Weekend reading: “Jobs and the Holidays” 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

New research reveals that workers who receive low pay, have unstable working schedules, and are offered few fringe benefits also experience a lower propensity to marry. Alix Gould-Werth explains that while existing research shows that, among older men, higher earnings are a predictor of marriage, workers with poor quality jobs—regardless of pay—are less likely to get married when compared to their counterparts with adequate job quality.

A recent report by the Congressional Budget Office finds that there has been significant growth in income inequality since 1979, with the CBO inferring that growing inequality has disproportionately affected the middle class. Austin Clemens argues for a more careful interpretation of the CBO report, especially in the way taxes and transfers impact income distribution, in order to create a more accurate metric to measure growing inequality.

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

Kate Bahn discusses the research that addresses the effects of increasing the U.S. minimum wage, particularly how the research shows that there are very few negative economic effects on employment. Instead, when looking at earning trajectories of workers earning the minimum wage, economists find that the gains are greatest among the bottom of the quartile for up to five years after a minimum wage increase.

On November 2, we lost Harvard University sociologist and Equitable Growth grantee Devah Pager to cancer. Pager played a pivotal role in highlighting race-based hiring discrimination by finding that white men with a criminal record have a greater probability of achieving employment compared to black men without a record. Equitable Growth is proud we had the opportunity to support Pager and send our thoughts to those who are grieving her loss.

Links from around the web

Homeownership has traditionally been the sole opportunity for low- and middle-class Americans to accumulate wealth, yet institutional racism within federal housing policy has made it difficult for African-American households to grow that wealth, invest in businesses, and even attend college, says a new report from The Brookings Institute. It finds that the devaluation of black homeownership has led to an average of $48,000 in lost value of homes in black communities due to racial biases. This report shows that even though the practice of racial housing policies, such as redlining, are now illegal, there are still strong biases in the real estate market that make it difficult for members of black communities to experience mobility. [brookings]

A final farm bill backed by House Republicans no longer includes work requirements for recipients of supplemental nutrition assistance who have children over the age of six. Attaching work requirements to this federal program would have affected between 800,000 and 1.1 million American households—especially households living in regions with relatively stagnated employment growth. [wapo]

The Institute for Women’s Policy Research released a new report regarding the current status of gender wage inequality in the United States. They find that when measuring total earnings across 15 years, data shows that women earn 49 percent of men’s earnings. The report examines the penalties and inequalities women face in the labor market and what policies can help alleviate this economic burden. [iwpr]

Small companies are increasingly not going public on U.S. stock markets because they are often persuaded by venture capital firms to stay private or are bought out by a large organization—contributing to decreasing entrepreneurship and competition in the business-creation field. Early-stage buy-outs contribute to slow wage growth and innovation. Increasing the number of small businesses in public stock markets can increase productivity and provide higher-quality goods and services available to consumers. [nyt]

New data from the Center for Disease Control and Prevention shows that average life expectancy in the United States has dropped for the third year in a row. When dissecting their data, the CDC found that poor and middle-class Americans die earlier than wealthy individuals. This gap may continue to grow as healthcare policy changes in the future make it difficult for low and middle-class households to afford adequate healthcare. This Vox report referenced both the CDC’s work and former Equitable Growth Steering Committee member Raj Chetty’s work analyzing income data and mortality data to from 2001-2014, which found that the wealthiest Americans gained five years of longevity, and poor and middle class Americans saw no change in their mortality. [vox]

Friday Figure

Figure is from Equitable Growth’s, “U.S. income growth has been stagnant. To what degree depends on how you measure it.”

Posted in Uncategorized

Measurement matters. An equitable economy is impossible without it.

Posted on by Maria Monroe
A waitress cleans up after her patrons at New Orleans’ famous Café Du Monde.

“What we measure affects what we do. If we measure the wrong thing, we will do the wrong thing. If we don’t measure something, it becomes neglected, as if the problem didn’t exist.” That’s the bottom-line message of a new report from the Organisation for Economic Co-operation and Development that recommends changes in how nations measure their economic progress and the well-being of their citizens. Equitable Growth has long argued that many of our topline economic statistics are doing a poor job of measuring the welfare of citizens. As a first step to remedying the problem, Gross Domestic Product growth should be disaggregated so that each report tells us to whom growth is accruing. Academic analyses of federal tax data show that economic growth is too often benefitting only those at the top of the wealth and income ladders, leaving working- and middle-class Americans behind.

