Planning for the next recession by reforming U.S. automatic stabilizers

Posted on by Maria Monroe
In <em>Recession Ready</em>, experts from academia and the policy community propose six big ideas to be triggered when the economy shows clear, proven signs of heading into a recession.

When the U.S. economy is cruising down the road in high gear, as it is these days, it can be hard to focus on the next engine failure. Having occurred seven times in the past 50 years, recessions—like death and taxes—are inevitable. And they are painful, with harsh short-term effects on families and businesses and potentially deep long-term ill effects on the economy and society. But policymakers can ameliorate some of the next recession’s worst effects and minimize its long-term costs if they adopt smart policies now that will be triggered when the first warning signs of the downturn appear.

What are the best policies to put in place today? Policymakers need a guide, and Equitable Growth has joined forces with The Hamilton Project to advance a set of specific, evidence-based policy ideas for shortening and easing the impacts of the next recession. In a new book, Recession Ready: Fiscal Policies to Stabilize the American Economy, experts from academia and the policy community propose six big ideas, including two entirely new initiatives and four significant improvements to existing programs, all to be triggered when the economy shows clear, proven signs of heading into a recession.

Recession Ready was edited by Equitable Growth Executive Director Heather Boushey, Ryan Nunn, a fellow in Economic Studies at the Brookings Institution and policy director for The Hamilton Project, and Jay Shambaugh, director of The Hamilton Project, senior fellow in Economic Studies at the Brookings Institution, and professor of economics and international affairs at the Elliott School of International Affairs at The George Washington University.

Automatic stabilizers for the economy are anything but a new concept. When a recession hits, the tax system and a number of key programs, from Unemployment Insurance to Medicaid, already cushion its effects by giving families suffering from unemployment or underemployment greater resources to cushion the blow or, in the case of the tax system, taking less (or nothing) in taxes. These results are important not only for families but also for the overall economy, which desperately needs the injection of greater resources. But as we have seen in most recessions, the existing automatic stabilizers are not nearly enough.

Recessions have victims. Millions of workers can lose their jobs. A generation of young people seeking to enter the workforce may find it daunting or even impossible. Families must contend with depleted savings and making painful choices among life’s necessities. And thriving businesses, especially small businesses, can be brought to their knees, hurting employers and employees. What’s worse, the most vulnerable are disproportionately affected. Numbers from the most recent downturn, while a severe example—it’s called the Great Recession for a reason—give an idea of the potential damage. The unemployment rate doubled to 10 percent and took 7 years to get back to its pre-recession level, 8.7 million jobs disappeared, and more than 5 million additional people were thrown into poverty—a number that would have been far greater in the absence of the 2009 American Recovery and Reinvestment Act. There is evidence that these losses will have a long-term impact on careers and earnings, especially for those who entered the job market during the recession.

The new Hamilton Project-Equitable Growth book provides background on past recessions, establishes the need for action ahead of the next recession, and contains a chapter on each of the six concrete ideas. The four proposals for strengthening existing programs are:

  • When workers lose their jobs, the Unemployment Insurance system is a first line of defense for them and their families. It is also a critical automatic stabilizer in recessions, because spending ramps up substantially as unemployment mounts. Fewer workers, however, use the system than one might expect, and some are excluded by the program’s rules. The Extended Benefits program, which kicks in during periods of high unemployment, has not been effective in providing economic stimulus. Gabriel Chodorow-Reich of Harvard University and Equitable Growth grantee John Coglianese, now of the Federal Reserve Board, propose to expand eligibility for Unemployment Insurance and encourage take-up of its regular benefits. They also propose to strengthen the Extended Benefits program by several means, including making it fully federally financed.
  • It falls on the federal government to counter recessions, as most states are prevented from doing so by balanced-budget requirements. Indeed, these requirements sometimes force states to reduce benefits and cut spending generally in the wake of lost revenues. Healthcare is the largest single category of state funding and therefore critical to state governments’ response to a recession. A proposal by Matthew Fiedler of the Brookings Institution, Equitable Growth Steering Committee Member Jason Furman, and Wilson Powell III of Harvard University aims to reduce state budget shortfalls during recessions by about two-thirds and avoid state budget cuts during these periods by increasing the federal matching rate for Medicaid and the Children’s Health Insurance Program during economic downturns.
  • The Supplemental Nutrition Assistance Program is the largest program in the nation’s hunger safety net, reducing hunger and malnutrition for families and improving health, especially for infants and children. Because its benefits are spent quickly, it also boosts the economy, especially during a downturn. Yet current work requirements limit the program’s ability to help stabilize the economy during a recession, as finding work is an even greater challenge during economic downturns. Hilary Hoynes of the University of California, Berkeley and Equitable Growth grantee Diane Whitmore Schanzenbach of Northwestern University propose to limit or eliminate work requirements for supplemental nutrition assistance during recessions or permanently and to automatically increase benefits by 15 percent during recessions.
  • The Temporary Assistance for Needy Families program is a source of cash support for low-income families with children. It is a core part of the nation’s economic security system. But because the federal contribution is a fixed block grant to the states, it reaches only a small share of very disadvantaged families with children, and it does not serve as a stabilizer during economic downturns. Indivar Dutta-Gupta of the Georgetown Center on Poverty and Inequality proposes a countercyclical stabilization program through the Temporary Assistance for Needy Families program that would expand federal support for basic assistance during recessions and create a new, ongoing program to support state job subsidy efforts and provide a larger federal match of that state spending during economic downturns.

The two new automatic economic stabilizer programs in the Hamilton Project-Equitable Growth book are for infrastructure and direct payments to individuals:

  • Infrastructure spending provides a fundamental underpinning for economic growth, supporting good-paying jobs during its expenditure and contributing to economic activity with long-lived capital goods—new roads, bridges, and buildings. But new projects can be slow to get off the ground during a recession, reducing their potential cumulative impact as an economic stabilizer. Andrew Haughwout of the Federal Reserve Bank of New York proposes an automatic infrastructure investment program. The federal government would help states develop and maintain a catalogue of potential infrastructure projects, with the work on projects triggered at signs of a coming recession. Under the proposal, funding for the Better Utilizing Investments to Leverage Development, or BUILD, program, run by the U.S. Department of Transportation, would automatically be expanded in a recession to get top projects underway relatively quickly.
  • Research shows that significant, direct lump-sum stimulus payments to individuals in response to a recession are effective at boosting consumer spending quickly. Payments that are smaller or more spread out are not as effective. Equitable Growth Research Advisory Board Member Claudia Sahm of the Federal Reserve Board proposes to boost consumer spending during recessions by creating a system of direct stimulus payments to individuals that would be automatically triggered when rising unemployment signaled a coming recession. Additional annual payments would be triggered if the recession continued beyond the first year.

