A Valentine’s Day love letter to the Unemployment Insurance program

Posted on by Maria Monroe

This Valentine’s Day, I’m thinking about my relationship with a very special social insurance program.

Over the years, I’ve developed fond feelings for many programs on the social insurance side of the social safety net here in the United States. Like Cardi B, I am grateful to President Franklin Delano Roosevelt for the Social Security benefits that are available to workers upon retirement. I’ve also seen firsthand the difference that Social Security Disability Insurance makes in the lives of people with serious mental illness. And I’m at the edge of my seat as I watch the evidence base around paid family and medical leave develop.

But for me, there is one social insurance program that stands out among the rest: Unemployment Insurance.

Unemployment Insurance is that rare government program with a name short enough that it doesn’t need to be abbreviated. But a love interest needs a pet name, so here I’ll call it “UI” for short.

When evaluating a potential main squeeze, I pay attention to character. An altruistic impulse is very attractive, and UI has altruism on lock. It’s the main government program that helps workers who lose a job through no fault of their own, and it pays eligible workers a portion of their normal wage while they look for work.

Of course, some people think of our means-tested programs as more focused on those in need than my UI. This is because eligibility for means-tested programs is based on need, while social insurance programs allow you to draw benefits if you have contributed over time or your employer has contributed on your behalf. So, some observers conclude that means-tested programs are big-hearted, while social insurance programs are scrooge-like. And I have to say to these people: You are wrong. Yes, means-tested programs are incredibly important. But you don’t really know my UI.

In fact, UI’s social insurance structure is part of its allure. Both means-tested and social insurance programs are vital to the health and well-being of the U.S. population. But research shows that claimants feel less stigma when applying for and receiving benefits from social insurance programs than means-tested programs. And typically, social insurance programs enjoy support that protects them from being dismantled by overeager budget cutters.

But what makes UI different from all other social insurance programs? Why does it hold a special place in my heart? Let me count the reasons:

There are so many reasons that I love UI, but as happens in any long-term relationship, over the years, I’ve noticed places where UI has room to grow and change.

UI helps workers, but it helps some workers more than others. Levels of the program’s use are low, and they are lowest among workers from disadvantaged demographic groups—women, people of color, and people without college education. These are the very people who need the benefits the most.

Why could this be? One reason is that the UI system is antiquated. Its eligibility rules were put in place in the 1930s. A lot about work in the United States has changed since then. Eligibility rules were designed for families with one full-time breadwinner, which leaves many workers who are balancing work with school or family responsibilities ineligible for benefits. While its old-fashioned sensibilities are part of UI’s charm (after all, it was borne in an era of great hope for workers), my dear UI needs to get with the times and help workers who have erratic schedules, who are not directly employed by the company that benefits from their work, and who are female or low-paid.

Then, of course, there is that pesky issue of UI’s trust fund. It’s nice to have a beau that is flush with cash, am I right? But UI tax revenues have not kept pace with wage growth, which can leave UI broke.

Remember when I told you about how I love UI because of its social insurance structure, which insulates it from being dismantled? Well, when UI is hard up for cash, even that social insurance structure does not protect the program, and policymakers restrict access to UI benefits. When people can’t access UI benefits, the program doesn’t live up to its full potential: It doesn’t deliver the benefits to individuals and the economy that get my heart racing.

Maybe you know that when you’re with a love interest for a long time, you start noticing their little quirks that get under your skin. The little quirk about UI that drives me up the wall is not that UI leaves its dishes in the sink, but rather that employer contributions to UI are experience rated, which means that employers pay more taxes when their former employees claim more benefits—which gives employers an incentive to prevent workers from claiming benefits. Why, UI? Why?

Despite these flaws, I won’t abandon UI. I’m in it for the long haul. With other researchers, advocates, policymakers, and citizens, I hope to support UI as it grows, changes and—in accordance with the research—becomes the best program it can be. XOXOXO.

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Testimony by Heather Boushey before the Ways and Means Committee

Posted on by Maria Monroe


Heather Boushey
Washington Center for Equitable Growth

Testimony before the Ways and Means Committee
Subcommittee on Select Revenue Measures
Hearing on “How Middle Class Families are Faring in Today’s Economy”

Remarks as Delivered
February 13, 2019


Thank you, Chairman Thompson and Ranking Member Smith for extending me an invitation to speak today. I am honored to be here. My name is Heather Boushey and I am Executive Director and Chief Economist at the Washington Center for Equitable Growth.

I’m here to talk about the state of the American middle class and evidence-backed ideas and policies that you as a Subcommittee and as lawmakers can use to promote strong, stable, and broad-based economic growth. That is also the focus of our Center.

Statistics that we use to measure the economy, like GDP and job numbers, have become less representative of what people across the U.S. and your constituents are feeling. There is a reason that the President’s boasts of 4 percent growth ring hollow to those who you meet at home. Headline GDP numbers don’t tell us how that growth is distributed, just as headline job numbers do not tell us if good jobs are being created. The question of who gains from economic growth is crucial to understand.

Research from the economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman show that for the 117 million U.S. adults in the bottom half of the income distribution, economic growth has been non-existent for a generation. Meanwhile, the income of the top 1 percent has tripled since 1980.

As incomes have stagnated, the building blocks of a stable middle class living have steadily become more expensive. Health care, child care and education are a few fundamental, but increasingly unaffordable, pillars of the American Dream. A median-income family has to spend nearly 20 percent of their income to cover childcare costs. The total cost to attend a four-year university has increased from $26,000 to more than $100,000 over the past four decades. The U.S. is unique among rich countries in not providing workers with nationwide access to paid family and medical leave.

Rising inequality and increasing barriers to a middle-class life are limiting economic mobility. Economist Raj Chetty found that upward absolute mobility in the U.S. declined precipitously between the mid-1900s and today. Children born in 1940 had a 90 percent chance of earning more than their parents. For children born in 1980, it was only a 50-50 chance. This is wrong. Chetty’s analysis shows that 70 percent of the decline in mobility happened because of rising inequality. Thus, to improve mobility, we must address inequality.

