Brad DeLong: Worthy reads on equitable growth, March 22–28, 2019

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

  1. This week’s absolute must-read, from Greg Leiserson, Will McGrew, and Raksha Kopparam. It is excellent. I would note that it does not get much into the political economy of wealth taxes—that one goal of them is to persuade the wealthy to distribute their wealth and thus reduce the amount of control over society that they exercise. Read their “Net Worth Taxes: What They Are and How They Work,” in which they write: “Notably, a business does not pay tax on its assets. Instead, shareholders pay tax on the value of the business … The revenue potential of a net worth tax in the United States is large, even if applied only to the very wealthiest families. The wealthiest 1 percent of families holds $33 trillion in wealth, and the wealthiest 5 percent holds $57 trillion. The burden of a net worth tax would be highly progressive. The wealthiest 1 percent of families holds about 40 percent of all wealth … Taxes on wealth—including property taxes, net worth taxes, estate taxes, and capital gains taxes, among others—are ubiquitous in the developed countries that make up the … OECD … Assets have value because of the income (implicit or explicit) they are expected to generate. As such, taxing wealth through a net worth tax and taxing income from wealth through a tax on investment income can achieve similar ends.”
  2. Note this and note this well: The principal reason U.S. relative female labor-force participation is lagging behind OECD peer economies is that our society is markedly less friendly to women working outside the home than our peer societies are. Read Elisabeth Jacobs and Kate Bahn, “Women’s History Month: U.S. Women’s Labor Force Participation,” in which they write: “A change in direction for U.S. policies related to childcare and early education, along with a strong national paid leave policy for family leave could help to reverse the downward trend of U.S. women’s labor force participation and put it back on the same path that most other developed countries are on.”
  3. From 2016, this paper did not get the attention I believe it deserved: How higher labor standards affect how firms behave on the ground. This type of work is extremely valuable—indeed, essential to place statistical patterns in proper context—is difficult to do, and so needs to be highlighted more. Read T. William Lester, “Inside Monopsony: Employer Responses to Higher Labor Standards in the Full-Service Restaurant Industry,” in which he writes: “Employer responses to higher labor standards through a qualitative case comparison of the full service restaurant industry … San Francisco—where employers face the nation’s highest minimum wage, no tip credits, a pay-or-play health care mandate, and paid sick leave requirements—and … North Carolina’s Research Triangle region—where there are no locally-enacted labor standards … higher labor standards led to wage compression in San Francisco even while some employers continued to offer greater benefits to reduce turnover. Employers in San Francisco exhibit greater investment in finding better matches and tend to seek higher-skilled, more professional workers, rather than invest in formal in-house training. Finally, higher wage mandates in San Francisco have exacerbated the wage gap between front-of-house and back-of-house occupations—which correlate strongly with existing racial and ethnic divisions. Initial evidence shows that some employers have responded by radically restructuring industry compensation practices by adding service charges and in some cases eliminating tipping.”
  4. Somehow, I have not yet noted here the existence of Rodney Andrews, who is now—with Logan Hardy and Marcus Casey—merging the Raj Chetty and others’ Equality of Opportunity dataset with other information sources in what looks, to me, like a very promising line of research. Read Bradley Hardy, Rodney Andrews, Marcus Casey, and Trevon Logan, “The Historical Shadow of Segregation On Human Capital And Upward Mobility,” in which they write: “Regional differences in opportunity might be explained not only by contemporary characteristics but also by historical disparities. The researchers will merge the Panel Study of Income Dynamics (PSID) with Raj Chetty and others’ Equality of Opportunity dataset, and the Logan-Parman index of inequality.”

Worthy reads not from Equitable Growth:

  1. The old “secular stagnation” of the 1930s and 1940s was a fear that the world was approaching satiation with respect to things that it would be profitable to build. The new secular stagnation is much more a fear of growing monopoly power and a growing desire for safety. It is thus a very different thing—or, rather, two different things happening alongside each other. Read Emmanuel Farhi and Francois Gourio, “Accounting for Macro-Finance Trends,” in which they write: “Developed economies have experienced large declines in risk-free interest rates and lacklustre investment over the past 30 years, while the profitability of private capital has increased slightly. Using an extension of the neoclassical growth model, this column identifies what accounts for these developments. It finds that rising market power, rising unmeasured intangibles, and rising risk premia play a crucial role, over and above the traditional culprits of increasing savings supply and technological growth slowdown.”
  2. A clever take from The Economist, using the largest building in the world in Sichuan as a microcosm of the Chinese economy. Read “The Story of China’s Economy as Told Through the World’s Biggest Building: The Global Centre,” in which the magazine writes: “The world’s biggest building got off to a bad start. On the eve of its opening, Deng Hong, the man who built the mall-and-office complex, disappeared … swept up in a corruption investigation just before the building’s doors opened in 2013. The media focus shifted to his hubris and his wasteful, pharaonic venture. Inside, it had a massive waterpark with an artificial beach, an ice rink, a 15-screen cinema, a 1,000-room hotel, offices galore, two supersized malls, and its own fire brigade, but just a smattering of businesses and shoppers. It became a parable for the economy’s excesses and over-reliance on debt. Today, more than 5 years on, the story has taken a series of surprising turns. For one, the building is not a disaster. During the summer, the waterpark is crowded. The mall has come to life, a testament to the rise of the middle class. The offices are a cauldron of activity: 30,000 people work there in every industry imaginable, from app design to veterinary care. Mr. Deng has been released and is back in business, declaring last summer that he had a clean slate.”
  3. It is pretty clear that the post-2008 U.S. labor market is such that it totally deranged the unemployment rate as a meaningful measure of labor market slack. Read Josh Bivens, “Predicting Wage Growth with Measures of Labor Market Slack: It’s Complicated!,” in which he writes: “Why have wages grown so slowly in recent years despite relatively low unemployment rates? This puzzle has dominated economic commentary … Since 2008, the share of adults between the ages of 25 and 54 who are employed (or the ‘prime-age EPOP’) has predicted wage growth better than the unemployment rate. But even the prime-age EPOP has done a poor job at predicting wage growth since 2008, compared with both its own predictive power pre-2008 and the predictive power of the unemployment rate in earlier periods.”
  4. Marty Feldstein gained a nearly infinite bank of credit for being brave, honorable, and honest with respect to our fiscal policy choices in the early 1980s. But he is running his balance down rapidly. Over the past 2 years, Feldstein has argued sequentially that (a) there is no need to worry about Republicans’ enacting law to increase the debt because they won’t, (b) Republicans’ enacting law to increase the debt won’t matter because debt service will still fall as a share of Gross Domestic Product as the result of their policies, (c) debt service is about to rise rapidly because interest rates are going to go way up, and now (d) we must cut entitlements a lot in order to “avoid economic distress.” The best that can be said is that this shows extreme naivety about what Republican politicians do and gross inconsistency with respect to his vision of how the economy works. August 29, 2017: “The new legislation would … boost domestic corporate investment … Although the net tax changes may widen the budget deficit in the short term, the incentive effects of lower tax rates and the increased accumulation of capital will mean faster economic growth and higher real incomes, both of which will cause rising taxable incomes and lower long-term deficits … I am optimistic that a tax reform serving to increase capital formation and growth will be enacted, and that any resulting increase in the budget deficit will be only temporary.” November 27, 2017: “The economic benefits resulting from the corporate tax changes will outweigh the adverse effects of the increased debt.” February 27, 2018: “Long-term interest rates in the United States are rising, and are likely to continue heading up.” Now, read Martin Feldstein, “The Debt Crisis Is Coming Soon,” in which he writes: “The most dangerous domestic problem facing America’s federal government is the rapid growth of its budget deficit and national debt … Federal debt will probably surpass 100 percent much sooner than 2028. If discretionary spending increases, debt growth will jump to 100 percent even quicker. When America’s creditors at home and abroad realize this, they will push up the interest rate the U.S. government pays on its debt. That will mean still more growth in debt. … To avoid economic distress, the government either has to impose higher taxes or reduce future spending. Since raising taxes weakens incentives and further slows economic growth—worsening the debt-to-GDP ratio—the better approach is to slow government spending growth … Thus the only option is to throw the brakes on entitlements.”
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Linking racial stratification and poor health outcomes to economic inequality in the United States

Posted on by Maria Monroe

The United States is marked by sharp racial divisions in who has access to the economic and social resources that enhance well-being and in who is exposed to conditions that deteriorate social and economic well-being. These divisions are the result of our country’s history of racial stratification—the process by which laws are created, institutions are shaped, and policies and norms are enforced such that dominant racial groups (whites in the American context) maintain and improve their positions relative to other racial groups. Racial disparities in life expectancy and incidences of sickness are some of the most important consequences of racial stratification, which make it a vital policymaking concern.

These disparities are only partially explained by differences in access to economic resources. Research in social psychology and epidemiology, for example, links illnesses such as hypertension and inflammation to exposure to chronic stress. In my dissertation research, I investigate the role that stress plays in increasing the risk of hypertension and inflammation among older black and white Americans, and in particular the extent to which stress can explain the significant racial disparities in both hypertension and inflammation. I define stress as exposure to potential psychosocial stressors in excess of economic resources that could mitigate or offset the effects of those stressors—modifying an approach taken by the American Psychological Association.

I use the Health and Retirement Study, run by the National Institute of Aging and the U.S. Social Security Administration and administered by the Research Survey Center at the University of Michigan’s Institute for Social Research, to investigate this link between racial stratification and health disparities. The HRS is one of the only datasets with the economic, psychosocial, and objective health data to answer these questions. In addition to offering objective measurements of blood pressure and the presence of C-reactive protein (a measure of inflammation), the HRS from 2006 to 2012 included a special set of questions that cover various psychosocial stressors from discrimination to economic insecurity.

In my research, I focus on exposure to everyday discrimination and financial strain. Everyday discrimination includes being treated with less respect, receiving poorer service, being underestimated or seen as a threat, or harassed. Financial strain includes being unsatisfied with one’s current financial situation or finding it difficult to make monthly bill payments, along with low economic resources (being in the bottom quintile of either annual income or wealth). These are the dual components of chronic “stress” that explain higher rates of hypertension and inflammation.