For the most part, these initiatives are countercyclical. As pointed out by the editors and Jimmy O’Donnell of The Hamilton Project in an early chapter, unemployment rates have reliably signaled the beginnings of recessions. These programs are to be triggered automatically by proven signs of a recession and expire when the economy is recovering. They inject funds into the economy to combat recession, and they withdraw those funds to avoid excessive stimulus during a recovery. Their activation would not prevent Congress and the administration from taking other measures to stabilize the economy during recessions and their aftermaths. But they would ensure significant, timely government action beyond the inadequate automatic spending that occurs under existing law. Because they affect different populations and have different implementation speeds, they are designed to be considered as a package in order to stimulate demand from individuals and families at all income levels and have a sustained impact. Congress should consider them now, because when the next recession appears on the horizon, it may be too late.

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U.S. Congress continues to make progress on drug price competition

Posted on by Maria Monroe

Legislation to address skyrocketing pharmaceutical drug prices by boosting market competition continues to be one of the few areas for bipartisan cooperation in the 116th Congress. On April 30, the House Judiciary Committee became the second committee to take unanimous action on legislation to address the market-bending actions that drug manufacturers take to reduce competition, passing four important bills. With the Energy and Commerce Committee having acted previously, the House is now poised to consider a package of pharmaceutical competition legislation to send to the Senate, where there is also considerable bipartisan support for action.

Like the Energy and Commerce bills, the measures passed by the Judiciary Committee on April 30 focus on company efforts to block or delay the development and marketing of generic drugs, medications that are essentially identical to the original brand drugs but that are sold at far lower prices, saving consumers billions of dollars on both drug purchases and insurance premiums. The introduction of generic drugs, originally made possible by the Hatch-Waxman Act 35 years ago, provides meaningful competition where there essentially was none and therefore threatens the profits of drug companies. Some companies have adopted the strategy to prevent or delay the introduction of generics. And they have used gaps in Hatch-Waxman and in other laws, as well as in enforcement standards, to develop successful tactics for preventing competition.

Meaningful competition is fundamental to a successful, equitable market economy, and the relative lack of it has helped to send prices in this industry out of control. As I told the House Judiciary Committee when I testified on these issues earlier this year, “[C]ompetition can play a vital role in promoting the development of new drugs and controlling costs … Today, however, competition is broken. It has become far too easy for companies to manipulate the system to delay competition and increase prescription drug costs.”

Three of the bills about which I testified are among the four included in the Judiciary Committee legislative package.

  • The Preserve Access to Affordable Generics and Biosimilars Act (H.R. 2375), sponsored by Committee Chairman Jerrold Nadler (D-NY) and Ranking Member Doug Collins (R-GA), addresses pay-for-delay agreements under which manufacturers of brand-name drugs pay a competitor not to produce a generic or biosimilar version of the drug.
  • The Creating and Restoring Equal Access to Equivalent Samples (CREATES) Act (H.R. 965), introduced by Reps. David N. Cicilline (D-RI) and Jim Sensenbrenner (R-WI), would prevent brand-name pharmaceutical companies from blocking the producers of generics from obtaining the samples they need of an original branded drug against which to test their own products to show the Food and Drug Administration, or FDA, that they are indeed equivalent. This is a common tactic for blocking new generics.
  • Finally, the Stop Significant and Time-wasting Abuse Limiting Legitimate Innovation of New Generics (Stop STALLING) Act (H.R. 2734), introduced by Reps. Hakeem Jeffries (D-NY) and Rep. Sensenbrenner would, according to the committee press release, “curb the abuse of the Food and Drug Administration (FDA) citizen petition process and expand access to prescription drugs by reducing incentives for branded pharmaceutical companies to interfere with the regulatory approval of generics and biosimilars that compete with their own products.” Further, it explicitly would allow the FTC to challenge this practice in federal court, overturning a recent federal court decision that severely limited the Commission’s authority.

The fourth Judiciary bill, the Prescription Pricing for the People Act (H.R. 2376), proposed by Reps. Collins and Nadler, calls for a study by the Federal Trade Commission on the state of competition in the drug supply chain. Its purpose is to determine whether or not pharmacy benefit managers have engaged in anti-competitive practices.

The bills passed by the Energy and Commerce Committee on April 4 include the CREATES Act and the Protecting Consumer Access to Generic Drugs Act (H.R. 1499), introduced by Rep. Bobby Rush (D-IL)—a measure that, like the similarly named Preserve Access to Affordable Generics and Biosimilars Act, addresses pay-for-delay agreements.

It’s anticipated that the committee-passed bills will be considered by the full House of Representatives as early as this week.

Two things that have been in short supply in Congress in recent years are bipartisanship and action of any kind to address concentration and revive competition in the U.S. economy. Enactment of these drug-pricing bills would help address both shortages.

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After Mother’s Day: Changes in mothers’ social programs over time

Posted on by Maria Monroe
Suffrage and labor activist Flora Dodge “Fola” La Follette (1882-1970), social reformer and missionary Rose Livingston, and a young striker during a garment strike in New York City in 1913.

Yesterday was Mother’s Day. If you celebrated, maybe you enjoyed a homemade card, brunch on the town, a floral bouquet, or a mostly edible breakfast in bed.

Today, I invite you to join me in thinking about how we as a nation craft the social programs that support our mothers. The first Mother’s Day was in 1905. Women in the United States at the time and since then have played twin roles: as producers of labor in their roles as workers and as reproducers of human life in their roles as mothers and caretakers. Women, of course, have always simultaneously worked in the market and parented at home, yet the value our society placed on these two types of women’s labor has changed over time—as have the social programs that support mothers.

As Anna Jarvis was crusading to get Mother’s Day a place on the nation’s calendar, her peers—wealthy, white women who shared her progressive, reform-minded impulses—were laying foundation for our modern social safety net. Though most of these women chose to pursue social change rather than traditional family life, as architects of Mothers’ Pensions, they sided firmly with the view that the woman’s sphere was in the home.

Mothers’ Pensions—which were passed into law state by state from 1911 to 1920—were targeted at widows and provided cash payments designed to simultaneously keep children out of orphanages and mothers out of the workplace. Along with cash payments came extensive monitoring and supervision, as proto-social workers pushed the predominantly white ethnic beneficiaries to embody American motherhood as they saw it (yes to church, no to garlic, no to work outside the home). These state programs paved the way for the federal laws that followed.