This Subcommittee has a vital role to play in rebalancing policy toward the majority of Americans. The Tax Cuts and Jobs Act is contributing to inequality in the United States by lavishing benefits on corporate shareholders and the already wealthy. The Tax Cuts and Jobs Act cut taxes for those at the top in the long run, while decreasing the revenue available to fund investments in family economic security, like education, healthcare, childcare and housing. The purpose of the tax system, as with public policy in general, is to support the living standards of U.S. families.

So what can you do about this? Your policy agenda should comprehensively address economic issues at the bottom, middle, and top of the income spectrum. At the bottom end, one easy step is to preserve and expand evidence backed refundable tax credits like the Earned Income Tax Credit and the Child Tax Credit, which lifted 8.9 million Americans out of poverty in 2017.

In the middle, it is important to make sure the fruits of growth are widely shared and to make the economy work for workers and families. Some proven ways to do this include making sure every family can afford to send their children to high quality, affordable childcare and offering a national paid family and medical leave. It can also mean investing in infrastructure.

And we need to know much more about the top. Many of the statistics we rely on to inform us about the state of our economy are measures of the average. In an era of rising inequality, overall GDP numbers are becoming less informative about the experience of the majority of people you represent. The Measuring Real Income Growth Act, introduced by Representative Carolyn Maloney, would disaggregate quarterly or annual GDP growth numbers. This would tell us what growth is experienced by low-, middle-, and high-income Americans.

Instead of promising “4 percent growth,” the goal could become “4 percent growth for the middle class.” This data should be made available in real time so we can design policies to lift up those groups that really need it.

Thank you again.

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Who profits from patents in the United States?

Posted on by Maria Monroe

Overview

In standard competitive models of the labor market, we think of firms as price takers. That is, workers are paid a wage that is a function of their skill level, and firms take the market-level prices of skills as given. Yet in practice, there is growing empirical evidence that firms contribute substantially to wage inequality across identically skilled workers. Put simply, how much you earn seems to depend in part on the firm at which you work as opposed to depending solely on your own skills.

One natural explanation for this is that the performance of firms matters for what they pay their workers—in the sense that workers employed at firms that are doing better might earn more. But economic research aimed at testing for causal evidence on whether firm performance matters for worker pay has been challenging for two reasons. First, from an empirical perspective, researchers would ideally isolate clear shocks to firm performance and then trace through how those shocks propagate into worker pay. Although that thought experiment is simple enough to describe, nearly all past attempts to analyze this question have instead analyzed observed fluctuations in firm performance over time but without making an attempt to understand the source of these fluctuations.

Second, in the small number of cases where researchers have successfully identified clear shocks, researchers have lacked the type of detailed panel data needed to cleanly analyze wage responses among incumbent workers.1 That type of panel data is critical because the composition of workers employed at a firm may change in response to firm-level shocks. More specifically, when a firm discovers a new invention, it may hire more skilled workers in order to develop and market that invention. Average wages at the firm would then go up, but that could solely reflect a compositional change in the average skill level of workers employed at the firm—even if no “rents” (economic parlance for profits above the cost of production plus a reasonable return for the firm) from the innovation were actually being passed through to workers’ wages.

Worker-level panel data is needed in order to test whether the pay of incumbent workers actually changes in response to firm-level shocks. This column summarizes a recent academic paper that I wrote with my co-authors Patrick Kline at the University of California, Berkeley, Neviana Petkova at the U.S. Department of Treasury, and Owen Zidar at Princeton University, in which we try to make progress on answering this question by investigating how the granting of patents affects the performance of firms and their workers’ wage compensation using a new linkage of U.S. patent applications to U.S. Treasury business and worker tax records.

Briefly, our research paper documents some of the first evidence that, at least among among small, innovative firms, the increased profits derived from a patent do partially accrue to firms’ workers in the form of higher wages, though the bulk of those shared profits are returned as higher wages to employees at the top of these firms’ earnings distributions. Our interpretation is that firms choose to share profits with these workers because they would be costly for the firm to replace. How we gathered this evidence and arrived at these findings are detailed below.

Empirical approach: Comparing accepted and rejected patent applications

Patents provide firms with a temporary period of market power, during which they can charge supracompetitive prices and earn rents that allow them to recoup the fixed costs of their research investments. In our academic paper, we try to isolate quasi-random variation in which firms receive patents and to then leverage that variation in order to look at how patent-induced rents propagate into worker wages.

Specifically, consider the following thought experiment. Take two patent applications submitted by two separate firms to the U.S. Patent and Trademark Office in the same year, covering the same general type of technology. (In USPTO parlance, the two patent applications are sufficiently similar that they will be reviewed in the same Art Unit, or specialized group of USPTO examiners). One of the two applications is initially allowed—that is, it is granted on the first round of review. The other application is initially rejected. Under some assumptions, researchers can use firms that had patent applications initially rejected as a counterfactual for what would have happened to the outcomes for firms and workers at firms where patents were initially allowed, had the patent (counter-to-fact) not been granted.

Of course, it isn’t clear whether this thought experiment offers a clean comparison. It may be that better patent applications are more likely to be granted patents, in which case firms with patents that were initially rejected might not be a good comparison for firms with patents that were initially accepted. In practice, past research has documented a potentially large idiosyncratic component to patent grants—namely, that there is variation across (quasi-randomly assigned) patent examiners in their likelihood of granting patents based on observable similar applications, implying that some firms have their patent application granted because they were “lucky” in being assigned to a lenient patent examiner. 2

More directly relevant to our new paper, however, is our ability to assess empirically whether firms with patents that were initially accepted and firms with patents that were initially rejected look similar in terms of the levels and trends in their outcomes in the years prior to patent applications being submitted. What we find is that they do, lending credibility to this empirical approach.