While the research is still ongoing, early results suggest two key preliminary findings. First, older black Americans are significantly more likely to face this stress than older white Americans. Second, the combination of exposure to potential psychosocial stressors and low economic resources produces worse health outcomes 4 years later compared to having either less exposure or adequate resources. (See Figure 1.)

Figure 1

Hypertension and inflammation are key risk factors for cardiovascular disease and are the leading cause of death for both blacks and whites in the United States. Both conditions of ill-health play an important role in shaping differences in racial disparities in life expectancy. These conditions also may play a role in retirement security through their influence on disparities in when older workers exit early from the U.S. labor force. (See Figure 2.)

Figure 2

As my research continues, I’ll be looking into the effects of stress on older workers’ early exit from the labor force prior to age 62. This ties racial disparities in stress and health back to the economic resources that form part of their foundation. Ultimately, this research should push policymakers and academics to view policies related to improving health outcomes as part of economic policy, and similarly policies designed to reduce racial gaps in wealth and income as public health strategies.

—Kyle K. Moore is currently a dissertation scholar at the Washington Center for Equitable Growth. He is pursuing a Ph.D. in economics at The New School for Social Research, studying racial economic disparities and the effects of poorly designed economic policy on marginalized groups.

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We can cut child poverty in the United States in half in 10 years

Posted on by Maria Monroe

Over the past 50 years, the number of U.S. children living in poverty has been cut in half—a tremendous accomplishment. Yet nearly 10 million children, or 13 percent of children residing in the world’s richest country, still live in poverty. This includes more than 2 million kids living in deep poverty. High levels of child poverty are shameful and lead to bad outcomes for our country. The good news is that substantial further reductions in child poverty are within reach.

In 2015, the U.S. Congress asked the National Academies of Sciences, Engineering, and Medicine to conduct a thorough study of child poverty in our nation and to focus on policies that had the potential to cut the number of children living in poverty in half within 10 years. The Academies put together a team of economists, policymakers, and experts on child welfare to tackle this bold mandate. I was honored to participate, and I am excited about the final product and the roadmap it can provide to policymakers interested in prioritizing child poverty.

To provide context, Congress asked that we first study the impacts of child poverty on children’s well-being and evidence about the effectiveness of current programs intended to support children and families. The committee was directed to use the Supplemental Poverty Measure, which is constructed by the U.S. Census Bureau and includes the effects of most anti-poverty programs. (The official poverty measure does not include the effects of most anti-poverty programs, and so it cannot be reduced by expanding anti-poverty programs.) In 2015, the poverty line for a two-parent, two-child family was $26,000 in annual income; the line for deep poverty was half that.

Beyond compassion for those experiencing difficult circumstances, why should those of us who do not live in poverty care about the children who do? Because child poverty affects all of us. Although there are always exceptions, on average, poor children develop weaker language, memory, and self-regulation skills. When they grow up, they have less income, on average, and therefore pay lower taxes. Poor children are also more likely to grow up to be more dependent on public assistance and have more health problems, and are more likely both to commit crimes and to be victims of crimes. And, as the National Academies report concludes, the weight of the evidence is that it is low income itself that causes these outcomes, especially when poverty occurs in early childhood or persists throughout a large portion of childhood.

There are real economic costs to this lost productivity. Estimates range from 4 percent to 5.4 percent of Gross Domestic Product, or approximately $1 trillion annually (based on the size of the U.S. economy in 2018). So, nonpoor Americans should think of child poverty not as a problem that happens only to other people but as a challenge facing all of us.

According to the Supplementary Poverty Measure, the child poverty rate in the United States fell from 28.4 percent to 15.6 percent between 1967 and 2016. The causes of these reductions are much debated, but it is clear that government tax and transfer programs—specifically, increases in government benefits intended to reward work or provide support to those in need—played a significant role not only for those classified as living in poverty or deep poverty, but also for those in near poverty, which is 150 percent of the poverty line. (See Figure 1.)

Figure 1

The broad impact of some key programs has been clear. Periodic enhancements of the Earned Income Tax Credit—a refundable tax credit that rewards work by reducing taxes and providing payments for low-income working families—have improved child educational and health outcomes and increased maternal employment. The Supplemental Nutrition Assistance Program has improved birth outcomes and improved children’s and adults’ health. And expansions of public health insurance for pregnant women, infants, and children have led to substantial improvements in child and adult health, educational attainment, employment, and earnings.

The success of these programs is undeniable. Eliminating the Earned Income Tax Credit and the Child Tax Credit (a per-child, refundable tax credit for families), for example, would raise the current child poverty rate by almost half—5.9 percentage points—from 13 percent to nearly 19 percent. Eliminating Supplemental Nutrition Assistance would raise the rate by 5.2 percentage points. (See Figure 2.)

Figure 2

The evidence is clear: Governmental actions can and do reduce child poverty. There is, however, no one program—no silver bullet—that can accomplish the goal of cutting child poverty in half. But it is possible to assemble arrays of policies that can cut the rate of child poverty by half over the next decade.

The recommendations of the National Academies report

The report by the National Academies does not prescribe a particular path, but rather provides a menu of options for policymakers. We put together four illustrative packages of programs, with varying combinations of work incentives and family supports. One package would cut child poverty in half, one would cut both child poverty and deep child poverty in half, and two smaller packages would cut child poverty by a more modest amount. In addition to reducing poverty, all of these packages would incentivize work by raising take-home pay and reducing the costs associated with employment.

The first package, which would cut child poverty rates in half by relying on a combination of means-tested supports and work incentives, would:

  • Increase payments for the Earned Income Tax Credit for the lowest-income and mid-range recipients of the credit
  • Convert the Child and Dependent Care Tax Credit to a fully refundable credit and concentrate its benefits on families with the lowest incomes and with children under the age of 5
  • Increase Supplemental Nutrition Assistance benefits by 35 percent and increase benefits for older children
  • Increase the number of housing vouchers for families with children to increase significantly the number of eligible families who would use them

The second package, which would provide more universal benefits, would cut both overall child poverty and deep child poverty rates by half with a combination of work incentives, economic security programs, and social inclusion initiatives. It includes two programs, which would be new to the United States. This package would:

  • Increase payments for the Earned Income Tax Credit by 40 percent across the board, continuing to phase it out at the current income levels
  • Convert the Child and Dependent Care Tax Credit to a fully refundable credit and concentrate its benefits on the lowest-income families and families with children under age 5
  • Raise the federal hourly minimum wage from the current $7.25 to $10.25 and index it to inflation
  • Restore eligibility for legal immigrants for several means-tested economic security programs, including the Supplemental Nutrition Assistance Program, Medicaid, and Temporary Assistance for Needy Families
  • Create a new child allowance of $225 per month per child for families of all children under age 17, including legal immigrants
  • Institute a child support assurance policy to provide a backup source of income to custodial parents if the other parent does not pay child support, and set a guaranteed minimum child support amount of $100 per month per child

A third package would expand the Earned Income and Child and Dependent Care tax credits, while adding a $2,000 child allowance to replace the current Child Tax Credit. This package would reduce child poverty by an estimated 36 percent. A fourth package, which included only four “work-oriented” programs (the Earned Income and Child and Dependent Care tax credits, an increase in the minimum wage, and a nationwide roll-out of a promising demonstration program called “Work Advance”), was estimated to have the largest effects on the employment of low-income workers but the smallest effect on reducing poverty (a reduction of 18.8 percent). This simulation illustrates how hard it is to reduce child poverty only through encouraging parents to work. There are far too many full-time jobs that, without other assistance, leave parents and children in poverty.

These packages—which, again, are intended only to be illustrative—range in estimated cost from $8.7 billion to $108 billion, with the higher-cost programs having the greatest impact on child poverty. Specifically, the “means-tested” package would cost $90.7 billion annually. It would add an estimated 400,000 individuals to the job rolls, with earnings of $2.2 billion annually. The “universal” package would cost $108.8 billion and increase employment by more than 600,000 jobs and add $13.4 billion in earnings. The third package, which would only partially achieve the poverty reduction goal set by Congress, as discussed above, would cost $44 billion annually; it would increase the number of job-holders by 568,000. Finally, the “work-oriented” program would cost only $8.7 billion and would add more than 1 million jobs, but would lead to relatively modest reductions in child poverty.

The estimates are based on federal tax law in 2015, which was in effect for most of the preparation of the report, though additional simulations show that the new tax law did not radically alter the conclusions. The groupings of programs are intended to show how policymakers could “mix and match” policies. Other packages could be simulated by adjusting individual package elements to achieve specific cost levels, poverty reductions, and levels of new jobholders.

The report’s findings are evidence-based. We carefully reviewed existing research to estimate the effects of child poverty, how current programs are working, and what programs would work. The ideas are nonpartisan, and some programs that would be enhanced have historically enjoyed bipartisan support. We understand that many policymakers are disinclined to increase spending, but they ought to consider the economic and fiscal costs of child poverty, in addition to the personal and social costs—the estimated $1 trillion loss in GDP mentioned above suggests annual losses to the U.S. Treasury well in excess of the costs of these proposed initiatives. These measures truly would pay for themselves and more.

Areas for further research recommended in the National Academies report

Congress also asked us to suggest areas where additional research could advance the knowledge necessary to develop policies to reduce child poverty. One important area where more research is needed concerns the effectiveness of work requirements on participants in anti-poverty programs. The existing research on this question largely pertains to the 1996 welfare reform (the Personal Responsibility and Work Opportunity Reconciliation Act, which created the Temporary Assistance for Needy Families program). It is thus not only very dated but also muddied by the many other changes in welfare systems that were embedded in the new law or took place at around the same time.

One case in point: The passage of the 1996 welfare reform legislation was followed by large increases in the employment of single mothers, but the evidence suggests that expansions in the Earned Income Tax Credit and the booming economy—not the work requirements enacted as part of the 1996 welfare reform law—were largely responsible for these gains. The National Academies report thus calls for high-quality, methodologically rigorous research and experimentation on the effectiveness of work requirements today and more generally, on ways to boost the job skills and employment of parents in low-income families receiving public assistance.