In 1935, Title IV of the Social Security Act established Aid to Dependent Children, which largely reflected the state system of Mothers’ Pensions. It was renamed Aid to Families with Dependent Children in 1962 and morphed into Temporary Assistance for Needy Families in 1996. By that time, our visions of both mothers and welfare recipients had shifted radically, and the program changed to mirror those shifts. Upper- and middle-class women had joined their working-class counterparts in the labor force and a social narrative formed to make sense of the idea of the working mother. Welfare recipients, once thought of as pitied but deserving white ethnic women, were now cast as black and undeserving.

In short, by 1996, our social pendulum had swung fully in the direction of mothers as producers. A central goal of Mothers’ Pensions had been to keep mothers at home, but the Temporary Assistance for Needy Families program instituted work requirements designed to push mothers into the workplace—regardless of how those jobs affected their ability to parent.

So, where does that leave us today? We are still firmly rooted in the vision of mother-as-worker. Social programs, from the Supplemental Nutrition Assistance Program to Medicaid, are considering attaching or strengthening work requirements. This dichotomy, of course, doesn’t buy us much. Today, as was the case for most women in 1905, mothers are both producers and reproducers.

Social programs that focus on only one of these roles are doomed to fail. When paid leave programs target mothers over fathers, women bear more of the housework burden—even when they return to work. Work requirements push women into jobs with erratic hours that leave their children’s caretaking needs unmet.

This dynamic causes double damage to our economy. Saddling mothers with a disproportionate amount of housework stops them from effectively deploying the human capital they have accumulated in the workforce. And lack of control over one’s work environment stops mothers from helping their children develop the human capital that our economy will need in the generation to come.

So, what’s the best way for the social safety net to help support mothers and their families and the broader economy? Research tells us that our old archetypes are not working. We need to build the social safety net around new archetypes that reflect the varied roles played by both women and men. This means accessible paid leave for people of all genders as they care for loved ones at all stages of the lifespan. It means affordable, high-quality childcare. And it means financial support without strings attached when work won’t work for one’s family or when income from work is not enough.

This also means revisiting another pet project of the women reformers of the early 20th century: labor standards. When mothers spend time both in the home and at work, we need social policies that target their lives at work, as well as at home.

If you celebrated Mother’s Day yesterday, perhaps there was a mimosa toast to a mother in your life—and perhaps during the toast someone emphasized her commitment to her role in the home, cooking dinner, or applying bandages to a scraped knee. But it’s important to remember her role in the labor force as well—generating income to keep the lights on and supplying labor to keep the economy humming—and the way the social safety net differentially supports and responds to the varied roles our mothers play.

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Weekend Reading “Mothers Know Best” 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

Alix Gould-Werth highlighted new research that gave insights on how staff at U.S. corporate headquarters could support managers in trying to provide their workers with predictable schedules. The researchers created an experiment designed to improve the predictability of retail workers’ schedules by posting schedules at the beginning of each month, yet they found that these changes showed no effects to scheduling stability. The reason: firms are valued based on short-term returns to shareholders and managers are incentivized to cut costs and staffing regardless of the negative impacts these actions may have on employees, employers, or the overall economy. Their findings suggest that a shift in firm operations that serve the larger economic good rather than just their shareholders would instigate a reshaping of firm-level decision-making that could eventually improve job quality and schedule stability.

In a new Competitive Edge blog post, Fiona Scott Morton, Jonathan Baker, Nancy Rose and Steven Salop reviewed the principles and history of vertical merger enforcement in the United States. They believe that the lack of vertical merger enforcement over the past 40 years needs to be remedied and recommended that the Antitrust Division of the Department of Justice and the Federal Trade Commission follow their recommended principles and presumptions to merger enforcement. These guidelines would allow the agencies to investigate vertical mergers that look to be anti-competitive.

The U.S. Bureau of Labor Statistics earlier this week released the newest data from the Job Openings and Labor Turnover Survey covering the month of March. Kate Bahn and Will McGrew put together four graphs utilizing JOLTS data.

Kate Bahn explains that while the “skills gap” has become almost conventional wisdom as an explanation for lagging wages, there is no empirical evidence to back up its theoretical foundation. Education and training are critical to boosting human capital, but there is plenty of evidence that the “skills gap” is largely a myth as an explanation for the wage problem. If the current small increase in wage growth in the United States is to be sustained, structural changes will be needed to support a higher minimum wage and improve and protect collective bargaining.

Brad DeLong compiles his most recent worthy reads on equitable growth both from Equitable Growth and outside press and academics.

Links from around the web

Leslie Albrecht of MarketWatch reviewed the launch of a new study that looks at how cash payments to low-income mothers affect childhood well-being. The researchers, which includes Equitable Growth 2014 Grantee Greg Duncan of the University of California, Irvine, recruited mothers below the federal poverty threshold to receive monthly cash payments for their baby’s first three years. The researchers believe that the money will support mothers’ ability to afford necessary goods and services for their infants and help alleviate some financial burdens. They aim to study the causal effects of these cash payments on financial behavior, parenting practices, and children’s cognitive development. [marketwatch]

Thousands of drivers for Uber Inc. on Wednesday protested the company’s driver-compensation practices ahead of its IPO release. They demanded better working conditions, increased pay transparency, health and disability insurance, and a seat on the Board of Directors in order to advocate for drivers’ rights. This demonstration highlighted the difference in working conditions between designated employees versus contract workers, who include rideshare drivers who do not qualify for benefits and conditions guaranteed to traditional employees. [vox]

Indeed’s Martha Gimbel and Equitable Growth alumni Nick Bunker found that part-time workers earn less per hour than full-time workers within the same occupation, and that the part-time penalty harms women the most because they make up a large portion of part-time workers. Mothers tend to seek out jobs where the part-time penalty is minimal, such as nursing or medical assistants, in order to avoid the penalty and maintain a flexible schedule. [indeed]

A recent op-ed by Facebook Inc. co-founder Chris Hughes in The New York Times explains how Facebook’s tactic of taking down competitors allowed the firm to acquire internet dominance over a short span of time. Hughes argued that the Federal Trade Commission’s lax antitrust enforcement allowed Facebook to buy Instagram and WhatsApp, two social media apps that turned Facebook into the premier photo-networking and real-time messaging platform. He noted that as a monopoly, Facebook has been able to take out competitors such as Vine and Snapchat by either blocking those platforms in Facebook’s interface or simply copying their model and integrating it within Facebook’s existing model. [nyt]

Harry Holzer at Georgetown University discussed how the 2017 Tax Cuts and Jobs Act claimed that corporate tax cuts would trickle down to employees in the form of pay raises, yet corporations instead mostly used the tax savings to increase stock buy-backs and give employees small, one-time bonuses. He offers an alternative option of adjusting the new tax law to give employees significant wage gains but maintain the overall size of the corporate tax cut. [wapo]

Friday Figure

Figure is from Equitable Growth’s “Competitive Edge: Principles and presumptions for U.S. vertical merger enforcement policy” by Jonathan B. Baker, Nancy L. Rose, Steven C. Salop, and Fiona Scott Morton.