The data we used

Our empirical analysis relies on a new linkage of two datasets. The first dataset is the census of published patent applications submitted to the U.S. Patent and Trademark Office between roughly 2001 and 2011. The second dataset is the universe of U.S. Treasury business tax filings and worker earnings histories drawn from W2 and 1099 tax filings.

In the United States, we are able to observe both accepted and rejected patent applications filed since November 29, 2000 under the American Inventors Protection Act. This data is what enables us to analyze the thought experiment described above since we can observe all firms filing for patent applications, including those firms granted patents, as well as those firms not granted patents. In practice, constructing this data on U.S. patent application filings is complicated because it requires stitching together several different USPTO administrative datasets. But in the end, we are able to combine several different public use files from the USPTO in order to construct a comprehensive dataset on patent applications filed over this time period, including information on the timing and content of the USPTO’s initial decision on each application, which is what we need in order to implement our empirical analysis.

We link the firms applying for patents (the so-called patent assignees) with firm names in the U.S. Treasury business tax filings (form 1120 for C corporations, 1120S for S corporations, and form 1065 for partnerships). The business tax filings data offer a high-quality set of firm-level variables, from which we are able to construct multiple measures of firm performance. We then link these business tax filings with worker-level W2 and 1099 filings in order to measure the number of employees and independent contractors, as well as various worker compensation measures. Of particular value for this analysis, the combination of the business and worker tax filings provides a window into compensation outcomes for many different types of workers, including firm officers and owners, who prevail at the top of the income distribution.3

Identifying valuable patents

It is well-known that most patents generate little actual value to the firm.4 In our context, this means that considering the full universe of patent grants would provide very little insight into the relationship between firm-level outcomes and worker-level earnings since most patent grants generate no shifts in firm-level outcomes. With that concern in mind, we designed our analysis to focus—in two ways—on a subsample of valuable patents that we expect to generate meaningful shifts in firm outcomes at the time the patents are initially allowed.

First, following the work of economists Joan Farre-Mensa at Northeastern University’s D’Amore-McKim School of Business, Deepak Hegde at New York University’s Stern School of Business, and Alexander Ljungqvist at the Stockholm School of Economics, we restrict our analysis to firms applying for a patent for the first time, for which patent decisions are likely to be most consequential.5 Second, among this sample of first-time applicants, we build on the analysis developed by Leonid Kogan at Massachusetts Institute of Technology’s Sloan School of Management, Dimitris Papanikolaou at Northwestern University’s Kellogg School of Management, Amit Suru at Stanford University’s Graduate School of Business, and Noah Stoffman at Indiana University’s Kelley School of Business to identify a subsample of predictably valuable patents.6

Kogan and his co-authors use so-called event studies to estimate the excess stock market return realized on the grant date of U.S. patents assigned to publicly traded firms. We develop a methodology for extrapolating from their estimates the value of patents for both nonpublicly traded firms in our sample and for firms whose patent applications are never granted. Specifically, we use characteristics of firms and their patent applications that are fixed at the time of application as the basis for extrapolating patent values. (Please see our working paper for a detailed description of this methodology.)

What we find, as expected (and comfortingly so, from the perspective of validating our empirical approach), is that low-value patents induce essentially no changes in outcomes for either firms or their workers. In contrast, high-value patents have larger, statistically significant effects on outcomes for both firms and workers.

We also document that firms with patent applications that are initially allowed exhibit similar trends in outcomes for firms and workers to those whose patent applications are initially rejected in years prior to the initial decision. In contrast, surplus per worker (where surplus is, roughly, profits plus the wage bill) rises differentially for firms with high-value patent applications that are initially allowed after the initial decision date, and those profits remain elevated afterward. Similar, although more muted, trends are observed for higher wages per worker.

The ratio of these two impacts is roughly one-third. That ratio can be interpreted as implying that workers capture roughly 30 cents of every dollar of patent-induced surplus in the form of higher earnings. Yet those higher earnings are not distributed evenly across the workforces of these firms. Our paper documents evidence that, although average earnings at these firms increase, patents exacerbate within-firm inequality on a variety of margins. In particular, we document that earnings increases are concentrated among employees in the top quartile of the within-firm earnings distribution and among employees listed on firm tax returns as “firm officers.”

Similarly, the earnings of owner-operators rise more than the earnings of other employees. And the earnings of male employees rise strongly in response to a patent allowance, while earnings of female employees are less responsive. Inventor earnings—defined as the earnings of employees ever listed as inventors on a patent application 7—are more responsive than are the earnings of noninventors, although we document substantial wage changes even for noninventors.

Conclusion

Our paper interprets this set of empirical findings in the context of a simple economic model in which incumbent workers—that is, workers who were present at the firm at the time the patent application was filed—are imperfectly substitutable with new hires. We think this economic model appropriately captures the features of the small, innovative firms we study because the innovative work conducted at these firms is necessarily specialized and proprietary in nature, which probably makes it costly to replace incumbent employees with new hires. In this model, firms choose to share economic rents with incumbent workers in order to increase the odds of retaining them. We document empirical results consistent with that prediction—namely, that worker retention rises most strongly among groups of workers with the largest earnings increases.

More broadly, our empirical findings provide some of the first evidence that truly idiosyncratic variability in the performance of firms is an important causal determinant of worker pay. Given that firm productivity is highly variable and persistent, it is plausible that firm-specific shocks contribute substantially to permanent earnings inequality across identically skilled workers, at least among the types of small, innovative U.S. firms that we study.

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Increasing evidence of the benefits of paid leave means Congress needs to consider a federal program like the FAMILY Act

Posted on by Maria Monroe

Sen. Kirsten Gillibrand (D-NY) and Rep. Rosa DeLauro (D-CT) are expected to reintroduce today the FAMILY (Family Medical Insurance Leave) Act, a bill that would establish the first near-universal federal program to provide workers with paid leave following the birth or adoption of a child, or to care for a seriously ill family member or recover from their own illness.