A second research issue highlighted in the report is that we need better measures of poverty itself. One example is public health insurance. Although a great deal of the support offered to low-income children comes in the form of the health insurance offered through Medicaid and the Child Health Insurance Program, the effects of health insurance are not properly incorporated into poverty measures. Hence, by construction, even very large expenditures on Medicaid cannot have any impact on measured poverty.

A second example is the lack of a consensus on how best to measure consumption poverty. Despite the view of many observers that it would be more reasonable to assess poverty using measures of consumption rather than measures of income, there is currently no effective tool for doing so. This is an active area for research, including work by Equitable Growth grantee Tim Smeeding, the Lee Rainwater Distinguished Professor of Public Affairs and Economics at the University of Wisconsin-Madison and a member of our National Academies study.

A third example is the weak existing measurement of poverty in small ethnic, racial, and demographic groups. Although we know that some groups such as Native Americans are disproportionately likely to suffer poverty, current data sources yield only small samples of these groups, which makes it difficult to study determinants of poverty or the effects of anti-poverty programs among them.

Conclusion

While the National Academies report responds to the 2015 congressional mandate, which set the clear and specific goal of cutting child poverty in half in 10 years, one could also imagine other longer-term approaches to addressing the societal problems associated with child poverty. Investments in early childhood education, for example, would not reduce child poverty immediately but have been shown to make it less likely that children will grow up to be poor or that their children will be poor.

The model used to create these estimates in the report was developed by the respected Urban Institute, which would be fully capable of estimating other proposals and packages. Of course, Congress can also use the Congressional Budget Office to obtain its own estimates, and I hope this will indeed happen. That would mean that Congress is giving the report the serious consideration it deserves.

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How national income inequality in the United States contributes to economic disparities between regions

Posted on by Maria Monroe

One of the biggest challenges facing the United States today is the growing economic disparities between different regions of the country. In 1980, just 12 percent of Americans lived in metropolitan areas with a mean family income more than 20 percent higher or lower than the national average. By 2013, more than 30 percent did. Today a handful of metros—cities such as San Francisco and Washington, DC—have mean family incomes 40 percent or 50 percent greater than average and more than double the average incomes in many rural areas.

That was much less true in 1980. At that time, large sections of the country had incomes roughly in line with the national average. By 2013, the country had bifurcated into a handful of thriving metro areas and a much larger set of places with far lower incomes. (See Figure 1.)

Figure 1

These disparities create major problems for the United States. They make it harder to form national economic policy because one interest rate and money supply must meet the needs of rich and poor places simultaneously. These disparities may be implicated in the large mobility differences between different regions of the country, as well as how the shortage of good jobs in struggling regions contributes to social breakdown. Regional disparities also increasingly shape our politics: Hillary Clinton famously won counties collectively producing almost two-thirds of GDP despite losing the 2016 election.

In a new paper, I investigate the processes driving this regional divergence. Most previous research has emphasized the role of income sorting—the process where people of different income or education levels have come to live in different cities from one another—in contributing to economic divergence between regions. This sorting could result if some cities offer lifestyle amenities that are more attractive to high-income workers, if the geographic distribution of well-paying jobs is changing, or if high housing prices are preventing people from moving to prosperous areas.

I show, however, that a much bigger portion of the growing disparities is due to rising income inequality at the national level. Since 1980, the richest 1 percent of Americans have seen their real pretax incomes triple, while the poorest half saw theirs increase by just $200. As their incomes have gone up, the rich have pulled the average incomes of their hometowns up with them. That process is much more important than income sorting in accounting for the diverging incomes across regions: If inequality hadn’t gone up, sorting alone would have resulted in less than a quarter as much divergence as actually occurred. But even if there had been no sorting whatsoever, growing inequality on its own would have resulted in more than half of the divergence the country has experienced.

Sorting and Inequality

To see the difference between sorting and inequality, consider a hypothetical country with two cities, City A and City B. (See Figure 2.) To begin with, in panel 1 of Figure 2, these cities have similarly shaped income distributions but City A is poorer, with a mean income of $8, and City B is richer, with a mean income of $12. Now imagine that the country experiences an episode of income sorting, shown in panel 2. High-income people move from City A to City B, while low-income people move in the opposite direction. As a result of this sorting, the level of inequality within each city goes down, while the average incomes of the two cities grow further apart. In this scenario, the increased sorting reduces the mean income in City A to $7.40, while that in City B rises to $12.60.

Next, consider an increase in inequality at the national level, shown in panel 3. In this case, rather than moving between cities, everyone stays where they were, but the national distribution stretches out, such that everyone earning less than the national average sees their income fall by $1 while those earning more see theirs rise by the same amount. Even though inequality rose for the whole nation at once, City B saw a net benefit while City A saw a net loss. This is because City B was richer than average to begin with, so it captured a greater share of the benefits from nationally rising inequality, while City A was left with a greater share of the costs. Rising inequality at the national level pulls the average incomes of the two cities apart, with that of City A falling to $7.50 and that of City B rising to $12.50.

Figure 2

Importantly, the change in the average incomes of the two cities is similar across these two scenarios, even though the driving process, and the resulting income distributions within each city, are very different. Which type of process dominates is an empirical distribution that depends on the initial levels and subsequent trends in sorting and inequality. Of course, both processes could happen at the same time, as shown in panel 4. In that case, the average incomes of the two cities diverge by more than in the previous two scenarios combined.

Regional divergence is primarily driven by inequality

To estimate the importance of each of these two processes to the divergence experienced in the United States, I ran simulations holding either the amount of sorting or the level of income inequality constant at 1980 levels. If there had been no sorting whatsoever, rising inequality would still have resulted in more than half as much divergence as actually happened. But without the effect of rising inequality, sorting on its own would have resulted in less than a quarter as much divergence as occurred in reality. (See Figure 3.)

Figure 3

Regional divergence is driven by the very rich

Further simulations show that rising income disparities are overwhelmingly driven by the richest members of society. Whereas previous research has focused on the difference between college graduates and everyone else, I show that it is the richest few percentiles of the wealthy who drive most of the change. A full 50 percent of the divergence in mean family incomes across regions since 1980 is attributable to changes that have happened among the richest 1 percent of society. Another 25 percent is driven by the next 9 income percentiles, while the poorest 90 percent of society—a group that includes roughly two-thirds of college graduates—has seen only about a quarter as much income divergence as has happened overall. This means that increasing regional disparities are less a function of changes among the college-educated population in general and more a function of changes affecting the very rich. (See Figure 4.)

Figure 4

Conclusion

Together, these results imply that growing inequalities between regions of the United States should be thought of first and foremost as the spatial reflection of growing inequalities between people. Many policies that have been proposed to reduce regional disparities attempt to undo the sorting process, whether by making it easier for low-income people to move to booming metropolitan areas, subsidizing employment in struggling regions, or directly relocating government jobs there.

My paper suggests that all of these policies may be beneficial, yet would probably not solve the problem. Divergence in incomes across regions is more the result of changes in how much money people make than changes in where they live. As the top 1 percent of income earners accrue a larger and larger share of the national economic pie, the regions where they happen to live experience out-sized income growth and pull away from the rest of the country.

Narrowing these regional income disparities between different places will be almost impossible without also reducing the income disparities between people in general. Conversely, policies aimed at reducing income inequality at the national level will also reduce the gaps between places at the same time.

—Robert Manduca is a Ph.D. student in Sociology and Social Policy at Harvard University

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Competitive Edge: Crafting a monopolization law for our time

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. Andrew I. Gavil has 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.

Andrew I. Gavil

Antitrust policy is not a typical candidate for vibrant public debate, but these are not typical times. Concerns about rising corporate concentration, an increased incidence of market power in some sectors of the U.S. economy, and evidence of growing wealth and income inequality are the triggers for this debate—one that pits advocates of radical reforms against defenders of the status quo.

Much of the debate is focused on the effectiveness of Section 2 of the Sherman Antitrust Act of 1890, the first federal law to outlaw monopolistic business practices by single, powerful firms. As it has been interpreted by the Supreme Court over many decades, however, Section 2 has been largely circumscribed to the point where major government prosecutions are rare and few private challenges succeed.

If Section 2 is to be an effective tool for policing and deterring anti-competitive conduct in today’s economy, then it will need to be adjusted for the needs of our time. But first it is important to understand how Section 2 became so limited in scope, beginning with the origins of the Sherman Act.

The legal genesis of one of the most permissive anti-monopolization laws in the world

Choosing the language of the Sherman Act, the Congress of 1890 turned to common law, which had long prohibited “unreasonable restraints of trade” and various forms of monopolizing conduct. That Congress was concerned about the collusive and exclusionary practices of the corporate behemoths of the day, the trusts such as Standard Oil. The result was a statute that included prohibitions of concerted action (Section 1), as well as monopolization, attempts to monopolize, and conspiracy to monopolize (Section 2).

In one of its earliest interpretations of the Sherman Act’s critical language, the Supreme Court concluded in Standard Oil Company of New Jersey v. United States (1911) that both Sections 1 and 2 ought to be guided by a “standard of reason.” The Court would later also observe that the intent of the Congress was not to codify the specific content of the common law as it existed in 1890, but rather to embrace its process so the law could evolve and adapt over time. As the Court put it, with specific reference to Section 1’s “restraint of trade,” the Sherman Act “invokes the common law itself, and not merely the static content that the common law had assigned to the term in 1890.” Congress, the Supreme Court said, “expected the courts to give shape to the statute’s broad mandate by drawing on common-law tradition.” In the wake of this ruling, federal courts, guided by public and private litigants, were assigned the role of defining the content of the Sherman Act’s prohibitions.

This approach to Section 1 has been lauded as critical to its success and durability. It has permitted the two federal antitrust agencies—the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice—and the courts to reshape the standards of pleading, production, and proof in antitrust cases over time to reflect new economic learning, new industry conditions, and new business models and practices. Although some critics view the current state of the law as too permissive, they would, in part, invoke that same flexibility to alter course and enhance its prohibitions.

Sections 1 and 2 share common roots in the common law, but in contrast to Section 1’s evolution over time, Section 2’s prohibitions have become locked in time, captives of the past.