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‘Skills gap’ arguments overlook collective bargaining and low minimum wages

Posted on by Maria Monroe
Opponents and supporters of former Gov. Scott Walker’s bill to take away public worker bargaining rights chant slogans and carry signs on February 19, 2011 in Madison, Wisconsin.

As the U.S. economy slowly but steadily recovered from the Great Recession beginning in 2009, Gross Domestic Product grew, employment rose, and the unemployment rate declined. These were all consistent with an economic recovery, but one very important metric has not caught up. Wages, seemingly defying the laws of labor supply and demand, remained essentially flat. The economy was growing, demand for workers was rising faster than the supply, yet the nominal price of their labor was not increasing any faster than inflation. As a result, the additional income produced by a growing economy was going not to workers, but to capital—investors and employers. And while real wage growth has begun to pick up in recent months, it is still below target for a tight labor market.

In the post-World War II era, as productivity rose, wages for U.S. workers went right up with it. Workers enjoyed the fruits of their hard work, made ever more efficient and productive by improving technology. But in the 1970s, as the Economic Policy Institute has demonstrated, wages and productivity became decoupled. As the EPI figures show, productivity has risen fairly steadily since then, yet wages have stagnated.

Over time, one theory—which was advanced about the flattening of wages and today is almost accepted wisdom—was that wages were rising at a healthy clip for skilled workers; it was only relatively low-skilled workers for whom wages were flat. There were higher-skilled jobs available, the theory went, but not enough workers with those skills. Hence, the supposed “skills gap” between supply and demand for skills.

But if the problem of growing wage inequality were primarily a problem of skills, then to make wages grow, policymakers would need to reduce the skills gap. The way to do that, so the argument still goes, is for workers to become better educated and better trained by getting higher degrees and by learning new trades. And this should be a priority for government—to fund such skills acquisition across the age and educational spectrum.

Yet interestingly, and not coincidentally, among those supporting this interpretation of wage stagnation most aggressively were businesses. It was as though employers had nothing to do with setting those flat wages. And it was as though businesses had no responsibility to train their workers in new skills so they could earn higher wages. For businesses, fixing the skills gap rested on the shoulders of workers themselves, perhaps with support from the government by making education more accessible.

There’s no question that investment in human capital—in education and training, in particular—should be a high priority. Such investments pay dividends for individuals, for the economy, and for society. Moreover, this is a shared responsibility of government, individuals, and, yes, businesses. But education and training are only a necessary condition for wage growth, not a sufficient one. Moreover, whether the amount of such investment was related to the flattening of wages is an entirely different matter.

Indeed, as the recovery nears its decade-long mark and the jobs market continues to tighten, wages have finally begun to move upward modestly because of a tightening labor market. But there is a way to go for wages to reach a level reflecting long-run productivity increases and to overcome historical wage disparities between groups of workers.

The skills gap isn’t the problem

The skills gap has always been an interesting idea, but there has never been empirical evidence to back up the underlying theoretical foundation. While it’s true that workers with more education tend to earn more, disparities by race and gender within education levels are still rampant. In recent years, some outstanding research has taken a look behind the curtain of this popular story.

In 2016, Alicia Sasser Modestino of Northeastern University, Daniel Shoag of Harvard University, and Joshua Balance of the Federal Reserve Bank of Boston found that a significant element of the alleged skills gap was inflated job requirements. These researchers showed that when the labor market was slack during the Great Recession and the years following, employers engaged in “opportunistic upskilling” by adding job requirements that they had not deemed necessary before. Those requirements tended to fall by the wayside as the recovery proceeded and the job market became more robust.

In 2018, Heidi Shierholz and Elise Gould of the Economic Policy Institute showed that real wages were not rising significantly even in high-skill occupations with very low unemployment. If there were a skills shortage, they argued, then wages would be rising in the occupations where those shortages existed. They noted that computer and mathematical science occupations—the skills for which often figure in conversations about skill shortages—had a low unemployment rate of 2.3 percent in 2018 but real wage growth of less than 1 percent.

Plus, there is a spate of evidence that a worker’s level of education, while certainly important to wage levels, is not conclusive. Race, in particular, is shown to be a significant factor in wage differentials. A 2014 Center for Economic and Policy Research report by Janelle Jones (now of the Hub Project) and John Schmitt (a former Equitable Growth research director and now of EPI) showed that white college graduates recovered far more rapidly from the Great Recession than did black college graduates. One reason is that black college graduates, on average, are younger than white graduates, but this does not explain the entire disparity between the groups.

Another piece of evidence that a skills gap was not the cause of stagnating wages is related to the significant increase in the number of care-work jobs, which face a pay penalty owing to the societal devaluation of care work—not because it is not actually valuable, as shown in research by Equitable Growth grantee Nancy Folbre of University of Massachusetts Amherst and Paula England of New York University. Rachel Dwyer of The Ohio State University showed that care work specifically illustrates the problem of increasing job polarization. As the U.S. population has aged, there has been a sharp rise in care-work employment, and it has been predominately in low-skill, low-wage jobs. While there are high-wage positions as well, there are not the kind of middle-wage jobs to which low-wage workers would gain access by gaining new skills.

Diminished union power and low minimum wages are the problem

What, then, explains the decades-long stubbornness of wages, including in the years the U.S. economy was recovering from the recession?

As a partial explanation, a growing number of researchers are pointing to monopsony—the power of individual firms in an increasingly concentrated economy to set wages, rather than the broader labor market setting wages through competition for workers. Douglas A. Webber of Temple University, in his 2015 paper “Firm market power and the earnings distribution,” found labor supply elasticity to be lower than it would be in a competitive market, thus showing that firms were able to exercise greater power over the wages of their workers. As I’ve written previously, he found that “dynamic monopsony across the economy may be one of the reasons we experience high income inequality in the United States, and why most workers have not been able to share in the economic growth of the wealthiest nation.”