Today, the primary federal law supporting workers who are new parents or have caregiving responsibilities that require them to take time away from work is the Family and Medical Leave Act, enacted more than 25 years ago. That law requires employers with more than 50 employees to allow workers to take unpaid time off from work and return to their jobs when they take time for the arrival of a new child, family caregiving, or illness. While certainly a milestone achievement, however, FMLA covers only three out of five workers and disproportionately excludes low-income and less-educated workers. And, of course, many workers can’t afford to take unpaid leave, and most employers do not voluntarily provide paid leave.

The United States is the only developed country without a national paid leave program. A 2014 report by the president’s Council of Economic Advisers provided substantial evidence of the economic effects of lack of access to paid leave, including lower labor force participation and reduced lifetime earnings. Moreover, there is now growing evidence from existing paid leave programs of the impact they have on families, businesses, and the U.S. economy. Congress should consider that evidence as it takes up the FAMILY Act and any other paid leave proposals.

Equitable Growth has funded research on paid leave and has published numerous reports and articles describing and analyzing existing research on the effectiveness of paid family leave programs in the United States and overseas. Six states and the District of Columbia either have established or are developing paid leave programs. The existing state programs—the oldest, in California, dates back to 2004—have provided a laboratory for researchers to study labor and health outcomes for individuals, performance and productivity outcomes for firms, and broader macroeconomic outcomes of paid family and medical leave. This work builds on a considerable body of research from long-established programs in some European countries. The answers to many questions are already coming into focus.

Here in the United States, the studies so far have mostly focused on paid parental leave. There is evidence, for example, that in states with paid leave insurance programs, mothers who use paid leave are more likely to remain in the workforce in the year following a birth. The women experiencing the benefits of these new programs are more likely to be less educated, which makes sense given that they are less likely to have had access to paid leave in the absence of a state program.

In addition, studies looking at access to paid leave, from employers or states, across the United States have shown that in instances where paid leave is provided there is less reliance on public assistance to contend with family medical emergencies. Moreover, there has been no evidence of higher employee turnover or rising wage costs for businesses.

Research on parental leave programs abroad also suggests that paid leave of the length contemplated by the FAMILY Act, up to 12 weeks, has a positive effect on women’s income and likelihood of remaining in the workforce. Unlike programs in many other countries, the FAMILY Act is gender neutral, which encourages men and women equally to take leave to care for a child or ailing loved one. And we’re beginning to learn more about the economic implications of these policies as states implement their paid leave programs.

To be clear, while paid leave for new parents has critical benefits, and most research on paid leave has focused on this kind of leave, this support is just as important for workers who are trying to cope with a personal health problem or care for a family member with a serious health condition. As the U.S. population ages, more workers need time off to care for elderly family members or see to their own illnesses. Paid leave is also important for issues associated with a family member’s military deployment.

Some have pointed to a tax credit included in the 2017 Tax Cuts and Jobs Act as a meaningful way of addressing the need for paid leave, but as I wrote before this legislation was enacted, the available evidence suggests this will do little to solve the problem. Rather than encouraging new or improved family and medical leave policies, the credit can be expected to benefit firms that already offer this benefit. These businesses are larger and tend to pay their workers more, so the subsidy is unlikely to be of great help to the low-income workers who most need support.

In 2018, Bridget Ansel and I summarized the set of principles for a national paid leave policy that we originally laid out in a more wide-ranging paper we wrote for the Hamilton Project. We said that a paid leave program should:

  • Cover the range of family and medical needs that require time away from work
  • Be available to all workers—men and women—equally
  • Provide adequate length of leave to address care needs
  • Have a sufficiently high wage-replacement rate to make a difference in people’s lives

These principles are based on the research that has been done in the United States and abroad, and on clear needs in American society. As Congress considers the FAMILY Act and other proposals for paid family leave, it would do well not only to review the research on existing programs, but also consider these principles. The health of working families and the U.S. economy will increasingly depend on a sound, evidence-based national paid leave program.

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JOLTS Day Graphs: December 2018 Report Edition

Posted on by Raksha Kopparam

Every month the U.S. Bureau of Labor Statistics releases data on hiring, firing, and other labor market flows from the Job Openings and Labor Turnover Survey, better known as JOLTS. Today, the BLS released the latest data for December 2018. This report doesn’t get as much attention as the monthly Employment Situation Report, but it contains useful information about the state of the U.S. labor market. Below are a few key graphs using data from the report.

1.

The quits rate edged down slightly in December, but it remains at high levels as workers face a labor market with historically high job openings.

2.

As the labor market continues to tighten, there are fewer hires per available job openings.

3.

The unemployment-per-job openings ratio was unchanged in December, with less than one unemployed worker per job opening.

4.

The relationship between the jobs opening rate and the unemployment rate, also known as the Beveridge Curve, continues to demonstrate robust labor market conditions.

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Weekend Reading “The State of the Union’s 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

Grantees Nathan Jensen and Calvin Thrall released a new working paper on transparency among companies participating in state economic development programs. Using the example of the Texas Enterprise Fund, Jensen and Thrall look at companies’ likelihood of challenging formal requests for public information to see whether they have renegotiated the terms of the contracts to reduce job-creation obligations. The co-authors found that companies are more likely to challenge these information requests if they have avoided a penalty for non-compliance by engaging in non-public renegotiations.

Alix Gould-Werth reviewed the key takeaways from grantees Daniel Schneider and Kristen Harknett’s new research on the links between the quality of schedules for retail workers and their psychological distress, happiness, and sleep quality. Gould-Werth highlights results that indicate only 39 percent of workers at 80 large retail firms have regular schedules. In addition, a worker who does not experience shift cancellation has a 45 percent chance of experiencing distress, however workers whose shifts are cancelled see the predicted probability jumps to 65 percent.

Prior to President Trump’s State of the Union speech, Equitable Growth released seven graphs that address economic outcomes and trends. The graphs show that while the U.S. economy has been growing in the aggregate, the benefits of this growth have largely been concentrated at the top of the income ladder and have led to growing inequality.