That past has been shaped in large part by the decisions of two legendary jurists, Justice Oliver Wendell Holmes and Judge Learned Hand, and two decisions they authored: Swift & Co. v. United States (1905) and United States v. Aluminum Co. of America (1945), respectively. These two cases, and others that followed, committed Section 2 to an approach that focuses almost obsessively on very high market-share benchmarks as determinants of a firm’s power, instead of more direct measures—creating effective safe harbors and leaving gaps in U.S. law that have likely impeded the ability of Section 2 to evolve with economic learning and changes to the U.S. economy.

In Swift, Justice Holmes offered a brief but enduring interpretation of Section 2’s “attempt to monopolize” offense. Drawing on the Sherman Act’s use of common law concepts and its inclusion of a criminal prohibition, his expertise as a student of the common law, and an earlier non-antitrust criminal law decision he had authored while on the Supreme Judicial Court of Massachusetts, Holmes declared that to establish an “attempt” offense under Section 2, the government would have to prove a “dangerous probability of success,” meaning a dangerous probability of achieving monopoly.

The full import of that holding was not realized until the decision in Aluminum Co. of America (Alcoa), where, sitting as the Supreme Court, the Second Circuit established the now-familiar and durable “power + bad conduct” framework for cases alleging monopolization, which requires proof of both monopoly power and exclusionary conduct. To define “monopoly power,” Judge Hand looked back at previous decisions of the Court to formulate his influential market-share benchmarks for identifying monopolies: 90 percent (“enough to constitute a monopoly”); 60 percent to 64 percent (“doubtful”); 33 percent (“certainly…not”). Markets, he said, would thereafter have to be “defined,” as was the case in Alcoa, in order to facilitate such market-share calculations, a conclusion that was reinforced a decade later by the Court’s United States v. E. I. du Pont de Nemours & Company decision (1956), which implied that 75 percent would also be enough to constitute a monopoly.

Thus was born one of the most permissive anti-monopolization laws in the world. Although courts look to a number of factors in assessing a firm’s power, unless it possesses more than roughly 70 percent of a defined relevant market, then it is unlikely to run afoul of Section 2’s prohibition of monopolization if it acts unilaterally—regardless of its intent or the effects of its conduct. And if a firm with, say, 50 percent of a market engages in similarly unilateral and unjustifiable exclusionary conduct, it, too, is likely to escape condemnation, provided there is no “dangerous probability” that its conduct will raise its market share to “monopolistic” levels. That will be true even if the conduct blunts a competitive challenge and thereby helps it to entrench any market power it already possesses—and even if the anti-competitive effect of the conduct satisfies Section 1’s standard for constituting an “unreasonable restraint of trade.”

Fear of “false positives” led the Supreme Court to further constrain Section 2

The Court acknowledged and endorsed this “gap” between Sections 1 and 2 of the Sherman Act in its 1984 Copperweld Corporation v. Independence Tube Corporation decision. In its view, the Sherman Act’s framers intended it by design, so unilateral conduct would be treated more permissively than the concerted conduct prohibited by Section 1, for fear of discouraging aggressive but competitive conduct by single firms. But that proposition was wholly at odds with Standard Oil’s view that Sections 1 and 2 were intended to be complementary, leaving no gap at all.

Copperweld more so reflected the 1980s Supreme Court’s perception that prior decisions of the Court had established standards of conduct that were too strict, as well as its fear of false positives, than anything intended by the 1890 Congress. Nevertheless, this view of Section 2 as it applies to the attempt-to-monopolize offense was cemented into contemporary law by the Supreme Court in Spectrum Sports, Inc. v. McQuillan (1993), where, citing Swift and Copperweld, the Court held that “the plaintiff charging attempted monopolization must prove dangerous probability of actual monopolization, which has generally required a definition of the relevant market and examination of market power.”

This preference for circumstantial evidence was arguably extended even further by the Supreme Court’s recent 2018 decision in State of Ohio v. American Express, which appeared to conclude in a controversial footnote that defining a relevant market and inferring market power are necessary prerequisites to the assessment of the competitive impact of all “vertical” conduct, even under Section 1, regardless of the availability of more direct evidence that it has had an adverse impact on competition.

The Alcoa decision also had endorsed some of the most important and equally durable propositions about Section 2—that “monopoly” alone is not an offense of Section 2 and that to “monopolize” also requires exclusionary conduct, which must be distinguished from “superior skill, foresight and industry.” Judge Hand proclaimed in that ruling that “[t]he successful competitor, having been urged to compete, must not be turned upon when he wins.” But Hand also famously observed that “possession of unchallenged power deadens initiative, discourages thrift and depresses energy; that immunity from competition is a narcotic, and rivalry a stimulant, to industrial progress.”

The Court in Alcoa expressed the view that it might be necessary to tolerate monopoly occasionally, but that was not to say it was desirable. Although Judge Hand’s application of these principles to the facts of Alcoa has been criticized and might not be followed today, these core principles have largely proved enduring and have guided the law of monopolization for more than seven decades in cases such as Aspen Skiing Company v. Aspen Highlands Skiing Corporation (1985) and United States v. Microsoft Corporation (2001).

More recent pronouncements from the Supreme Court addressing exclusionary conduct, however, embrace a different and far more cautious narrative. Like Copperweld, Brooke Group Ltd. v. Brown & Williamson Tobacco Corporation (1993) and Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP (2004) have emphasized concern for false positives and fear that liability standards that are too easy to satisfy will inhibit competition, especially innovation, by both dominant incumbents and rivals alike. And, in contrast to Alcoa, the Court in Trinko reasoned that “the opportunity to charge monopoly prices—at least for a short period—is what attracts ‘business acumen’ in the first place.” This supposition about monopoly transforms Alcoa’s grudging acceptance into a near embrace and ignores that the dream of monopoly is hardly the motivation that drives most firms to compete. Profits, maybe, but true “monopoly prices?” The embedded assumptions in such cases, layered onto the highly formalistic framework established by Swift and Alcoa, have no doubt limited the reach of Section 2.

Time to reinterpret exclusionary conduct to account for the challenges of the 21st century U.S. economy

Fortunately, our understanding of “exclusionary” conduct has advanced, as has our understanding of market power. Exclusionary conduct cases such as Microsoft have provided a structured, burden-shifting framework for evaluating claims of exclusionary conduct within the reasonableness framework first identified by Standard Oil. In addition, the federal government’s Horizontal Merger Guidelines aptly identify the focus of most of modern competition law when they state that their “unifying theme” is that “mergers should not be permitted to create, enhance, or entrench market power or to facilitate its exercise.”

A modern approach to unilateral conduct could draw upon these advances. It might start by revisiting and refreshing the meaning of the common law terminology of Section 2. Such a modern framework could:

  • Embrace today’s structured approach to the rule of reason, as did the Court in Microsoft
  • Fully integrate a more sophisticated understanding of exclusionary conduct, market power, and anti-competitive effects.

Such an approach would prohibit exclusionary conduct (unilateral or concerted) that significantly contributes to the creation, entrenchment, or enhancement of market power, allowing for methods of proving power through alternatives to defining markets and calculating market shares.

This more contemporary approach would be more consonant with trends in most other modern antitrust law. It would untether the law of exclusionary conduct from blind and formalistic reliance on market-share benchmarks, while also allowing for cognizable and verifiable efficiency justifications. In theory, Section 2’s common law origins should allow for this kind of evolution in the courts, but it might instead require legislative reform. In the end, under either approach, change would open up needed space for Section 2 to begin to evolve once again, as has Section 1, so it could adapt to the needs of our time.

Conclusion

In support of their current-day agendas, some of the most vocal advocates in today’s debates have turned to the past, invoking the words and ideas of former Supreme Court Justice Louis D. Brandeis, who championed progressive competition-law reforms in the early part of the 20th century, and former U.S. Court of Appeals Judge Robert H. Bork, one of the principal proponents of the Chicago School of Antitrust, who, in the late 1970s, influenced the modern shift toward a more economic approach to antitrust analysis, including a pronounced concern for false positives.

Although the collective wisdom of the past can surely inform today’s policy discussion, as smart as Brandeis and Bork were, they are best understood in the context of their own times, when they were responding to the issues and antitrust doctrine of their day. The economy of 2019 is not the economy of 1912 or 1978, and the antitrust doctrine of 2019 is not the same as that of 1912 or 1978.

To address the challenge of designing a monopolization law for our era, policymakers, advocates, and the courts will need to do more than selectively borrow from the ghosts of past antitrust debates to advance current-day agendas. What is required instead is the construction of a new and balanced consensus that can address the needs of this time.

—Andrew I. Gavil is a professor of law at Howard University School of Law. This posting is adapted from remarks delivered at the American Antitrust Institute’s Competition Roundtable, Challenging Monopolies in Court: Where Have We Been and Where Are We Going?, on March 14, 2019. The views expressed here are his own.

The effects of disability programs on financial outcomes in the United States

Posted on by Maria Monroe

In his Pulitzer-Prize-winning book, Evicted: Poverty and Profit in the American City, Matthew Desmond documents the instability in the lives of low-income tenants in Milwaukee, who are frequently uprooted due to eviction. He notes one exception: Renters receiving disability income from the Supplemental Security Income program have a more reliable income than low-wage workers and are therefore more likely to pay rent on time. Their disability income translates into greater housing stability.

This program, administered by the U.S. Social Security Administration, serves 6.3 million low-income Americans with disabilities, while the the agency’s Social Security Disability Insurance program serves 9.5 million American workers with disabilities. Both programs provide monthly income and health insurance to individuals with qualifying disabilities.

The expansion of these programs in recent decades has sparked public debate about who is considered disabled and who should be required to work for a living. Economists have largely focused on the effect of these programs on how much people work. Several studies find that the two programs reduce labor force participation by around 30 percentage points, meaning that these programs cost society some productivity.

Yet, as Desmond’s account suggests, disability programs may also have substantial benefits to recipients and to society. To date, these benefits have been difficult to study quantitatively due to the absence of data on consumption and well-being for the population of disability recipients. Understanding both the costs and benefits of Social Security programs for disabled Americans is critical to determining the appropriate generosity of these programs: If the benefits outweigh costs, then this argues for relatively generous transfers, while high costs relative to benefits argue for smaller transfers.

