wondering when it should call the peak. But we seem to have decided that a recession is not a recession of economic activity in general from a previous peak, but rather a sudden, sharp, significant, and asymmetric fall in employment. The key would then be found in the hearts and minds of businesses: Are things likely to be bad enough in the future that we need to start shedding labor now? Can we use the excuse of ‘hard times’ to break our implicit contracts with our workers without incurring heavy costs in terms of reduced worker morale? When the answers two those two questions become ‘yes,’ that is a recession. We are not yet there—and we have no good models of what would push us there. Read Menzie Chinn, “Recession Anxieties, June 2019,” in which he writes: “Different forward-looking models show increasing likelihood of a recession. Most recent readings of key series highlighted by the NBER’s Business Cycle Dating Committee [or BCDC] suggest a peak, although the critical indicator—nonfarm payroll employment—continues to rise, albeit slowly.”
  3. A reminder that eliminating trade barriers and boosting trade through reducing tariffs, reducing quotas, and harmonizing regulations is one of the two things (along with deficit reduction at full employment when interest rates are high) we know how to do to materially and significantly boost prosperity in the medium run. Yes, it has an impact on income distribution. But everything has an impact on income distribution. Focusing your policies for equity on trade restrictions is counterproductive. Read Doug Irwin, “Does Trade Reform Promote Economic Growth? A Review of Recent Evidence,” in which he writes: “There appears to be a measurable economic payoff from more liberal trade policies … about 10–20 percent higher income after a decade … The gains in industry productivity from reducing tariffs on imported intermediate goods … show up time and again in country after country … As Estevadeordal and Taylor (2013, 1689) ask, ‘Is there any other single policy prescription of the past 20 years that can be argued to have contributed between 15 percent and 20 percent to developing country income?’”
  4. I am not sure whether what is needed is for economics to “go digital” as for economics to finally recognize what John Maynard Keynes called “the end of laissez-faire.” But since he wrote about the end of laissez-faire 94 years ago, I am not holding my breath for a better economics. Read Diane Coyle, “Why Economics Must Go Digital,” in which she writes: “Drug discovery is an information industry, and information is a nonrival public good which the private sector, not surprisingly, is under-supplying … Yet the idea of nationalizing part of the pharmaceutical industry is outlandish from the perspective of the prevailing economic-policy paradigm … Should data collection by digital firms be further regulated? … The standard economic framework of individual choices made independently of one another, with no externalities, and monetary exchange for the transfer of private property, offers no help.”
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Why it’s important to pay attention to distributional consequences of economic policies

Posted on by Maria Monroe

In the decades following the 1980s, free market policies dominated policy agendas across the world. The gains from growth, however, were not broadly shared within countries, as evidenced by the high levels of economic inequality in the United States and most other advanced economies. In a recent paper, a group of economists at the International Monetary Fund argue for a rethinking of the rules—actual or perceived—that guide economic policies, so that the distributional consequences are considered and addressed by policymakers.

In their paper, IMF economists Jonathan D. Ostry, Prakash Loungani, and Davide Furceri argue there are four primary reasons why it is critical to pay greater attention to how economic gains are shared up and down the income ladder. First, their research shows that economic inequality leads to lower and less durable growth. Even when growth is the primary goal, attention to inequality is necessary. Second, they find that economic inequality may lead to social tension and ultimately political backlash against free market policies, including globalization. Third, redistributive policies to curb excessive inequality tend to support, not slow, economic growth. And fourth, many aspects of economic inequality are the result of policy choices made by governments, meaning policymakers should factor in the distributional consequences when designing and evaluating policies.

A disproportionate focus on growth over distribution was solidified among economists during the 1980s with the consensus view that the benefits of growth would trickle down the income ladder. Governments and institutions such as the IMF dismissed questions of distribution as secondary to growth, based on their confidence in markets to reward everyone fairly and their belief that redistributive policies hurt growth.

Ostry, Loungani, and Furceri question this conventional wisdom by showing that high inequality is bad not only for social reasons but also for growth. An increase in the so-called Gini coefficient—a standard measure of inequality that runs from zero (perfect equality) to one (perfect inequality)—from 0.37 (like the United States in 2005) to 0.42 (like Gabon in 2005) decreases economic growth by 0.5 percentage points. The authors also find that economic inequality shortens the duration of growth. An increase of 0.01 in the Gini coefficient is associated with a 7 percent decrease in expected spell length, or a 6 percentage point higher risk that a growth spell will end in the next year.

Moreover, the authors prove that concerns about the negative growth effects of redistribution are misplaced. Although excessive redistribution policies can slow growth, redistributive policies to reduce inequality actually support growth, on average, contrary to what many policymakers think. Often, policymakers are facing not a tradeoff but a win-win situation, where redistribution can reduce inequality and boost growth.