The U.S. House of Representatives Committee on Education and the Workforce proposed a hearing to discuss the economic benefits of a $15 minimum wage on workers and small businesses. Kate Bahn consolidated research surrounding the minimum wage discussion that indicates an increase in the federal minimum wage will boost workers’ well-being while avoiding detrimental effects on small businesses.

In his State of the Union address, President Trump touted large-scale economic growth over the first two years of his administration, yet his comments only reflected on growth in GDP. Austin Clemens explains that using the GDP growth rate is an inaccurate measure of growth because it no longer corresponds with income gains experienced by families on different rungs of the income ladder—as it did before the 1980s. Research using the Distributional National Income dataset created by Thomas Piketty, Emmanuel Saez, and Gabriel Zucman shows that low-income households experience little to no income gains compared to GDP growth.

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

Links from around the web

Equitable Growth Grantees Daniel Schneider and Kristen Harknett reveal that while the economy is recovering, the age of marriage in the United States is rising and births are at a historic low. Past trends show that at times of economic growth, health statistics improve; however, we now see that life-expectancy for low-income individuals is on the decline. Schneider and Harknett studied the employment problems of service workers and found that in addition to low pay and limited fringe benefits, workers experience unstable schedules that lead to less sleep and an increased sense of distress. This can have adverse effects on health and can prevent individuals from getting married and having children. [hill]

Vox’s Dylan Scott sat down with Equitable Growth’s Research Advisory Board member Jacob Hacker to discuss the proposed Medicare for America program as a possible universal healthcare bill that would cover all uninsured individuals and those covered by Obamacare. Under this proposed plan, participants would pay a premium but there would be caps on out-of-pocket payments based on income. Scott and Hacker discuss some of the potential benefits and challenges of such a program and ways that government could mitigate these challenges. [vox]

The Washington Post reports that while 800,000 federal civil servants are expected to receive back pay after the 35-day partial government shutdown halted their income, government contractors, who are often the lowest paid workers in the federal government economy, do not hold the same guarantees. Many of these workers were forced to cash in sick days, file for unemployment insurance, borrow from friends and family, and/or dip into rainy-day savings—leaving them in debt that will take months to repay. Legislation has been introduced in the Senate to repay contractors up to $965 per week and restore sick days used during the shutdown, but until such legislation is passed, contract workers will keep struggling to recover. [wapo]

The Economist’s Idrees Kahloon dove into the biography of Senator Elizabeth Warren, who has been a strong advocate for the elimination of inequality in the United States through redistribution—in the form of increased welfare spending and by preventing laws that favor income gains for the rich and not the poor. Kahloon spoke with Equitable Growth’s Elizabeth Jacobs on Warren’s focus on middle-class financial stability and how poorly regulated financial markets led to predatory lending to vulnerable households. [economist]

The San Francisco Chronicle highlights a new decision by the Second District Court of Appeal in Los Angeles that says workers “on-call” are entitled to pay no matter whether they’ve called in to work. For retail workers, who are oftentimes phoned by their employer two hours prior to a shift to indicate whether they need to come in to work, the court ruled that their employers must pay their workers for those two hours. [sf chronicle]

Friday Figure

Figure is from Equtiable Growth’s, “State of the Union speech highlights the need for more precise data on U.S. economic growth.”

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New research shows links between the quality of U.S. retail workers’ schedules and their well-being

Posted on by Maria Monroe

In research published last week in the American Sociological Review, sociologists Daniel Schneider at the University of California, Berkeley and Kristen Harknett at UC San Francisco use a unique dataset to show striking links between the quality of schedules for retail workers and their corresponding level of psychological distress, happiness, and sleep quality.

Over the past decade, journalists and academics have examined retail workers’ daily and weekly schedules, documenting low levels of stability and predictability. Researchers have shown that improving schedule quality along these dimensions can grow employer profits and may strengthen the economy as a whole.

Schneider and Harknett add to this evidence base in two key ways. First, they provide information about the prevalence of several scheduling practices. They document that only 39 percent of workers at the 80 largest retail firms have regular schedules. Indeed, 16 percent of workers at these big firms receive fewer than three days’ notice of their schedules, and 14 percent reported having a shift canceled in the month prior to survey completion. What’s more, one in four workers at these firms reported being on call for work with no guarantee of actually receiving work or pay, and half reported working a “clopening” shift. (See Figure 1.)

Figure 1

These scheduling practices are thought to be relatively new and partly attributable to recently developed scheduling software. This new software takes into account product shipments, customer traffic, and even weather when setting and modifying worker schedules.

But Schneider and Harknett argue that these new scheduling practices are not the inevitable consequence of technological change. Rather, employers are using scheduling technology as a tool when they engage in a well-documented phenomenon in the labor market called “risk shifting.” Since the 1970s, as worker bargaining power has weakened and American ideas about individual responsibility have changed, employers have increasingly shifted economic risk from business owners and shareholders to workers. This “risk” is often thought of as changes to worker compensation and job security, but Schneider and Harknett make a compelling case that changes in scheduling practices also are a key dimension of risk shifting. Today, employees’ schedules are highly responsive to employers’ perceptions of the ebbs and flows of consumer demand. As a result, their schedules are irregular and unpredictable.

When employers treat workers as widgets to be used or discarded erratically, what are the consequences for worker well-being? The second major contribution of Schneider and Harknett’s study is a preliminary answer to this question. The authors fielded a survey with a clever sampling frame—people who list one of the 80 largest retailers as their employer on their Facebook profile (this paper explains their method)—and find some striking associations.

The two sociologists use models that employ a rich set of controls among a fairly homogenous group of workers to show that scheduling practices affect psychological distress. They find that after adjusting for differences in demographic and work characteristics, a worker who does not have a shift cancelled has a 45 percent chance of experiencing distress, but for workers whose shifts are cancelled, the predicted probability of experiencing distress jumps to 65 percent.