In a recent working paper published by the Washington Center for Equitable Growth, we study the effects of the Social Security Disability Insurance and Supplemental Security Income programs on several markers of financial distress. We construct the first nationwide dataset of Social Security disability applicants—about 44 million applications between 2000 and 2014—linked to bankruptcies, foreclosures, evictions, and home transactions. We use a research design based on the Social Security Administration’s decision-making process to ensure that we are capturing the causal effects of the programs, rather than simply correlations.

In particular, we use a Social Security Administration rule that instructs government examiners to use more lenient standards for applicants who are above age 55 relative to those who are below age 55. A similar change in rules occurs at age 50. We show that, before they apply, applicants who are above the cut-off age at the decision date look similar to those who are below the age cut-off. This means that we can attribute any differences in financial distress after the decision to the higher likelihood of being approved for disability benefits above the age cut-off.

We find that the Social Security disability programs reduce rates of financial distress substantially. Being approved for disability benefits at the initial stage (before appeals) reduces bankruptcy rates by 30 percent over the next 3 years. Among homeowners, approval reduces foreclosure rates by 30 percent and reduces rates of home sales by 20 percent over the next 3 years. (We also find a 10 percent decline in eviction rates over the next 3 years, consistent with Desmond’s account, but the estimates are not statistically significant.) In addition, we find that being approved for disability benefits increases the likelihood of purchasing a home by 20 percent over the same time period.

These results indicate that many recipients use their disability benefits to stay in homes that they would have otherwise lost to foreclosure or sale. More generally, they suggest that disability programs reduce rates of extreme consumption losses among recipients.

These effects are large relative to the size of disability benefits—on the order of $9,000 annually for the Supplemental Security Income program and $15,000 annually for the Social Security Disability Insurance program. Why are the effects so large? Two descriptive facts from our paper provide a clue. First, we find that rates of bankruptcy, eviction, and foreclosure and home sale (for homeowners) are higher among disability applicants than the general population. Second, we find that disability applicants apply for these programs after several years of increasing financial distress. At the time they apply, a large fraction of applicants are at risk for bankruptcy, foreclosure, and distressed home sale. It is perhaps not surprising, then, that being approved for disability benefits reduces the likelihood of these events.

This evidence on the effect of disability programs is consistent with evidence from other social safety net programs. Recent studies have found that public health insurance reduces medical out-of-pocket spending, medical debt, and mortgage delinquency rates. Another study found that unemployment insurance drastically reduces foreclosures.

The Social Security Disability Insurance and Supplemental Security Income programs may also have spillover benefits to nonrecipients. By reducing foreclosures among disability recipients, for example, these two programs probably increase the property values of neighboring homeowners.

How do these results inform the public policy debate over disability programs? The results do not speak to how disabled recipients are or whether they could work in the absence of benefits. Instead, they indicate that the two disability programs cut rates of financial distress among recipients substantially, providing some of the first evidence on the benefits of these programs to recipients.

—Manasi Deshpande is an assistant professor at the Kenneth C. Griffin Department of Economics at the University of Chicago. Tal Gross is an assistant professor of markets, public policy, and law at Boston University’s Questrom School of Business. Yalun Su is a research assistant at the Kenneth C. Griffin Department of Economics and the Becker Friedman Institute at the University of Chicago.

Posted in Uncategorized

Gender wage inequality in the United States: Causes and solutions to improve family well-being and economic growth

Posted on by Maria Monroe

Overview

Disparities between men’s and women’s wages in the United States hinders economic growth by constraining family incomes and spending power. When comparing average full-time year-round incomes of men to those of women, research indicates that women make only 80.5 percent of men’s wages, a gap that is even larger when accounting for race. In the long run, these disparities heighten the risks of financial stress and inadequate retirement savings at times of economic shocks. While a majority of women suffer from unequal wages, the persistence of gender wage inequality heavily affects low-income and single-income families in addition to families of color.

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Gender wage inequality in the United States: Causes and solutions to improve family well-being and economic growth

In a 2018 report for the Washington Center for Equitable Growth, “Gender wage inequality: What we know and how we can fix it,” sociologist Sarah Jane Glynn breaks the contributing factors to gender wage inequality into two groups:

  • Supply-side explanations, which are those related to workers’ differences in human capital investments and include variances in education, race, and choice of occupation. Due to their observable nature, large U.S. Census Bureau surveys can be used to explain the impact that each of these factors has on overall wage inequality. Glynn uses a study by economists Francine D. Blau and Lawrence M. Kahn of Cornell University that studies how these factors contribute to gender wage differences between 1980 and 2010, allowing them to track the changing dynamics contributing to gender wage inequality.1
  • Demand-side explanations, which take into account societal and structural forces that are beyond women’s control and are often associated with gender norms, discrimination, and stereotypes. These factors can be internalized by women and lead them to make educational and occupational decisions that, in turn, show up as supply-side factors. Demand-side explanations reduce women’s earnings by shaping how we value women’s work and characteristics associated with women such as care-work occupations. Subsequent research by Blau and Kahn shows how occupations are paid less by sheer virtue of the share of women in them, and not related to the human capital of the average worker or the productivity of the jobs.

This factsheet presents a snapshot of each of these findings and then presents a variety of policy solutions, among them legislation at the federal level, examples of state and municipal laws that could be replicated in other areas of the country and by the federal government, and federal agency rules and regulations that could be implemented or expanded.

“Unequal pay between men and women drags down the growth of the U.S. economy.”
—Sarah Jane Glynn, “Gender wage inequality: What we know and how we can fix it.”

Supply-side causes of the U.S. gender wage gap

Glynn breaks down the supply-side explanations for gender wage inequality into six groups: work experience, industry and occupation, unionization, education, race, and region. For each group, all of the statistics of gender wage inequality and policies to amend this inequality were pulled from Glynn’s report and Blau and Kahn’s paper.

Work experience

  • Years of work experience contributes to 14 percent of gender wage inequality and is responsible for roughly $112.7 billion in wage differences between men and women.
  • While female labor force participation has increased in the past four decades, women still have fewer years of work experience compared to their male counterparts because women continue to provide the majority of unpaid care to children, elders, and ill family members.

Policies supporting workers’ access to paid family care hold the potential to increase wages and allow more women to stay connected to the workforce, thus reducing the work-experience gap between men and women. Here are five potential policy solutions.

Potential policy recommendation 1: Child Care for Working Families Act
The Child Care for Working Families Act, introduced by Sen. Patty Murray (D-WA) and Rep. Bobby Scott (D-VA), gives guaranteed childcare assistance to families earning up to 150 percent of their state’s median income. In addition, it limits families’ childcare spending to 7 percent of household income and promises improved wages for childcare providers. This policy, which would be paid for by employee and employer payroll contributions, has the potential to create 2.3 million new jobs and increase childcare providers’ wages by 26 percent.2

Potential policy recommendation 2: FAMILY Act
The FAMILY Act, introduced by Sen. Kirsten Gillibrand (D-NY) and Rep. Rosa DeLauro (D-CT), outlines a national, gender-neutral social insurance program that would fund two-thirds of a parent’s wage for up to 12 weeks of paid leave. The program, which will be paid for by employee and employer payroll contributions, sets qualifications and eligibility conditions that will be determined by language of the Family and Medical Leave Act of 1993. Research indicates that a national paid leave program boosts women’s wages by 7 percent.3

Potential policy recommendation 3: The Trump administration’s proposed plan
The Trump administration proposed a plan to create a federal paid parental leave program, administered through states’ unemployment insurance systems, that provides parents up to six weeks of paid leave. While this idea grants new parents the ability to take time off without any employment consequences, it would deduct from their Social Security retirement income, thus leaving parents at risk of financial insecurity when their retirement approaches. Unemployment insurance systems are already extremely underfunded and would struggle to implement such a program. In addition, this plan prioritizes parental leave for a new child, thus ignoring family caregiving needs.4

Potential policy recommendation 4: The Schedules That Work Act
The Schedules That Work Act, written by Sen. Elizabeth Warren (D-MA) and Rep. Rosa DeLauro (D-CT), puts forth protocols—such as requiring clear scheduling expectations from the start of employment—that allow workers to request flexibility from their employers, while protecting workers from financial retaliation or employment discrimination. This policy will allow workers to manage family care needs without risking their income and financial stability.5

Potential policy recommendation 5: State-specific paid family leave policies
Five states—California, New Jersey, Rhode Island, New York, and Washington state—and the District of Columbia have instituted paid family leave laws, though Washington state and D.C. will not activate the law until January 1, 2020. Studies conducted by Jean Kimmel of Western Michigan University and Catalina Amuedo-Dorantes of San Diego State University found that access to parental leave correlated with a 7 percent increase in women’s earnings and shrank motherhood wage inequality by two-thirds. Research on California’s paid family leave system found it has increased mothers’ work hours by 10 percent to 17 percent.6

Industry and occupation

  • The differences in gender segregation among industries and occupations accounts for 50.5 percent, or $403.6 billion, of gender wage inequality.
  • Of that 50.5 percent, 17.6 percent of this is due to the differences in industries and 32.9 percent is due to differences in occupations in which women and men are typically employed.
  • It’s not just that women are overrepresented in lower-paying service-providing industries—wages tend to be lower in occupations that are women-dominated, and there is evidence that there is a causal mechanism at play—but also that an influx of women into an occupation lowers wages.
  • Within occupations, women tend to be clustered at the lower end of the wage distribution. Women make up 52.8 percent of legal positions, for example, but only 37.4 percent of lawyers are women, whereas the other 62.6 percent are paralegals, legal assistants, and other legal support positions—all of which have lower wages than lawyers.

Policies that increase wages in industries and occupations that women are currently overrepresented in, as well as policies that enhance access to high-paying jobs in traditionally male-dominated industries, would address some of the pay gap caused by occupational segregation. Here are three potential policy solutions.