Advocating for one federal agency to generate a couple of new numbers may strike many readers as inconsequential, the kind of technocratic window dressing that will do nothing, in itself, to address the challenges posed by rising economic inequality. But as the OECD report makes clear, the policies that governments implement are influenced by the data available to them and by the data that dominate public discourse.

This lesson is plain from our experience in the United States. A few key economic statistics dominate our discussion of economic progress. Chief among them is GDP growth. The value of growth is an article of religious faith for most politicians and the political press. Small wonder that presidential candidates promise specific growth targets if they are elected and trumpet gains in GDP as proof of their success. But these conversations are often misguided. They often overlook the fact that not all GDP growth is the same and, moreover, that GDP growth in the aggregate means little for any individual person. In fact, GDP growth could be rising while the majority of workers see stagnant incomes. That we nonetheless pay so much attention to it is proof of the agenda-setting power of government statistics.

The impact is not simply rhetorical. What we measure has a strong impact on policy. Consider the Tax Cuts and Jobs Act of 2017. The bill’s sponsors promised strong growth gains from the cuts, and critics engaged with this point specifically, arguing in many cases that these claims were unrealistic, and that the actual contribution to growth would be low. But GDP growth really isn’t the right metric at all. The core analytic tools necessary for evaluating a tax cut, as Equitable Growth pointed out at the time, are distribution tables and revenue estimates. Distribution tables provide estimates of the change in economic well-being that results from tax legislation for people at different income levels.

Moving “Beyond GDP,” as the OECD report’s title suggests, is a significant challenge. Economists need to agree on what the right metrics are and how to calculate them. But U.S. policymakers can move ahead on some reforms now. Earlier this year, Sens. Charles Schumer (D-NY) and Martin Heinrich (D-NM) and Rep. Carolyn Maloney (D-NY) introduced bills in their respective chambers of Congress to task the Bureau of Economic Analysis with providing distributional estimates of GDP growth. Rather than one GDP growth estimate, this legislation would require estimates for Americans in each decile of income and would further break out gains made by those in the top 1 percent. Passage of the bill would fulfill “Recommendation 6” of the OECD report. In addition to refocusing the public and policymakers on the need for broad-based growth, these statistics may help economists diagnose weaknesses in the economy earlier and respond to them better. The OECD report persuasively suggests that having better statistics might have prompted a better policy response to the Great Recession worldwide.

But we will also have to train politicians and pundits to stop paying attention solely to GDP, which is increasingly divorced from the experience of everyday Americans in this age of widening inequality. The additional complexity of tracking a range of growth numbers instead of one need not be terrifying. If anything, it is terrifying that one-number economic barometers devised in the 1950s still guide our actions, despite their declining relevance to the economic fortunes of average Americans.