Scheduling practices also affect sleep quality. As might be expected, working a “clopening” shift is associated with poor sleep quality. A typical nonclopener has a 67 percent chance of poor-quality sleep, while similar clopeners have a 75 percent chance of sleeping poorly. Less obviously, working on-call shifts also negatively affects sleep quality. (See Figure 2.)

Figure 2

The persistence of these associations across measures of schedule quality suggests that the stress of an erratic schedule is keeping retail workers up at night.

Scheduling practices also affect worker happiness. The more advance notice workers are given about their schedules, the higher their predicted probability of happiness. (See Figure 3.)

Figure 3

Because these numbers are associations, the authors can’t say precisely whether bad schedules caused bad outcomes, or whether employers gave worse schedules to workers who were already unhappy or who were generally poor sleepers. I’m looking forward to the next stage of this work, which will make stronger causal inferences by using longitudinal data and exploiting changes to laws and company practices.

Yet it seems extremely plausible, given the evidence in their paper that causality is flowing in the expected direction—when a worker is faced with a poor-quality schedule, their health and well-being suffers. After all, their sample is a pool of relatively similar workers, the frequency of these scheduling practices is high, and the magnitudes of the associations are responsive to the dosage of the scheduling practices.

Indeed, one key point that should not be overlooked is the size of the associations. Even after controlling for job tenure, usual hours worked per week, manager status, and demographic characteristics, working an on-call shift is associated with a 9.2 percentage point decrease in the probability that a worker will report feeling happiness. That’s large!

Of course, it can be challenging to interpret magnitudes in the abstract. Harknett and Schneider provide a helpful benchmark for interpreting the numbers they share—changes in well-being associated with increased wages. It’s common sense that when you put more dollars in low-wage workers’ pockets, they will feel less stress and more happiness. And indeed, the researchers uncover the expected association: Moving from making $7.25 an hour to $11.25 an hour is associated with being 1.4 percentage points more likely to experience happiness. But that association is dwarfed in magnitude by the associations with schedule quality—avoiding a shift cancellation is associated with being 16.9 percentage points more likely to experience happiness.

Why could this be? One explanation has to do with the character of the change. For most workers in the United States, $11.25 an hour is not a living wage. A wage increase that leaves a worker below a living wage leaves her basic needs unmet. A working mother, for example, may now be able to pay for gas (a huge relief!) but still struggle to pay for childcare. The worker’s situation has changed in degree, but not in its fundamental character.

In contrast, a real substantive shift occurs when workers move from a situation characterized by uncertainty to a situation characterized by certainty. When workers do not know what their schedule will be, they cannot plan out their time to accommodate school attendance, second-job holding, or family obligations. Hourly workers are also unable to plan out budgets in advance when their schedules are uncertain. Stable, predictable schedules allow for the certainty that allows workers to control their time and their finances.

Another way of thinking about the magnitude of these changes is to think about where the bar is set now and where it could move. When it comes to the quality of workers’ schedules, the current floor is incredibly low. Small tweaks to schedules can raise the bar to, in fact, be quite high. Harknett and Schneider find that simply posting a schedule a week or two in advance reduces the probability that a worker will experience psychological distress by 8 percentage points. For employers and policymakers who hope to affect workers’ well-being, changing the way schedules are set is low-hanging fruit.

Indeed, cities and states are increasingly seeing the value in requiring employers to raise the floor on schedule quality. New York City, San Francisco, Seattle, Philadelphia, Emeryville, California, and the state of Oregon have all passed legislation designed to provide workers with more predictable schedules. We know that such changes can boost employer profits, and Schneider and Harknett’s study shows that these laws are also likely to improve worker well-being, which would help workers to be more productive at work and better able to devote time and attention to their children at home. Policymakers in jurisdictions considering scheduling legislation should take note of the promise held by these small tweaks that pay large dividends in the form of worker well-being, labor market productivity, and the human capital of the next generation.

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Brad DeLong: Worthy reads on equitable growth, February 1–7, 2019