Potential policy recommendation 1: Funding for programs such as Women in Apprenticeship and Nontraditional Occupations
The federal Women in Apprenticeships and Nontraditional Occupations program provides resources to diversify the gender distribution of apprenticeship programs, which tend to be male-dominated. Funding for it should remain in order to maintain current apprenticeship programs and create new programs to decrease the gender differences. In 2017, the U.S. Department of Labor announced a $1.9 million investment to “recruit, train, and retain women in high-skill occupations” in a way to increase diversity within the manufacturing, technology, energy, and construction industries. The Trump administration canceled many of these contracts and pledges shortly after President Donald Trump took office. The 2018 and 2019 federal budgets eliminated this grant program funding, which would hurt the administration’s own goal of creating 5 million new apprenticeships over the span of 5 years.7

Potential policy recommendation 2: Expand the National Science Foundation’s ADVANCE grant-making program
Expanding the NSF’s ADVANCE grant-making program to provide competitive grants to univerisities to brainstorm proceeses that promote gender equity in STEM fields, which are highly male-dominated, would increase the representation of women in such fields and encourage pay equity between men and women.

Potential policy recommendation 3: Fully implement the Obama administration’s overtime rule
Full implementation of the Department of Labor’s already promulgated overtime-expansion rule, which would increase the minimum salary for workers exempt from overtime standards to $47,476, would address some of the gender wage gap because the majority of affected workers are women: One-quarter of all mothers and almost 33 percent of single working mothers have salaries at this level. Implementation at the federal level has been stalled by lawsuits by 21 states and more than 55 business groups, but some states have taken action. California, for example, set the threshold to $45,760 for salaried workers, and their wages are linked to the minimum wage, thus the two wages grow in accordance with one another.8

Unionization

  • Blau and Kahn found that union participation has reduced gender wage inequality by 1.3 percent, leading to $10.4 billion in increased earnings for women. This is partly due to women’s overrepresentation in public-sector employment, which is more heavily unionized.9
  • Collective bargaining agreements raise wages and create industrywide standard wage policies, which reduce the possibility of wage discrimination and thus have been particularly beneficial to all women and men of color. Women whose contracts were covered by unions saw a 9.2 percent increase in wages compared to those not covered by unions. These benefits were experienced at an even greater magnitude by women working in service industries, in which unionization led to women earning 87 percent more in total compensation, compared to nonunion women workers.
  • Recent declines in union participation have the potential to hurt wage equality because fewer workers will be covered by unions, and unions will lack funds and resources required for collective bargaining.

Policies that protect and strengthen collective bargaining rights can improve gender pay equity by raising overall wages and setting standard wages based on occupation rather than gender. Here are two potential policy solutions.

“Comprehensive labor-law reform legislation should create meaningful penalties for employers who violate the NLRA so that there is a greater disincentive for bad employer behavior.”
—Sarah Jane Glynn, “Gender wage inequality: What we know and how we can fix it.”

Potential policy recommendation 1: The Workplace Action for a Growing Economy (WAGE) Act
The WAGE Act, introduced in Congress by Sen. Patty Murray (D-WA) and Rep. Bobby Scott (D-VA), creates new protections for workers attempting to unionize, including making it an individual right to join a union, which would allow workers not covered by the National Labor Relations Act to organize. It would also impose stricter punishments for employers who violate the NLRA by firing or punishing workers engaged in union organizing.10

Potential policy recommendation 2: Collective bargaining for freelance economy workers
Between 54 million and 68 million Americans work in the freelance economy, according to the McKinsey Global Institute, yet they are not protected by the NLRA due to their classification as independent contractors.11 States and cities are taking initiatives to create fair labor standards for those working in the freelance economy. In 2015, Seattle’s city council passed a rule that grants drivers for Uber Technologies, Inc. and Lyft, Inc. the ability to unionize, though it was being appealed at the time of this writing. In 2016, New York state’s Department of Labor ruled that these drivers are employees rather than independent contractors, allowing them to qualify for greater worker protections and benefits.12

Education

  • Gender wage inequality was narrowed by 5.9 percent as a result of women’s increased educational attainment, accounting for a $47.2 billion increase in women’s earnings.
  • Legislative and social changes—such as the 1972 Title IX provision of the Education Amendments in the U.S. Code of Laws, greater access to birth control, and delayed marriage timelines—increased women’s educational attainment.
  • Despite women earning the majority of postsecondary degrees, the fields of study that they pursue compared to those men pursue lead to lower-wage jobs. Men are more likely than women to major in engineering and computer and information sciences, whereas women are more likely to study education, humanities, or the social sciences.
  • “Nontraditional” undergraduates, defined as older students, married students, and/or students with children, face a particular challenge because while both sexes in this category are equally likely to have delayed entry to postsecondary education and to work while in school, women are significantly more likely to be caring for dependents while attending school.

Policies to make college affordable and help nontraditional undergraduates would facilitate higher completion rates of postsecondary education. In addition, policies that increase the number of women pursuing degrees in fields historically dominated by men would increase the chances that women would be employed in higher-paying fields after graduation. Here are three potential policy solutions.

Potential policy recommendation 1: The INSPIRE Women Act and other legislation to increase the representation of women in STEM fields
Legislation such as Inspiring the Next Space Pioneers, Innovators, Researchers, and Explorers, or INSPIRE Women Act, passed in February 2017, as well as Sen. Catherine Cortez Mastro (D-NV) and Rep. Jackie Rosen (D-NV)’s Code Like a Girl Act and Sen. Mazie Hirono (D-HI) and Rep. Carolyn Maloney (D-NY)’s Women and Minorities in STEM Booster Act of 2017, are all examples of legislation intended to increase the representation of women in fields where they are currently underrepresented.13

Potential policy recommendation 2: Increase college affordability
Expansion of the federal Pell Grants program would make college more affordable for students, as they do not have to be repaid. In addition, many states and cities are initiating various programs aimed at making community colleges tuition free for low-income students. Tennessee, Oregon, Rhode Island, and San Francisco already allow residents who qualify as low income to attend community college for free. In addition, beginning in 2017, all City University of New York and State University of New York two- and four-year universities will allow students from households making less than $125,000 annually to attend tuition free.14

Potential policy recommendation 3: On-campus childcare for student parents
The number of student parents enrolled in two- and four-year universities has been on the rise. To keep these students enrolled through graduation, states are investing in on-campus childcare centers for students and faculty. In California, Hawaii, Idaho, Illinois, Nevada, New York, Rhode Island, Utah, and Washington state, 70 percent of all public universities have campus childcare available for students. The investment in on-campus childcare can result in positive returns of a better-educated workforce, higher wages, and greater innovation.15

Race

  • Race “explains” 4.3 percent of gender wage inequality, according to Blau and Kahn’s model, which translates to $34.4 billion in wage differences for women of color.
  • Racial wage inequality exacerbates gender wage inequalities, and the effect of race persists even after controlling for education, work experience, and occupation.
    • For example, while wage inequality for women of color has narrowed slightly over time, likely due to their increased educational attainment, as of 2015, black women still earn 34.2 percent less than white men and 11.7 percent less than white women, even after controlling for education, experience, marital status, and region of residence. (See Table 1.)

Table 1

Policies to increase wages and promote educational attainment would help improve women of color’s wages but are insufficient on their own. Policies are also needed to address persistent racial wage and hiring discrimination. Here’s one potential policy solution.

Potential policy recommendation: Collect data to understand problems facing workers of color
Title VII of the Civil Rights Act of 1964, overseen by the Equal Employment Opportunity Commission, prohibits employers from discriminating employers based on race, color, religion, sex, and national origin. Collecting firm-specific employment and pay data would allow the EEOC to better enforce Title VII, but it is not currently collected. In September 2016, the EEOC did announce it would begin collecting summary pay data and aggregate hours worked by pay bands, gender, race, and ethnicity for businesses with more than 100 employees. In August 2017, however, the Trump administration issued a stay before it got underway.16

Regions

  • The regions where women live and work accounts for 0.3 percent of gender wage inequality, or a $2.4 billion wage difference between men and women.
  • Regional differences in pay affect both men and women, but the effects aren’t evenly spread among them. Part of this is due to differences in states with minimum wages higher than the federal minimum wage and whether states have an equal pay law. States with smaller wage differences were almost twice as likely to have a minimum wage higher than the federal minimum wage rate of $7.25.

While the cost of living varies across state lines, wages usually reflect that region’s cost of living and should be relatively equal between men and women. Policies such as increasing the federal minimum wage would help eliminate gender wage inequality as a result of regional differences. Here’s one potential policy solution.

Potential policy recommendation 1: Increase the federal minimum wage
A 2014 Obama administration analysis found that raising the federal minimum wage to $10.10 per hour would narrow gender wage inequality by 5 percent, which would translate to an additional $24 billion in wages.

Demand-side causes

Most of the factors that contribute to the gender wage gap can be explained by the supply-side causes, yet the source of 38 percent of the wage gap is largely unquantified because of the difficulties in modeling socially constructed gender norms, according to Glynn. All of the statistics of gender wage inequality and the policies to amend this inequality included in this section were pulled from Glynn’s report and Blau and Kahn’s paper.

Socially constructed gender norms and internalized expectations about their behavior play a role in influencing women’s decisions about what education or occupation to pursue. Even the supply-side factors outlined above are seemingly easy to observe and measure, but might be less explanatory than estimated in the Blau and Kahn model. A study on engineering students, for example, found that more women than men changed their majors because the women were more likely to negatively interpret their grades, have lower self-confidence, and have less faculty and peer support compared to their male peers, limiting career prospects in a lucrative field.17

Discrimination also plays a role in the unexplained portion of gender wage inequality. Because earnings at a new job are often based on earnings at a prior job, any discrimination a woman experienced in what she was paid in the past will carry forward and compound in future jobs. After accounting for observable characteristics, Blau and Kahn found that 38 percent of gender wage inequality remains unexplained, which accounts for $303.7 billion in the difference between men’s and women’s wages in 2016. Economists interpret this unexplained portion as discrimination.

“The unexplained [portion of the gender wage] gap will also understate discrimination if some of the explanatory variables such as experience, occupation, industry, or union status have themselves been influenced by discrimination—either directly through the discriminatory actions of employers, coworkers, or customers or indirectly through feedback effects.”

—Francine D. Blau and Lawrence M. Kahn, “The gender wage gap: Extent, trends, and explanations.”

Policies that increase pay transparency, combat discrimination, and ensure that data about pay differences is collected will help address some of the “unexplainable” differences in men and women’s wages. Here are five potential policy soultions.