Another important contributing factor is the steep, decades-long decline in union membership. In their working paper, “Unions and Inequality Over the Twentieth Century: New Evidence from Survey Data,” Suresh Naidu of Columbia University, Henry S. Farber and Ilyana Kuziemko of Princeton University, and Daniel Herbst, now of the University of Arizona, concluded that there is a sustained wage premium for union membership, and that this premium is most significant for lower-wage workers. They concluded that there is a significant relationship between the level of U.S. union membership and the level of inequality in the U.S. economy.

Each of these explanatory factors for wage stagnation—the rise of monopsony and the decline of unions—points to the role of power in wage determination. Likewise, the wage disparities experienced by nonwhite workers and women who have equivalent education to their white and male counterparts is also due to structural power imbalances resulting from historical legacies of racism and sexism. If the current small increase in wage growth is to be sustained, not only in the current recovery but also when the economy inevitably slows, structural changes will be needed. In the imperfectly competitive monopsony model, employers are able to set wages below the marginal revenue productivity of labor. This deadweight loss can be reduced or eliminated by increasing minimum wages and through effective collective bargaining by unions against monopsonistic employers.

There is no denying the importance of education and training to long-term outcomes for workers. But that does not mean the solution to stagnant or inadequate wage increases lies in addressing a skills gap. To address the wage problem, Congress and regulators need to ensure that workers retain the ability to organize into unions, and unions need to have the power to bargain collectively—and effectively—to negotiate fair wage levels. In addition, policymakers need to establish wage floors that spill over into higher pay for workers along the distribution. Policies like these will compensate for power imbalances that have maintained wage stagnation.

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Brad DeLong: Worthy reads on equitable growth, May 3–9, 2019

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

  1. This surprises me: “Motherhood” is not what I would have expected to see as one of the most durable and stubborn forms of either statistical or prejudicial discrimination. Yet here it is. Read Eunjung Jee, Joya Misra, and Marta Murray-Close, “Motherhood Penalties in the U.S., 1986-2014,” in which they write: “The motherhood penalty remains quite stable over time … The gross gap in pay between childless women and mothers of two or more … has narrowed … because mothers’ have increased … education and workforce experience.”
  2. If you are in Washington, D.C., sign up for our joint event with the Hamilton project on Thursday, May 16. You will not be sorry. Here’s the invitation: “Preparing for the Next Recession: Policies to Reduce the Impact on the U.S. Economy.”
  3. It is certainly true that you have to look at both demand and supply to figure out what happens in equilibrium. But Milton Friedman’s first rule is that supply curves do slope upward. Things have to be very weird indeed for equilibrium effects to do more than modestly attenuate impact effects. Sometimes things are really weird. But that is not the way to bet. Read “In Conversation with Raj Chetty,” in which he notes: “Empirical research has recently mainly been focused on identifying individual-level effects. But trying to figure out how things play out in equilibrium is a very challenging problem, which, I think, is something we should have on our agenda to focus on going forward.”
  4. The late and persistent apparent rise in margins pretty much everywhere in the U.S. economy is one of the most surprising things to happen in the past generation. I do not know anyone very confident about why this has taken place or what all of its implications are. But it does seem highly likely that it calls for tougher antitrust policy. Here we have some very smart words from a murderers’ row of thoughtful experts—Jonathan B. Baker, Nancy L. Rose, Steven C. Salop, and Fiona Scott Morton. Read their “Competitive Edge: Principles and presumptions for U.S. vertical merger enforcement policy,” in which they write: “Agencies should consider and investigate the full range of potential anti-competitive harms … Agencies should decline to presume that vertical mergers benefit competition on balance in … oligopoly markets … Agencies should evaluate claimed efficiencies resulting from vertical mergers as carefully and critically as they evaluate claimed efficiencies resulting from horizontal mergers … Agencies should decline to adopt a safe harbor for vertical mergers, even if rebuttable … Agencies also should consider adopting presumptions (rebuttable) that a vertical merger harms competition when certain factual predicates are satisfied.”

Worthy reads not from Equitable Growth:

  1. This paper seems to rest on a distinction between “removing inefficiencies” and “transformational growth” that they do not theorize, yet should. That very few of those countries that have grown faster than the North Atlantic economies over the past two decades are on anything like South Korea’s trajectory is surely true. But why not? Why doesn’t the removal of one inefficiency lead to a chain-reaction removal of others? Read Paul Johnson and Chris Papageorgiou, “It’s too Soon for Optimism about Convergence,” in which they write: “Many analysts … claim that poorer countries are catching up with advanced economies … [But] most of the economic achievements in developing economies have been the result of removing inefficiencies which are merely one-off level effects. While these effects are not unimportant and are necessary in the process of development, they do not imply ongoing economic growth.”
  2. Picking winners—seeing which are the industries in which subsidizing efficient producers will produce large externalities via the creation of communities of engineering practice—has never been that difficult. It has been actually winning that is difficult: creating the institutional and political-economic discipline so that the subsidies flow where they should, rather than where the politically powerful wish them to flow. What is nice about Reda Cherif and Fuad Hasanov’s new working paper is that they have some good suggestions as to how to make this more general than it has been. Read Andrew Batson’s take on the research, “Rediscovering the Importance of Export Discipline,” in which he writes: “The new IMF working paper on industrial policy, by Reda Cherif and Fuad Hasanov, has gotten a lot of notice … But for anyone who has already done some reading on the history of successful Asian economies, particularly Taiwan and South Korea, it is not exactly surprising.”
  3. It is interesting to note that Adam Smith’s one explicit use of the phrase “Invisible Hand” in his Wealth of Nations is not a situation in which the competitive market equilibrium is Pareto-optimal. It is of a situation with two market failures—a home bias psychological failure among the merchants of Amsterdam, and agglomeration economies for mercantile activity in Amsterdam. And the two offset each other. Read Glory Liu, “How the Chicago School Changed the Meaning of Adam Smith’s ‘Invisible Hand,’” in which she writes: “For Friedman and Stigler, economics’ scientific power came from its ability to predict outcomes based on two central insights … self-interest … [and,] of course, the invisible hand … What makes the Smith of Milton Friedman and George Stigler so … problematic … is that they ‘economized’ Smith in a way that obscured if not precluded the relevance of his moral philosophy.”
  4. A new book is out about equitable growth, Jump-Starting America, which I have just added to my must-read list. No, I have not read it yet, but check out Jonathan Gruber and Simon Johnson’s recent video on the topic at the Institute of International Economics.
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JOLTS Day Graphs: March 2019 Report Edition

Posted on by Will McGrew

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 March 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 quits rate held steady at 2.3% for the 10th month in a row, reflecting a steady labor market where workers are confident leaving their jobs to find new opportunities.