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

  1. Louis Brandeis believed that bigness is bad, “per se,” thus failing to see that, well, at least since 1870, value chains and the division of labor had become sufficiently complicated that efficient production required a great deal of central planning on the level of the large firm. Toyota today sells $250 billion worth of cars each year—that is 0.2 percent of global GDP—and roughly two-thirds of that value flow is under the centrally planned direction of the Toyota design and production management teams, not the result of arms-length market-price deals between truly independent producers. Bork believed that any bigness was good if could be claimed to be the result of some clever economy of scale that a lawyer who was part of the judge’s social circle could think up but was never credible as anything other than an excuse for rent-seeking corruption. To find the true path, look, as Jonathan Baker says, to FDR antitrust guru Thurman Arnold. Read Baker’s recent Competitive Edge column, “Revitalizing U.S. Antitrust Enforcement Is Not Simply a Contest Between Brandeis and Bork—Look First to Thurman Arnold.” Baker writes: “Growing market power in the United States today puts a spotlight on our nation’s antitrust laws—the critical policy tool for restoring competition where it is lacking—from airlines and brewing to hospitals and dominant online platforms. But how can these laws be made more effective in this environment? The best guide from the past is Thurman Arnold, President Franklin D. Roosevelt’s longest-serving antitrust enforcer. Arnold helped shape a political consensus for effective antitrust enforcement. Yet his singular contribution is often overlooked in the present-day debate over antitrust’s future. That achievement—the embrace of an antitrust enforcement playbook for supervising large firms that is competition-promoting and economic growth-enhancing—is endangered today.”
  2. Watch Heather Boushey at the Peterson Institute forum, “Confronting Inequality: How Societies can Choose Inclusive Growth.” The institute held the event to present the book Confronting Inequality: How Societies can Choose Inclusive Growth by Jonathan Ostry, Prakash Loungani, and Andrew Berg of the International Monetary Fund. The forum also includes PIIE Nonresident Senior Fellow and Equitable Growth Steering Committee member Jason Furman.
  3. The social safety net alleviates rural poverty. It does not cause it by creating indolence. The then-Whig and now-Republican idea that the rural poor were idle buggers looking for a handout was overwhelmingly false in early 19th century Britain and is false in early 21st century America today. Read James P. Ziliak, “Economic Change and the Social Safety Net: Are Rural Americans Still Behind? Ziliak writes: “The U.S. economy has been rocked by major business cycle and secular shocks that differentially affected the fortunes of urban and rural areas … coinciding with … the dramatic growth and transformation of the social safety net … How the … changes have interacted to at times exacerbate, and other times attenuate, well-being across regions and over time is little studied … The analysis here is descriptive.”
  4. This puzzles me: At least semi-stable schedules are relatively easy to provide for employers and are worth a lot to workers. I do kind of wonder if these trends are the result of now two decades of slack labor markets in which workers are—and employers want to remind workers that they ought to be—grateful for any jobs at all. Read a column in The Hill by Equitable Growth grantees Daniel Schneider and Kristen Harknett, “For Job Quality, Time Is More than Money,” in which they write: “What we found is striking: Working in the service sector doesn’t only mean low pay and few fringe benefits, it also means turning over the reins to your employer when it comes to when and how much you will work. This so-called just-in-time scheduling approach has consequences for millions of American workers. People with unstable work schedules are markedly less happy. They sleep less well and are more likely to report feeling distressed. This pattern plays out consistently whether we look at short notice, last-minute changes or routine ups and downs in work hours. For instance, employees who worked “on-call” shifts were less likely by half to report good sleep quality than their co-workers who didn’t work on-call.”
  5. Bespoke subsidies to individual firms plus lack of transparency equals kleptocracy. Read the recent working paper by Nathan M. Jensen and Calvin Thrall, “Who’s afraid of sunlight? Explaining opposition to transparency in economic development,” in which they write: “Why do some firms oppose transparency of government programs? In this paper we explore legal challenges to public records requests for deal-specific, company-specific participation in a state economic development incentive program. By examining applications for participation in a major state economic program, the Texas Enterprise Fund, we find that a company is more likely to challenge a formal public records request if it has renegotiated the terms of the award to reduce its job-creation obligations. We interpret this as companies challenging transparency when they have avoided being penalized for noncompliance by engaging in nonpublic renegotiations. These results provide evidence regarding those conditions that prompt firms to challenge transparency and illustrate some of the limitations of safeguards such as clawbacks (or incentive-recapture provisions) when such reforms aren’t coupled with robust transparency mechanisms.”

Worthy reads not from Equitable Growth:

  1. Odds are now 50-50 that the entire eurozone is or is about to be in a recession. Read Lucrezia Reichlin, “The Threat of a Eurozone Recession,” in which she writes: “My company, Now-Casting Economics, first detected a slowdown in the eurozone … started in the third quarter of 2017 and has affected all major eurozone economies, particularly Germany and Italy. This runs contrary to the widely held view of the eurozone as comprising a core of successful countries—especially Germany—and a debt-ridden, slow-growth periphery.”
  2. A very welcome shift from a central bank that two months ago looked hell-bent on a policy likely to cause a recession. What explains the shift, however? I do not understand why the Fed’s policy was what it was two months ago. While I understand their policy now, and while I approve of their shift, I do not understand the why. Read Frances Coppola, “What Is The Real Reason For The Fed’s Sudden Decision To Stop Raising Interest Rates?” Coppola writes: “The Fed has put the brakes on. At its latest monetary policy meeting, the FOMC left interest rates unchanged and said it would be ‘patient’ about further interest rate rises. Furthermore, the FOMC’s forward guidance about the pace of balance sheet reduction says that it is ‘prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments, including reversing course and doing more QE if necessary.’ Yet only a month ago, the Fed was signaling two interest rate rises in 2019 and no change in the pace of balance sheet reduction. What has caused this sudden change of heart?”
  3. The Philips Curve was always properly used as a heuristic framework for thinking about issues, not as a machine for generating certainty-equivalent forecasts to use in month-to-month policy decisions. Read Jeanna Smialek, “R.I.P. Phillips Curve? The Fed’s Wonky Guidestar May Be Dimming.” Smialek writes: “The Fed has been moving from tight labor-brings-inflation logic. They’re now waiting for actual, not anticipated, price gains.”
  4. The Federal Reserve turns on a dime. I wish that rates were lower as they pursue a higher inflation target than 2 percent a year, but they appear to have decided that they, after all, really do not wish to invert the yield curve. That makes this a brighter day then I had expected. Read Tim Duy, “Setting The Doves Free,” in which he writes: “The statement was more dovish than I anticipated; I did not think they would want to take rate hikes off the table to this degree. I forgot that the Fed often turns their story later than I think they should, but when they turn, they turn quickly … The Fed believes they will maintain a larger than expected balance sheet … The bar for raising rates seems high now and apparently hinges on the inflation boogeyman to finally show his face … This sounds like the rate hike cycle is over—or largely over—as long as the economy eases as expected.”
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State of the Union speech highlights the need for more precise data on U.S. economic growth

Posted on by Maria Monroe

Every president uses the State of the Union address to tout positive economic developments (when they exist), and this week’s speech by President Donald Trump was no different. In doing so, he effectively, if unintentionally, made the case for changing how we measure the U.S. economy to show who benefits from economic growth—and who doesn’t.

“The U.S. economy is growing almost twice as fast today as when I took office,” President Trump said. Perhaps embellishing, he added, “And we are considered far and away the hottest economy anywhere in the world. Not even close.”

While economic growth certainly picked up speed in 2018, President Trump was relying on the single data point—growth in Gross Domestic Product—that has remained the emblem for U.S. economic health even as it has become less and less relevant to how most Americans experience the economy. Before 1980 or so, GDP growth corresponded closely to the income gains that most Americans were experiencing. In other words, it represented an average that was relevant to what was happening for most households.