Potential policy recommendation 1: Fair Pay Act
The Fair Pay Act, reintroduced by Rep. Eleanor Holmes Norton (D-DC), would expand prohibitions against sex discrimination from “equal work” to “equivalent work,” clarify that any differences in pay must be justified by legitimate business interests, protect workers who share their pay information, and increase damages available to victims of wage discrimination.18

Potential policy recommendation 2: Paycheck Fairness Act
The Paycheck Fairness Act, introduced by Sen. Patty Murray (D-WA) and Rep. Rosa DeLauro (D-CT) in 2017, requires employers to prove that differences in pay were a result of business-related factors. This rule would protect workers who disclose pay to other workers, increase employer transparency regarding pay inequities, and hold employers accountable for pay discriminations.19

Potential policy recommendation 3: Workplace Advancement Act
The Workplace Advancement Act, introduced by Sen. Deb Fischer (R-NE) and Rep. Stephen Knight (R-CA), would amend the Fair Labor Standards Act by protecting workers from retaliation for discussing their wages if they do so in order to discover pay inequity among co-workers.20

Potential policy recommendation 4: Eliminate questions about past wages during the application process
Policies that ban employers from asking about wages earned at prior jobs will mitigate the impact of pay discrimination experienced in the past by preventing it from carrying forward to future earnings. The states of Massachusetts, California, Oregon, Delaware, and New York, the U.S. territory of Puerto Rico, and the cities of San Francisco, Pittsburgh, and New Orleans have all passed measures to ban the practice.21

Potential policy recommendation 5: Improve data availability on wages by gender
Other countries have laws requiring employers to collect data on their employees’ wages to determine whether male and female employees are being paid differently for the same work. The collection of wage data by gender, race, and ethnicity is necessary to measure what is actually happening and to assess whether policies intended to address gender wage inequality are working, as well as to ensure compliance with those policies.22

To learn more about the research and policy recommendations behind the information summarized here, you can read Sarah Jane Glynn’s full report, “Gender wage inequality: What we know and how we can fix it.”

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Women’s History Month: U.S. women’s labor force participation

Posted on by Maria Monroe

It’s Women’s History Month in the United States. What better time to discuss a key economic dynamic that both reflects and contributes to women’s changing role in American society than their advances in the workplace? Specifically, how has women’s labor force participation rate—the percentage of women engaged in the formal labor market by being employed or looking for work—changed over time? It’s an important issue. When women join the labor force, economies tend to grow more. Indeed, there is a significant relationship between a country’s per capita Gross Domestic Product and women’s labor force participation rate. (See Figure 1.)

Figure 1

For women in the United States, labor force participation rates have not followed a straight path. It has been a complicated narrative, deeply affected by women’s family roles, by discrimination, by the changing economy, by technological change, and by their own choices. And it is a continuing story, with surprising twists that economists continue to explore.

In a sense, this story begins with its first twist, in the 18th and 19th centuries. To be clear, this is a twist for us today, not for those who experienced it. From our modern perspective, we might assume that significant participation by women in the workforce was practically nonexistent until it began rising gradually in the 20th century. We would be wrong. A number of economists, and especially Claudia Goldin of Harvard University, have shown that women in the 18th and 19th centuries played a considerably more important role in the economy than we might have thought. They were critical to their families’ economic well-being and their local economies, not in their rearing of children or taking care of household responsibilities but by their active participation in growing and making the products that families bartered or sold for a living.

But eventually, as the production of goods became mechanized and moved outside of the home, women’s role in the market economy receded, and their labor force participation dropped substantially to its nadir near the end of the 19th century. Gradually, beginning after 1890 and very much into the 20th century, women had a growing place in the workforce. This path—declining from a high point in previous centuries, prior to the manufacturing economy, and then rising as the economy and society change over time—graphs as a U-shaped curve. One of Goldin’s most significant contributions was to show that the U-shaped curve applied to the development of economies worldwide, though, as Boston College economist Claudia Olivetti has shown, the dip is less significant for economies that began significant development after 1950. (For an illustration of the global nature of this phenomenon, see this graph created by the IZA Institute of Labor Economics.)

Goldin cites four periods after the nadir of women’s participation in the labor market, the first three of which she terms evolutionary and the final one revolutionary. In the first of these phases, from the late 19th century to the 1920s, it was primarily poor, uneducated single women who entered the workforce, often as piece workers in manufacturing or as employees in other people’s homes. Married women largely stayed home, and the single women who worked generally exited the workforce upon marriage. In the 1910s, we see more women working in teaching and in clerical positions, which began a period of major growth.

From the 1930s to the 1950s, Goldin’s second phase, married women entered the workforce in significant numbers, their rate rising from 10 percent to 25 percent. She notes that while 8 percent of employed women in 1890 were married, that figure rose to 26 percent in 1930 and 47 percent by 1950. These increases were the result of the rise of offices requiring clerical workers and new information technologies, along with tremendous growth in the number of women attending high school in the early 20th century. It’s worth noting that women’s workforce participation was negatively affected by their husbands’ income. The higher his income, the less she would “need” to work outside the home. But that began to change during this period.

In the next phase, according to Goldin, women’s labor force participation, driven by married women, rose substantially. And it continued to become more common for married women to continue working even as their husbands’ income rose. One reason that married women worked more was the growing availability of scheduled part-time employment. In addition, societal barriers, and in some case legal barriers, to married women continuing to work were dropping.

Finally came what Goldin calls “the quiet revolution,” the period from the late 1970s up to the very early 21st century. In this era, women’s overall labor force participation rate rose but not by all that much. What did happen, however, was that the percentage of women of childbearing age with a child under the age of 1 in the workplace rose dramatically, from 20 percent to 62 percent. What Goldin refers to as the revolution are these changes: Young women in their late teens during the 1970s altered their “horizons” (their career expectations) so that they anticipated long, continuous careers that would not be cut short by marriage and children. This development, in turn, encouraged them to invest more in their education, with increasing numbers going to college and beyond, thus preparing them for careers that gave them status closer to men in the workplace.

At the same time, women began postponing marriage and childbearing. This was almost certainly, as shown by Goldin and by the University of Michigan’s Martha Bailey and her co-authors, due in part to the introduction and growing popularity of the birth control pill, the reliable contraceptive that gave women more control over the timing of childbearing. The pill had the effects of both increasing female labor force participation and narrowing gender pay inequality. And women began to see their lives and their identities differently, with their professional selves becoming as important as their families.

And then something else happened. Beginning around 2000, the advances in women’s labor force participation stopped. The rate flattened and then began to decline. To be sure, the decline is relatively small, a few percentage points, but it is real and it is unique among developed countries, according to the Organisation for Economic Co-operation and Development. (See Figure 2.)

Figure 2

We still don’t know the reasons for this reversal, but we have some clues. Sandra Black of the University of Texas at Austin and her co-authors note that men’s labor force participation rate has been declining for several decades. Until 2000, this caused a significant, though not nearly complete, convergence between women’s and men’s labor force participation rates. Since 2000, however, the relative decline for women has actually outpaced that of men. Between 2000 and 2016, prime-age women’s labor force participation fell by 4.2 percent, from 78 percent to 74 percent. During the same period, prime-age men’s labor force participation fell by 3.7 percent, from 91 percent to 88 percent. The decline in men’s labor force participation is a trend generally attributed to poor labor market opportunities, particularly for low-skilled men. A question, therefore, is whether women’s rate began to decline for the same reason. Some evidence points in that direction, but the story is not necessarily a simple demand-side tale.

As previously noted, this decline in women’s labor force participation is not replicated in other OECD economies, where the rate continues to rise. Black and her co-authors point out that while the U.S. labor market is among the most flexible in its ability to accommodate changes in technology and other factors that change the nature of work, it is also among the least supportive in providing unemployment, job-search, and training benefits that could help both men and women adjust to change.

Those researchers also point to the potential positive impact of implementing paid family leave and expanded access to childcare on prime-age women’s labor participation rates. It is clear from recent research by Olivetti and Barbara Petrongolo of the London School of Economics that national family policies can have a significant positive impact on women’s labor force participation. The researchers examined family policy across high-income Western European countries, Canada, and the United States. What they found was that investments in childcare and early childhood learning had significant impacts on women’s labor force participation. They also found a positive impact, though less pronounced, for maternity leave policies of up to 50 weeks. Interestingly, separate research finds that family policies that benefit only women can undermine their potential impact, as they might affect employers’ attitudes toward female employees.

Unfortunately, what the OECD has also reported is that as of 2012, the United States ranked 33rd of 36 countries in investing in early childhood care and education, relative to overall income. This country is also the only developed country without a national paid leave program.

Another promising area for legislation to support women’s ability to participate in the workforce is scheduling stability. Over the past decade, researchers have documented instability and unpredictability in the schedules of retail workers, and they are increasingly showing that providing greater stability and predictability for schedules can not only improve employer profits and strengthen the economy but also improve the health of their workers.

It seems clear that a change in direction for U.S. policies related to childcare and early education, along with a strong national paid leave policy for family leave could help to reverse the downward trend of U.S. women’s labor force participation and put it back on the same path that most other developed countries are on. We have seen that while the 20th century saw a restoration of women’s strong participation in the workforce, the 21st century has seen a disturbing reversal. Policymakers can do something about this, and it would benefit families and the nation’s economy.

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Weekend reading: “Inequality” 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 Heather Boushey released a statement on behalf of the organization following the passing of Alan Krueger. The statement highlighted Krueger’s belief that economics—and economists—should advance knowledge and serve people and how he helped make economics less about theory and more about maximizing its benefits for all.

Equitable Growth’s Greg Leiserson, Will McGrew, and Raksha Kopparam released their issue brief that provides an overview of the distribution of wealth in the United States to inform discussion of a potential net worth tax. The issue brief includes a series of figures that break down what the distribution of income and wealth in the United States looks like across wealth quintiles and what types of demographics are feeling the benefits of such wealth.

Alix Gould-Werth broke down newly released research from Equitable Growth grantees Joan C. Williams and Susan Lambert. Their research looked at how retail workers’ unpredictable schedules can impact their sleep quality. The research found that by improving the quality of workers’ schedules, workers slept more soundly and were more productive.