2.

The rate of hires-per-job opening was little changed at 3.8%, reflecting 5.7 million hires in March.

3.

The number of job openings increased to 7.5 million in March and remains below one, indicating fewer unemployed workers than there are job openings.

4.

The Beveridge Curve continues to reflect an expansionary labor market, above the levels of the early 2000s expansion because of the historically low unemployment rate.

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Competitive Edge: Principles and presumptions for U.S. vertical merger enforcement policy

Posted on by Maria Monroe

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. Jonathan B. Baker, Nancy L. Rose, Steven C. Salop, and Fiona Scott Morton have authored this month’s 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.

Jonathan B. Baker Nancy L. Rose Steven C. Salop Fiona Scott Morton

Most discussions of U.S. merger policy focus on horizontal mergers. These are transactions that combine firms at the same level of production, such as would have occurred in the wireless phone telecommunications sector when AT&T Inc. attempted to acquire T-Mobile US, Inc. By contrast, vertical mergers combine firms at different levels of production, such as when AT&T acquired Time Warner in 2018. Vertical merger analysis also applies to the combination of firms producing complementary products, such as when Ticketmaster Entertainment LLC acquired the live events promotion company LiveNation.

U.S. antitrust laws cover vertical mergers, and the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice investigate them. Until the recent AT&T/Time Warner case, however, the agencies had not litigated a vertical merger in court for 40 years. There are only about two vertical merger enforcement actions per year across the two agencies. These are seldom resolved with divestitures or merger abandonments, but rather are routinely settled with consent decrees that regulate behavior.

There seems to be consensus that the DOJ’s 1984 Vertical Merger Guidelines, now 35 years old, reflect neither modern theoretical and empirical economic analysis nor current agency enforcement policy. There also is little dispute that antitrust enforcement should be based on rigorous economic analysis. Yet widely divergent views of preferred enforcement policies were expressed by the FTC’s commissioners when resolving office supply company Staples, Inc.’s acquisition of Essendant and Fresenius Medical Care AG’s acquisition of NxStage, by the various amicus briefs filed in connection with the appellate review of the Justice Department’s unsuccessful challenge to AT&T’s acquisition of Time Warner (here, here, and here), by Assistant Attorney General Makan Delrahim, by the participants the FTC’s competition policy hearing on vertical mergers, and by two of us (here, here, and here).

This broad range of views suggests the difficulty that the two federal antitrust enforcement agencies will face in formulating new vertical merger guidelines. The D.C. Circuit’s decision in United States v. AT&T offered some guidance by applying the same legal standards for vertical mergers as are applied to horizontal mergers, but the court left substantial gaps that the agencies will need to fill.

Based on our review of the economic literature on vertical integration and our experience analyzing vertical mergers, we are concerned that there is too little vertical merger enforcement. Recent empirical studies have identified a number of cases in which vertical mergers have led to higher prices. And a recent private antitrust case successfully attacked a merger that was both vertical and horizontal and had been cleared by the Justice Department in 2012 with no remedy.

We recommend an approach to reduce false negatives, which erroneously allow mergers that harm competition, while keeping low the risk of false positives, which erroneously condemn mergers that are pro-competitive. Our analysis focuses on oligopoly markets where vertical mergers are most likely to raise concerns and most likely to be subject to agency investigation and enforcement. Oligopoly markets are those with a small number of competitors and barriers to entry, where the firms take rivals’ responses into account when making market decisions. These include digital markets where production economies of scale and network effects can create oligopoly structures and entry barriers, leading to the exercise of market power and raising competitive concerns with vertical mergers.

We recommend that the two antitrust agencies adopt the following five principles to guide vertical merger enforcement, which we discuss in more detail in our longer article.

  • The agencies should consider and investigate the full range of potential anti-competitive harms when evaluating vertical mergers.
  • The agencies should decline to presume that vertical mergers benefit competition on balance in the oligopoly markets that typically prompt agency review, and not set a higher evidentiary standard based on such a presumption.
  • The agencies should evaluate claimed efficiencies resulting from vertical mergers as carefully and critically as they evaluate claimed efficiencies resulting from horizontal mergers, and should require the merging parties to show that the efficiencies are verifiable, merger-specific, and sufficient to reverse the potential anti-competitive effects.
  • The agencies should decline to adopt a safe harbor for vertical mergers, even if rebuttable, except perhaps when both firms compete in unconcentrated markets.
  • The agencies also should consider adopting presumptions (rebuttable) that a vertical merger harms competition when certain factual predicates are satisfied.

We set out several possible presumptions here that could be invoked when at least one of the markets is concentrated. These identify conditions under which economic analysis suggests that the merger creates the greatest likelihood of anti-competitive effects. By successfully establishing a presumption, the plaintiff would satisfy its prima facie case, thereby shifting the burden of production to the merging firms. These presumptions are:

  • Input foreclosure presumption. One concern is that a vertical merger will harm competition in the downstream market if the upstream merging firm in a concentrated market is a substantial supplier of a critical input to the competitors of the other merging firm, and a hypothetical decision to stop dealing with those downstream competitors would lead to substantial diversion of business to the downstream merging firm. This diversion might be increased if other upstream suppliers raise their prices in response. In this situation, a vertical merger can raise the costs of the unintegrated rivals and permit the merged firm to exercise market power in the downstream market.