That was then. Since the 1980s, research using the Distributional National Accounts dataset produced by Thomas Piketty, Emmanuel Saez, and Gabriel Zucman shows that most families—middle-income and especially lower-income—have experienced slower rises in income, or none at all, compared to GDP growth. Only one group has “beaten” the GDP figure, and that is the very wealthy. And the rise in income for the extremely wealthy has been practically off the charts. This shift has made GDP deceiving as a metric of economic progress. Figure 1 illustrates the difference between the pre-1980 and post-1980 periods for the range of incomes from very low to very high. (Note, the National Income Growth measure used in the graph is a measure of total economic output, similar to GDP growth.)

Figure 1

It is no coincidence that this is also a period in which economic inequality has reached historic proportions in the United States—the highest in a century—and mobility, the movement of children higher on the economic ladder than their parents achieved, has dramatically declined. This raises a question that should be fundamental for economic policymakers. If we do not measure how Americans up and down the income ladder are faring economically, how can we know how healthy the economy is?

If we want economy policies that help ensure that the benefits of growth are broadly shared and give real hope to all families no matter their economic status—and we should—then we cannot simply guess where we stand, which is effectively what policymakers do now. The federal government should measure more than GDP growth. It should measure how the benefits of growth are distributed. It is possible to make these calculations, as Figure 1 illustrates, but policymakers should not cede what should be a governmental activity to academic economists, who in any event cannot be depended upon to issue regular reports.

Unfortunately, the Department of Commerce’s Bureau of Economic Analysis, which publishes quarterly GDP figures, is unable to produce statistics like those used in Figure 1 because it does not currently have either access to the right data or an appropriate budget for the task. That would change under legislation first introduced in the last Congress by Senators Charles Schumer (D-NY) and Martin Heinrich (D-NM) and by Rep. Carolyn Maloney (D-NY). The Measuring Real Income Growth Act would require the BEA to also provide estimates of income growth for Americans in each decile of income and also for the top 1 percent.

As Equitable Growth Executive Director and Chief Economist Heather Boushey said in testimony last year before the Congressional Joint Economic Committee, “Smart stewardship of our economy in an era of high inequality requires us to start to disaggregate our topline statistics and report on economic prosperity for all Americans.” If such data help produce policies that promote broad-based growth, perhaps this or future presidents will someday be able to say that the economy is growing for all Americans, not just for a few.

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Why a minimum wage increase would help low-income workers across the United States

Posted on by Maria Monroe
NEW YORK CITY – JULY 12, 2015: Organized labor, fast food workers, and elected officials gathered on Barclay St. to celebrate the NY wage board’s recommendation for a $15/hr minimum wage statewide by 2021.

The U.S. House of Representatives Committee on Education and Labor tomorrow will hold a hearing titled “Gradually Raising the Minimum Wage to $15: Good for Workers, Good for Businesses, and Good for the Economy.” The hearing will call experts to discuss the evidence on the expected economic affects of increasing wages for low-wage workers.

Recent empirical research from Equitable Growth’s network of academics and grantees demonstrates that state and local increases in the minimum wage have increased worker well-being without the predicted deleterious effects to the economy. Specifically:

  • A new report by the Center on Wage and Employment Dynamics at the University of California, Berkeley’s Institute for Research on Labor and Employment examines the effect of increases to the minimum wage on food service workers who would likely be impacted at the city-level in Chicago; Washington, D.C.; Oakland, California; San Francisco; Seattle; and San Jose, California. Equitable Growth grantees and economists Sylvia Allegretto, Anna Godoey, Carl Nadler, and Michael Reich of UC Berkeley find that cities that increased the minimum wage above $10 per hour had stronger private-sector job growth than the average comparison county. Reich will be testifying before the committee tomorrow.
  • Analysis from the Economic Policy Institute led by economist Ben Zipperer examines the research of a team of economists at University of Washington on Seattle’s $15 an hour minimum wage and concludes that their findings on negative or ambiguous effects of the increased wage on employment levels are premised on faulty methodology. Zipperer’s analysis verifies the research by Allegretto, Godoey, Nadler, and Reich. Zipperer will be testifying before the committee.
  • Minimum wage increases also reduce income inequality. An Equitable Growth working paper by grantees and U.S. Census Bureau economists Kevin Rinz and John Voorheis links data from the Current Population Survey to earnings records from the Social Security Administration to examine accurate earnings for workers across the income distribution over a 5-year time period. They find that state-level increases to the minimum wage had the strongest effects for those at the lower end of the income distribution, with gains accumulating over time up to 5 years.
  • Equitable Growth Research Advisory Board Member and grantee Arindrajit Dube of the University of Massachusetts Amherst also finds evidence of increased earnings at the bottom of the income distribution in an Equitable Growth working paper. Furthermore, Dube finds that a higher minimum wage reduced eligibility for public assistance but also that it reduced some of the gains of the increased wage among workers likely to be affected by changes to the minimum wage—with the overall impact remaining positive for workers.
  • Further work by Zipperer looks at how the declining real value of the federal minimum wage has affected black and Hispanic workers, finding that it has increased poverty rates for these families.
  • In an Equitable Growth working paper, Research Advisory Board Member David Howell of the New School, along with Kea Fiedler of the New School and Stephanie Luce of the City University of New York, argue that the test of zero job loss for the success of a minimum wage increase is too narrow. While direct impacts on business are one consideration, the overall goal of a minimum wage increase should be a “minimum living wage.”

Indeed, as I discussed in a recent column, “Refocusing the minimum wage debate on the well-being of U.S. workers,” the “no job loss standard” for increases to the minimum wage is misdirected. Disemployment is an aspect of raising the minimum wage for which there is ambiguous or no evidence, while the body of evidence demonstrates that increasing minimum wages in a tight labor market can ensure economic growth is broadly shared with workers at the bottom of the earnings distribution. The result: increased earnings and consumption, reduced job turnover and increased job tenure, and higher family income.

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