In recognition of Women’s History Month, Equitable Growth compiled some of the work we’ve published over the past few years on the role women play in the workplace and the U.S. economy. Pieces highlighted included Paid family and medical leave in the United States: A research agenda and Gender wage inequality.

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

Elisabeth Jacobs and Kate Bahn discuss how the female labor force participation rate in the United States has changed over time and how this rate correlates to a country’s per capita Gross Domestic Product. The two note that U.S. women’s labor force participation, unlike that of other countries, has been on the decline since around 2000, and they call for policies like paid family leave, expanded access to childcare, and scheduling stability to help curb the decline.

Links from around the web

What is economic inequality exactly? Susannah Snider describes it as the gap between the income and wealth amassed by different groups in a society, describing the exponential growth in wealth disparities between the richest Americans compared to the rest of the country over the past five decades. She goes on to describe how economic inequality affects everyday folks, with working class families being unable to weather small financial setbacks or even beginning to build wealth. [usnews]

There have been lots of recent proposals for how to go about taxing the wealthiest people in the United States. Dylan Matthews breaks down recent proposals from Alexandria Ocasio-Cortez, Elizabeth Warren, Bernie Sanders, and others, discusses the historical background of taxes on the wealthy, and breaks down how taxing the rich can be hard in practice. Matthews pulls from some of the ideas of Equitable Growth grantees including Gabriel Zucman, Stefanie Stantcheva, and David Kamin. [vox]

Data shows that low-income students who attend top-tier universities earn close to what their wealthy classmates go on to earn. Yet the advantages of legacy admissions exacerbate inequality by denying admission for low-income students. Richard Reddick breaks down how opportunity hoarding in the college admissions process compounds economic inequality. [houstonchronicle]

Christian Weller proposes that only bold policy interventions can begin to shrink the racial wealth gap that persists in our country. Specifically, Weller maintains that we cannot just focus on income, but must also take a close look at ways to quickly close the racial wealth gap by enacting policies such as reparations. [forbes]

Alan Krueger’s work in the Obama White House propelled economic inequality into the mainstream, coining the term the “Great Gatsby Curve” that helped solidify the idea that income inequality is a serious harm. Dylan Matthews writes how Krueger’s popularization of the relationship of income inequality for everyday Americans created a new dialogue between lawmakers—one that is sure to continue on for years to come. [vox]

Friday Figure

Figure is from Equitable Growth’s “The distribution of wealth in the United States and implications for a net worth tax”

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Brad DeLong: Worthy reads on equitable growth, March 15–21, 2019

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

  1. Alan Krueger’s passing is horrible and tragic news. All sympathy to his family. He was a light that shone very brightly for good into many dark corners. May his memory be a blessing. Please read Heather Boushey’s “Remembrance: Alan Krueger,” in which she writes: “We at the Washington Center for Equitable Growth are deeply saddened to learn of the death of Alan Krueger. He was devoted to serving the public and to ensuring that economics was not only about theory but about improving people’s lives … As a pioneer in the use of natural experiments as the basis for economic research, his work helped create a paradigm shift in the discipline itself … The lessons learned from the advances in economics in no small part pioneered by Alan underlay much of the cutting edge of economics—and the work we do at Equitable Growth to show how inequality affects economic growth.”
  2. I have been waiting for this research paper for a while, and it’s very good. Read David R. Howell and Arne L. Kalleberg’s “Declining Job Quality in the United States: Explanations and Evidence,” in which they write: “We group … explanations … into three broad visions … the competitive market model, in which supply and demand for worker skills in competitive external labor markets generates a single market wage by skill group … [the] contested market models, in which … firms typically have substantial bargaining (monopsony) power; and social-institutional models, which … place greater emphasis on the public policies, formal and informal institutions, and the dynamics of workplace cultures and conflict … The supply-demand explanation, which has focused on evidence of occupational employment polarization (driven by skill-biased production technologies) and the rise in the college-wage premium … We conclude by summarizing policy recommendations that follow from each of these visions.”
  3. Well worth your time chasing the links from this review of work Equitable Growth has published over the past several years on women’s roles. At the root, I think, is that a great many of our economic and societal practices reflect gender reality as it stood 50, 100, or 150 years ago—and both biological and even more societal reality as it stood then was hardly conducive to the empowerment of women. Recall that two centuries ago, an overwhelming proportion of women became mothers, that the typical mother stood a one-in-seven chance of dying in childbirth, and that the typical mother (if she survived) would spend 20 years eating for two—pregnant or nursing—in a world in which childcare by nonrelatives was a thing for only the upper class. Legacy institutions from that time are unlikely to serve today’s women—or men—well. Read “Equitable Growth’s History of Focusing on Women’s Role in the Economy: A Review,” which details: “How women are reshaping the American economy … Gender wage inequality … Paid family and medical leave … Women … [and] family economic security … The gender gap in economics … The link between bodily autonomy and economic opportunity … The wages of care … Motherhood penalties.”
  4. The Gap, Inc. asked researchers to quantify the benefits from offering its retail employees more regular schedules. The benefits are substantial. Read Alix Gould-Wirth, “Retail workers’ unpredictable schedules affect sleep quality,” in which she writes: “Retail outlets of The Gap … [r]andomly assigned 19 stores to a treatment group to implement the intervention and nine stores to a control group that did not implement the intervention. The Gap was so committed to increasing the amount of notice workers had of its scheduled shifts that the company extended two components that were originally planned to be part of the intervention—two-weeks advance notice and the elimination of on-call shifts—to all of its workers in North America prior to the beginning of the experiment. So, this experiment tells policymakers and businesses alike how the multicomponent intervention affects workers’ lives beyond advance notice alone … The intervention made a substantively (and statistically) significant impact on the sleep quality of workers.”

Worthy reads not from Equitable Growth:

  1. Put me down as someone who thinks that the Federal Reserve and the European Central Bank have not tried, and are not trying, hard enough to learn from the Bank of Japan. They still do not seem to be at the point of understanding the relevance of Japan for themselves as well as Paul Krugman did two decades ago, when he wrote his Return of Depression Economics, his “Japan’s Trap,” and his “It’s Baaaack: Japan’s Slump and the Return of the Liquidity Trap.” This is not a good situation to be in. Read Enda Curran and Toru Fujioka,” BOJ’s Never Ending Crisis Has Lessons for World’s Central Banks,” in which they write: “The underlying problems confronting the BOJ—slowing growth, tepid wage increases, lackluster productivity gains, and aging populations—are becoming more pronounced in other developed economies … ‘When Japan first confronted the problem of very low inflation, monetary economists pooh-poohed the problem, saying there was an easy fix,’ said Raghuram Rajan, former governor of the Reserve Bank of India and now a professor at the University of Chicago. ‘After confronting the same issue in their own countries and showing an inability to deal with it, there seems to be a general consensus that the problem is harder.’ Its latest experiment in yield-curve control … has drawn the attention of Federal Reserve Deputy Chair Richard Clarida amid an examination of strategy at the U.S. central bank.”
  2. The empirical evidence so far seems to be telling us that policies prohibiting employers from knowing early about applicants’ criminal records may be leading to employers not looking at all at young black men. If this holds up, it would be very distressing and suggest strongly that such policies are truly counterproductive: Read Jennifer L. Doleac, “Empirical Evidence on the Effects of ‘Ban the Box,’” in which she writes: “I have prepared this written testimony to review existing empirical evidence on policies that prohibit employers from asking job applicants about their criminal records until late in the hiring process … This evidence can be summarized as follows: Delaying information about job applicants’ criminal histories leads employers to statistically discriminate against groups that are more likely to have a recent conviction. This reduces employment for young, low-skilled, black men. This negative effect is driven by a reduction in employment for young, low-skilled, black men who don’t have criminal records … Effective approaches to this policy problem are likely to be policies that directly address employers’ concerns about hiring people with criminal records, such as investing in rehabilitation, providing more information about applicants’ work-readiness, and clarifying employers’ legal responsibilities.”
  3. A panel led by Jason Furman proposed predictable rules and platform regulation—a “code of conduct for the most significant digital platforms,” treating them as essential services—plus ensuring data mobility and open standards are essential for the creation of a digital economy in which competition and innovation can produce large benefits. Unfortunately, none of those are in the financial interest of current tech shareholders or their lobbyists. Read “Unlocking Digital Competition, Report of the Digital Competition Expert Panel,” which says: “An independent report on the state of competition in digital markets, with proposals to boost competition and innovation for the benefit of consumers and businesses … Chaired by former chief economist to President Obama, professor Jason Furman, the panel makes recommendations for changes to the U.K.’s competition framework that are needed to face the economic challenges posed by digital markets.”
  4. Read Austan Goolsbee, “You Never Know When a Recession Will Sneak Up on You,” in which he writes: “The 2001 recession developed when the internet bubble popped … But … the internet accounted for, at most, about 2 percent of the economy then. If we use the logic we’ve been applying to trade wars and government shutdowns, it would seem that popping the internet bubble shouldn’t have been enough to cause a recession. But it did. The reason it did was that the pop freaked out people outside just the internet sector … Virtually every recession in the past 40 years coincided with a signal of fear, like a significant drop in consumer confidence. Sometimes confidence fell and didn’t spiral into recession, but all recessions have started with a confidence spiral … Let us all hope for excellent jobs numbers in the months to come, along with a rebound … But it would be a mistake to be overconfident … If something scares people enough, it can start a recession, and you probably won’t know until it’s too late … The great pitcher Satchel Paige once advised: ‘Don’t look back. Something might be gaining on you.’ Had he been an economist, he might have added, ‘And don’t start a trade war, either.’”
  5. Read Noah Smith’s piece on Alan Krueger, “Alan Led a Quiet Economics Revolution,” in which Smith writes: “[Alan] Krueger’s work defined what a modern economist should look like … He relentlessly focused on issues of practical, immediate importance. He constantly concerned himself with the betterment of the lives of poor and working people, but refused to naively assume that programs designed to help these people always had the intended effect. He was always aware of relevant economic theories, but never let himself be bound by them. This eclectic, humble, humanistic but practical approach has set the tone for an entire generation of young economists. He was taken from us far too soon, but his impact on economics, and on the world, will last for a very long time to come.”
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