Given these findings, which build upon their earlier work, how should the rules of economic policymaking be corrected? The authors focus on two policies—fiscal consolidation and capital account liberalization—to illustrate why centering distributional considerations in the evaluation of policies can provide better guidance.

Fiscal consolidation refers to the reduction of the size of government, through spending cuts, limits on deficit levels, or the privatization of government functions. The evidence suggests that for countries with a high risk of imminent debt crises and facing pressure from financial markets, fiscal consolidation can be necessary. Yet countries with a strong fiscal track record and low risk of a crisis—with what the authors describe as “ample fiscal space”—such as the United States, it is better to live with current levels of public debt rather than pay down the debt or ramp it up further. In the U.S. context, the authors find that it is better to live with significant amounts of federal debt and let future growth reduce the debt-to-Gross Domestic Product ratio, even with a framework that is biased toward consolidation.

Other research shows that moving from a debt ratio of 120 percent of GDP to 100 percent of GDP over a few years reduces the probability of a crisis marginally, but has a significant welfare cost due to the distortionary taxation needed to service the debt. In this scenario, the likelihood of a negative fiscal event, such as a government debt default or a spike in inflation, decreases minimally from an already unlikely 2.6 percent to only 2.4 percent. But the benefit is about 0.5 percent of GDP—just one-tenth of the welfare cost of paying down the debt through distortionary taxation.

Even in the short run, fiscal consolidation reduces output and raises economic inequality. Looking at fiscal consolidation policies across 17 advanced economies of the Organisation for Economic Co-operation and Development, Ostry, Loungani, and Furceri find that fiscal consolidation has been followed by a significant drop in economic output—about 2 percent 2 years after the policy change. And economic inequality rises simultaneously—the Gini coefficient increases by more than 3 percent 2 years after the policy.

The authors’ other policy focus—capital account liberalization, or the opening up of economies to foreign capital and investments—boosts growth minimally but worsens economic inequality significantly. Standard economic theory indicates that capital account liberalization is beneficial for economies because savings across the world can flow to their most productive uses through freer capital markets. But the authors find that, on average, capital account liberalization has little impact on economic output, confirming the results of other empirical studies. While national economies experience moderate increases in GDP when there are no crises, liberalization leads to significant declines in output when followed by crises.

Moreover, capital account liberalization policies lead to higher economic inequality, depending on whether there is a crisis after the policy change. In another paper, Furceri and Loungani find that capital account liberalization typically leads to an increase in the Gini coefficient of about 0.8 percent 1 year after the policy change, and about 1.4 percent 5 years after.

Based on their findings about fiscal consolidation and capital account liberalization, the authors ask “why support them if there are scarce efficiency benefits for them but palpable equity costs?” The answer is important because fiscal consolidation and capital account liberalization are two policies that have historically been at the center of the IMF’s economic reform agenda. This paper is one illustration of a shift in policy priorities at the IMF, where leaders increasingly recognize that liberalization and tight fiscal policy are not always suited for sustainable economic growth.

As the IMF marks its 75th anniversary, Managing Director Christine Lagarde has argued for a renewed approach that tackles economic inequality, as well as climate change and corruption. Inequality affects economies through various channels, whether it blocks opportunity and innovation for those not at the top of the income and wealth ladders, destabilizes growth by distorting demand, and disables political systems through the influence of the economic elite. The research from the IMF shows that inequality itself has a direct economic impact of lower and less durable growth.

This new body of research matters because it shows that many of the negative distributional outcomes stem from intentional policy choices, not just from technological developments or factors beyond the control of governments. The authors note that even with better designed policies, there will be a need for the redistribution of the gains from overall economic growth, which the evidence shows can be both pro-growth and pro-equality, through spending on education and taxes on activities with negative externalities such as excessive risk-taking in the financial sector. But, first and foremost, policymakers can support sustainable growth by paying more attention to the distributional consequences of economic policies.

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Wealthier individuals receive higher returns to wealth

Posted on by Maria Monroe

Wealth inequality has soared in the United States over the past three decades. Today, the top 1 percent own about 40 percent of the nation’s wealth, levels last seen during the Roaring Twenties. A growing body of research now suggests that those at the top not only own much more wealth, but also register higher rates of return from their wealth. Although there are conflicting findings on why the wealthy earn higher returns, these studies open the door to an important line of research that could give us insight into wealth inequality in the United States.

A recent working paper using Norwegian data shows that higher returns for wealthier individuals are persistent over time for the same individual and across generations—and not just because they are compensated for risk-taking. The paper (funded in part by Equitable Growth) by economists Andreas Fagereng of Statistics Norway, Luigi Guiso of the Einaudi Institute for Economics and Finance, Davide Malacrino of the International Monetary Fund, and Equitable Growth grantee Luigi Pistaferri of Stanford University studies individual returns to wealth over the entire wealth distribution, both within and across generations.