  • Customer foreclosure presumption. A mirror effect can occur that harms competition in the upstream market if the downstream merging firm is a substantial purchaser of the input produced in a concentrated upstream market, and a decision to stop dealing with the competitors of the upstream merging firms would lead to the exit, marginalization, or significantly higher variable costs of one or more of those competitors by diverting a substantial amount of business away from them. In this situation, a vertical merger can reduce competition in the upstream market and permit the merged firm to exercise market power. It also can lead to an increased likelihood of input foreclosure.
  • Elimination of potential entry presumption. Competition also may be harmed if either or both of the merging firms has a substantial probability of entering into the other firm’s concentrated market absent the merger. In this situation, the merger would eliminate the possibility that entry—or the fear of that entry, if the incumbent firm charges excessive prices—would make the market more competitive.
  • Disruptive or maverick seller presumption. One seller can constrain coordination in its concentrated market if it has different pricing incentives from the other firms. A vertical merger that eliminates a downstream firm that has prevented or substantially constrained coordination in the upstream market can harm competition if the upstream market is concentrated and the upstream firm supplies the maverick’s competitors. In this situation, the constraining influence of the disruptive or maverick firm could be eliminated, leading to higher market prices.
  • Disruptive or maverick buyer presumption. This presumption would be invoked if the downstream merging firm purchases the product sold by the other merging firm or its competitors—and, by its conduct, that firm has prevented or substantially constrained coordination in the sale of that product by the other merging firm and its competitors in a concentrated input market. In this situation, the constraining influence of the disruptive or maverick firm could be eliminated, leading to higher market prices.
  • Evasion of regulation presumption. If the downstream firm’s maximum price is regulated, competition nonetheless may be harmed from a vertical merger. This can occur, for example, if the regulation permits the downstream firm to raise its price in response to cost increases. The regulated downstream firm could raise the price of the input supplied to it by its upstream merger partner, increasing upstream profits and downstream prices. Evasion of regulation could also occur if the merger involves firms that sell complementary products. The newly merged firm could raise the price of the bundle and attribute the price increase to the unregulated product.
  • Dominant platform presumption. Competition may be harmed if a dominant platform company acquires a firm with a substantial probability of entering in competition with it absent the merger, or if that dominant platform company acquires a competitor in an adjacent market. Rivals in vertically adjacent or complementary product markets are often potential entrants, so this presumption reaches nascent threats to competition created by eliminating the potential entrants through the merger. This presumption can be understood as an application of the elimination of potential entry presumption and an input or customer foreclosure presumption in a setting where network effects and economies of scale would be expected to raise barriers to entry, and thus endow a dominant platform with substantial market power.

If the two antitrust enforcement agencies adopt any or all of the presumptions, then they should allow them to be rebutted by evidence showing that anti-competitive effects are unlikely. Hence none of the presumptions would create a per se prohibition of vertical mergers. The agencies also should continue to investigate vertical mergers that raise competitive concerns even if these presumptions are not applied. These presumptions set out conditions where concerns are greatest. These are not the only conditions where there are potential concerns.

Vertical mergers can substantially harm competition. Adopting these five principles will anchor effective vertical merger enforcement by reducing false negatives while keeping false positives low. We hope the agencies will follow our recommendations. These recommendations also could be useful to the courts, or if the Congress decides to amend Section 7 of the Clayton Antitrust Act.

The authors are: Jonathan Baker (research professor of law, American University Washington College of Law; chief economist, Federal Communications Commission, 2009–2011; director, Bureau of Economics, Federal Trade Commission, 1995–1998); Nancy L. Rose (Charles P. Kindleberger Professor of applied economics and department head, Massachusetts Institute of Technology; deputy assistant attorney general for Economic Analysis, U.S. Department of Justice, 2014–2016); Steven C. Salop (professor of economics and law, Georgetown University Law Center); and Fiona Scott Morton (Theodore Nierenberg Professor of economics at the Yale School of Management; deputy assistant attorney general for Economic Analysis, U.S. Department of Justice, 2011–2012). The issues discussed in this column are examined in more detail in the authors’ longer article that will be published this summer in Antitrust magazine.

How corporate headquarters could support store managers in providing predictable work schedules

Posted on by Maria Monroe

Over the past decade, a new body of research has emerged showing that when low-wage workers in the United States are confronted with unpredictable schedules, they suffer vis-a-vis their pocketbooks, productivity, psychological well-being, and physical health. So, too, can their employers because the profitability of companies can take a hit when they rely on unpredictable work schedules for their employees. Cities from Emeryville, California to Philadelphia are taking notice and passing fair workweek laws that are designed to improve schedule quality for food service and retail workers.

When policymakers think about who ensures that low-wage workers in the service and retail sectors have predictable work schedules, they may imagine a manager in the backroom with a calendar and a marker and the ability to craft a schedule thoughtfully and in advance. But new research published in the journal Work and Occupations suggests that it might make more sense to instead picture a polished office in corporate headquarters, where executives in suits sit around a conference table discussing labor budgets, product shipment timelines, whether a sale will boost profits, and whether building a sense of team should be part of the corporate culture. The new study suggests that decisions in corporate headquarters related to budgets, sales, product shipment, and worker retention have the power to improve the predictability of worker schedules.

To conduct the study, Susan Lambert, Julia Henly, and Meghan Jarpe of the University of Chicago—along with Michael Schoeny at Rush University—worked with an unnamed national women’s clothing chain to conduct an experiment in which they tested an intervention designed to improve the predictability of worker schedules. They randomly assigned some of the firm’s stores to post four weeks of work schedules at the beginning of the month (though managers could make changes to the schedule at any point). This was the “treatment” group. All other stores were in the “control” group and continued to post schedules as usual—posting a weekly schedule a few days before the workweek began. The four researchers measured employees’ experiences of schedule predictability using an employee survey in all stores before and after the treatment stores implemented the intervention, and they then conducted interviews with managers to understand how the intervention worked.

Initially, some managers expressed hesitation about the intervention, but when the study got underway, they complied as best they could, with “treatment” store managers posting schedules further in advance than those in “control” stores. Many of the “treatment” managers reported that, in the end, they liked the change to scheduling practices and even wanted to continue implementing a version of it after the study concluded.

Yet when the researchers compared the treatment and control groups at the end of the study, they found no differences in how predictable employees perceived their schedules to be across treatment and control stores. And that’s where things get interesting.

The researchers combed through their interview data to understand why they weren’t seeing effects. One major take-away was that when schedules were posted at the beginning of the month, workers still only had a few days’ notice of their shifts for the first days of the month and thus may have continued to feel as though their schedules were not predictable overall. Another take-away was that managers made frequent changes to the posted schedules. The researchers listened carefully to what managers said about the factors that made it hard for them to post schedules in advance, which may have also prevented them from sticking to the schedules as posted. Again and again, managers described decisions coming out of company headquarters as impediments to creating predictable schedules.

This is interesting because the company they studied voluntarily participated in the study. The head honchos at the firm wanted to see what would happen if workers had more predictable schedules, and they allowed their managers to participate in the study and make changes to improve predictability. But it turns out that the power to provide predictable schedules is in the hands of both headquarters staff as well as frontline managers.