The authors use 12 years of tax records on the wealth and capital income of all taxpayers in Norway from 2004 to 2015. These exhaustive tax records are available in Norway because of a wealth tax that requires assets to be reported—often done by employers, banks, or other third parties, thereby reducing errors that arise from self-reporting. The authors also are able to match parents with their children, and thus look at intergenerational patterns in returns to wealth.

Individuals earn substantially different returns on their wealth. The four co-authors find 3.8 percent average returns on overall wealth (financial assets plus housing minus debt) with a standard deviation of 8.6 percent. The difference between the average return at the 10th percentile and 90th percentile of overall wealth is about 18 percentage points. Given that Norwegians in the bottom 20 percent of their nation’s wealth distribution have negative wealth—they have more debts than assets—the authors measure returns as a share of gross wealth to ensure that people with debt costs exceeding their asset incomes are counted as having negative returns.

Why do the wealthy get higher returns from their wealth? In part, it’s because they invest a higher share of their assets in the stock market and other risky assets, and therefore are rewarded for their risk tolerance with higher average returns. Wealthier investors also benefit from the scale of their wealth, for example, by using checking accounts that pay higher rates for larger deposits and buying financial advice that leads to higher returns—what the authors call “economies of scale in wealth management.”

Yet the authors also find that risk compensation and scale, while important, are not enough to fully account for the variation in returns, or, in economic parlance, “return heterogeneity.” Bank deposit accounts are safe assets that bear essentially no risk. If return heterogeneity were explained by compensation for risk-taking, then there should be no variation in the returns that people get from deposit accounts holding the same amount of wealth. The authors find, however, that there is sizable heterogeneity: People with more education tend to deposit at high-return banks. Persistent variation in returns is therefore also explained, in part, by differences in financial sophistication and differences in ability to access and use superior information about investment opportunities. (See Figure 1.)

Figure 1

Returns to wealth persist across time when looking at the same individuals, but do they also persist across generations? The intergenerational transmission of wealth is well-documented: It is widely understood that the children of wealthy families are likely to have a lot of wealth as adults. The authors find that, like wealth, returns to wealth are correlated intergenerationally, though there are important differences in how returns to wealth accrue across generations.

At the top of the wealth distribution, the intergenerational correlation is higher, while at the top of the returns-to-wealth distribution, the intergenerational correlation is lower. So, a child of Amazon.com Inc. CEO Jeff Bezos will hypothetically own an extremely high level of wealth later in life, but will not generate returns from that wealth as high as did Bezos himself. In economic terms, those returns for Bezos’ child “revert to the mean.”

Some of the intergenerational correlation in returns to wealth is explained by scale dependence in wealth (higher levels of wealth getting higher returns), but correlation can also come from children imitating their parents’ investment strategies or inheriting traits related to risk preferences or talent in investing. Returns also are correlated when parents and children share a private business or they live close to each other and so earn similar returns on housing.

Compared to the United States, income is much more evenly distributed in Norway, but wealth is similarly concentrated. Another study by Laurent Bach at ESSEC Business School and his co-authors using Swedish administrative data also finds substantial heterogeneity in returns to wealth and a correlation between returns and level of wealth. These authors, however, find that the higher returns earned by the wealthy are compensation for taking higher systematic risk, not the result of exceptional investment skill or privileged access to information.

Even if the reasons behind the variation in returns to wealth have not yet been fully explained, these studies improve our understanding of how returns to wealth differ across the wealth spectrum. On the policy front, return heterogeneity could mean that a wealth tax would be more efficient than a capital income tax. Replacing a capital income tax with a wealth tax reduces the burden on high-return investors and thus may motivate more wealth accumulation. But a wealth tax might also widen the disparities in rates of return.

An ancillary benefit of a wealth tax in the United States would be the collection of more accurate data to estimate and track the wealth of the wealthiest Americans—just as the Norwegian wealth tax enabled Fagereng and his co-authors to do their data-driven research. Their findings are an important contribution to the empirical literature on the variation in returns to wealth, which can help policymakers understand the trends and dynamics of the extreme concentration in wealth and design policies that ensure that wealth disparities aren’t deepening generation after generation.

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JOLTS Day Graphs: April 2019 Report Edition

Posted on by Raksha Kopparam

Every month the U.S. Bureau of Labor Statistics releases data on hiring, firing, and other labor market flows from the Job Openings and Labor Turnover Survey, better known as JOLTS. Today, the BLS released the latest data for April 2019. This report doesn’t get as much attention as the monthly Employment Situation Report, but it contains useful information about the state of the U.S. labor market. Below are a few key graphs using data from the report.

1.

The quit rate has held steady at 2.3% for 11 months, signaling worker confidence in the labor market.

2.

The ratio of hires to job openings increased slightly in April, as hires reached a series high of 5.9 million.

3.

The ratio of unemployed workers to job openings hit a new low of 0.78, with fewer than one person looking for a job for each open position.

4.

The Beveridge Curve continues its expansion, hovering around the same level for the past year.

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