Decisions made by headquarters staff, for example, included holding sales and product shipments, both of which can affect whether managers have the information they need to plan schedules in advance. At the retail firm under study, the managers would work to implement the intervention but then would find out at the last minute about a sale (which would increase store traffic) or a product shipment (which workers need to unpack) and would then need to increase staffing. These managers reported that more notice from headquarters would support them in designing a schedule they could provide in advance and stick to.

Additionally, to provide advanced notice to workers effectively, managers needed timely information about monthly budgets and dedicated time to work on crafting schedules. But headquarters did not allot manager time for making schedules and did not always provide budget information in a timely manner. Two managers explained: “When [I] was given the payroll hours on time, [I] was able to post more schedules in advance,” and “Getting the entire month [of] payroll at one time [from corporate headquarters] is the number one factor in being able to [provide advance notice of schedules to workers].”

Finally, companies make many decisions that affect worker turnover, and when turnover is high, it makes the schedules of all employees unpredictable. A manager interviewed by the research team explained, “You just can’t schedule people you don’t have. I was doing schedules and I was just typing in the word “new hire” instead of the actual person’s name with the hopes I would hire a new person by the time I got to that week. So when I actually did hire a new person, I would have to go in again and tweak the schedule to when they are available.”

This finding—that corporate decisions that are seemingly unrelated to worker schedules can shape the stability and predictability of work schedules—is echoed in other research. In a study of a scheduling intervention at the retailer The Gap Inc., researchers found that last-minute changes to product shipments, unexpected sales, and even spur-of-the-moment visits from corporate leadership affected the ability of managers to plan schedules in advance. Describing visits from corporate leadership, one Gap manager remarked that “We got four days’ notice [for a visit from corporate leadership]. I had to add in 100–150 hours [to the schedule to prepare the store],” and another noted that she “probably extended 2–3 shifts every day in the run up to the visit.”

This new and existing research shows how corporate decisions on subjects from shipment schedules to store visits can unexpectedly influence frontline worker schedules. What does that mean for policymakers who want to improve scheduling practices?

First, the exciting news is this: The study shows that even when managers balk at changes to scheduling practices, they can comply with those changes and are sometimes surprised by how much they like the new practices. Perhaps this is not so surprising given the many similarities between many workers and managers.

Then, the lesson learned is this: When a company implements new scheduling practices, change should ripple up and down its organizational chart. In thinking about how multifaceted change could occur, the study’s authors make the point that the way companies structure their work reflects trends in larger society. Employers, for example, make last-minute decisions about shipment schedules and promotions because of the financialization of the economy: Their firms are valued based on short-term returns to shareholders, which means that employers have incentives to cut corners (and staffing) even when these choices may be harmful to employees, employers, or the economy in the long term.

The authors point out, though, that just as larger societal trends can affect the actions of firms and the well-being of workers, so too can firms and workers shape these larger societal trends. Local fair workweek laws and the federal Schedules That Work Act are designed to curb companies from making last-minute schedule changes in an attempt to turn a quick profit, but if enough laws such as these are passed and enforced, then they can also fundamentally reshape the way firms think about their role in the economy. The study’s authors note that it is this type of cultural shift—a re-orientation of thinking, where firms serve the broader economic good rather than narrowly focusing on their shareholders—that would ultimately facilitate the ability of firms to reshape the way decisions are made across the organization and improve job quality.

Each small action taken by firms, policymakers, and workers to improve scheduling practices can build toward a larger cultural shift. This new research from Lambert, Henly, Jarpe, and Schoeny suggests that employers who hope to improve the schedules of their workers by directing managers to provide predictable schedules to frontline workers—and, in the process, improve worker well-being, long-run profits, and the health of the broader economy—should take a holistic look at company practices so managers have the support they need to improve worker schedules.

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Weekend reading: “A shifting economy” 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

Equitable Growth’s Will McGrew breaks down recent research from Equitable Growth grantee Alexander Bell and co-authors Raj Chetty, Xavier Jaravel, Neviana Ptekova, and John Van Reenen suggesting that exposure to innovation is more effective than financial incentives stimulating innovation.

Liz Hipple and Elisabeth Jacobs highlight increasing economic inequality over the past several decades and how it impacts U.S. economic mobility with the help of an infographic included below.

Equitable Growth’s chief economist Heather Boushey had an op-ed in The Guardian where she explains how in order to have an economy where growth is widely shared, we must first reexamine how we judge what economic progress looks like and change the power dynamics in the labor market itself.

Brad DeLong rounds up his latest worthy reads on equitable growth from both inside and outside Equitable Growth.

Elisabeth Jacobs explains how research on paid leave, especially research based on existing paid family and medical leave policies in the United States, should inform how state and federal policymakers think about how best to design an effective paid leave policy that meets the needs of working families.

Bonnie Kavoussi details how rising corporate monopoly and monopsony power is increasing income inequality in the United States.

Kate Bahn and Will McGrew dissect the latest data on the labor market for the month of March in Equitable Growth’s monthly Job’s Day graphs report.

Links from around the web

We’ve all heard that robots are taking over our jobs, but The Week’s Jeff Spross thinks we should shift focus to another narrative. Spross highlights research that suggests the automation taking place now is no different than what we have seen in past eras, and the real issue is rising inequality, stagnation, and unemployment made by poor policy choices and power dynamics in the U.S. economy. (theweek)

Sarah Chaney and Eric Morath of The Wall Street Journal outline a recent shift of women filling jobs in male dominated, blue-collar fields. While the number of women in the workforce over the past decade has stayed consistent, more women have taken jobs as truck drivers, plumbers, police officers, and auto mechanics. (wsj)

The New York Times’s Noam Scheiber breaks down the U.S. Department of Labor’s recent decision that an unidentified company’s workers could be classified as contractors instead of employees. This would set up the ability for other companies to avoid paying its workers the federal minimum wage and overtime. (nyt)

Economics professor Daron Acemoglu at the Massachusetts Institute of Technology discusses on Project Syndicate how technology can be used to enhance worker productivity and that the falloff in the creation of high-wage jobs isn’t an inevitable result of advances in artificial intelligence and robotics. (projectsyndicate)

As the first Medicare-for-all hearings begin on Capitol Hill, Vox’s Dylan Matthews offers an alternative: Medicare for Kids. Matthews argues that since kids would age out of the proposed program rather than age into it (as retirees do currently with Medicare), it would create a natural constituency for a future Medicare-for-all initiative because these people would want to hold onto a benefit they currently enjoy. (vox)

Friday Figure

Figure is from Equitable Growth’s “Rising income inequality exacerbates downward economic mobility” by Liz Hipple and Elisabeth Jacobs.

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