Posted in Uncategorized

Brad DeLong: Worthy reads on equitable growth, November 16–29, 2018

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

  1. An excellent paper from two of Equitable Growth’s grantees, Claire Montialoux and Ellora Derenoncourt, on the key role of the minimum wage extensions of the 1960s in reducing inequality—doing so along a pronounced racial as well as class dimension as a result of the racial skew of employment categories. It was not just that African Americans were in predominately low-wage jobs, but also that the categories of jobs they were in had previously been exempt from the minimum wage. Read “Minimum Wages and Racial Inequality,” in which the authors write: “The earnings difference between black and white workers fell dramatically in the United States in the late 1960s and early 1970s … the extension of the minimum wage played a critical role.”
  2. Americans do want inheritances to be taxed. They are much more ambivalent about taxing savings—perhaps because savings are seen as uniquely virtuous sources of income. In a working paper that Equitable Growth issued in 2017 (but that did not get the attention and resonance that I think it deserves), “Do Americans Want to Tax Capital? Evidence from Online Surveys,” Raymond Fisma, Keith Gladstone, Ilyana Kuziemko, and Suresh Naidu write: “Via a survey on Amazon’s Mechanical Turk … we provide subjects with a set of hypothetical individuals’ incomes and wealth and elicit subjects’ preferred (absolute) tax bill … unobtrusively map[ping] both income earned and accumulated wealth into desired tax levels. Our regression results yield roughly linear desired tax rates on income of about 14 percent … positive desired wealth taxation … 3 percent when the source of wealth is inheritance, far higher than the 0.8 percent rate when wealth is from savings.”
  3. Even though the unemployment rate is gratifyingly low, it is still the case that the Great Recession continues to cast a huge shadow, reducing the U.S. economy’s potential output. And we cannot confidently look forward to a time when this effect will have dissipated. The failure to make rapid employment recovery “job one” in 2009–2010 was a catastrophe, as Equitable Growth grantee Danny Yagan detailed in his 2017 working paper, “Employment Hysteresis from The Great Recession.” He writes: “This paper uses U.S. local areas as a laboratory to test whether the Great Recession depressed 2015 employment … exposure to a 1 percentage point larger 2007–2009 local unemployment shock caused working-age individuals to be 0.4 percentage points less likely to be employed at all in 2015, likely via labor force exit. These shocks also increased 2015 income inequality.”
  4. Equitable Growth Research Advisory Board Member Jesse Rothstein presents a different interpretation than former Equitable Growth Steering Committee Member Raj Chetty and his co-authors of the great American sociological deserts, out of which upward mobility is nearly unthinkable. Chetty and his colleagues focus on school—perhaps because pouring resources into schools is something we can do and would, in all likelihood, be somewhat effective. But how effective? Are schools the key link or just one of many factors? Rothstein believes the second, and I think he is right. Read his “Inequality of Educational Opportunity? Schools as Mediators of the Intergenerational Transmission of Income,” in which he writes: “I use data from several national surveys to investigate whether children’s educational outcomes (educational attainment, test scores, and noncognitive skills) mediate the relationship between parental and child income … There is … little evidence that differences in the quality of K–12 schooling are a key mechanism driving variation in intergenerational mobility.”
  5. Another piece from grant recipient Ellora Derenoncourt is, I think, the best piece I have read in the past week. It is also the most horrifyingly depressing case I have read in the past week. Derenoncourt’s thesis is that the Great Migration of African Americans from the south to the urban north set in motion political, economic, and sociological changes in local power structures that made those migration destinations poor places—and dangerous places—to raise young black men. Read her “Can You Move to Opportunity? Evidence from the Great Migration,” in which she writes: “The northern United States long served as a land of opportunity for black Americans, but today the region’s racial gap in intergenerational mobility rivals that of the South. I show that racial composition changes during the peak of the Great Migration (1940–1970) reduced upward mobility in northern cities in the long run, with the largest effects on black men.”

 

Worthy reads not from Equitable Growth:
 

  1. I do not understand why there are people claiming the U.S. economy is at full employment. Full employment is defined as the level at which nominal and real wage growth visibly accelerates. They have not yet started to do so. Maybe the U.S. economy will be at full employment next year. But the real and nominal wage series would look different if it were at full employment right now. Read Ernie Tedeschi, “Unemployment Looks Like 2000 Again. But Wage Growth Doesn’t,” in which he writes: “Trying to solve an economic mystery … This is, to put it mildly, a mystery. If workers are as scarce as the unemployment rate and many other measures suggest, employers should be raising wages to compete for them.”
  2. Similar to wood fires and nuclear fusion, ideology is a very bad master. But also similar to wood fire in nuclear fusion, ideology is a most excellent servant. Therefore, I cannot sign on to Jerry Taylor‘s decision to abandon “ideology.” The task, I think, is to make ideologies “useful” by making them self-reflective. After all, if a libertarian founder such as John Stuart Mill can say that “Positive Liberty is essential”—that the British working class of his day was “imprisoned” in spite of all their negative liberty by Malthusian poverty—there is ample space for a libertarianism that keeps its good focus on human choice, potential, and opportunity without blinding itself to a great deal of reality. Read Jerry Taylor, “The Alternative to Ideology,” in which he writes: “When we launched the Niskanen Center in January 2015, we happily identified ourselves as libertarians … heterodox libertarians … left-libertarianism concerned with social justice (a libertarian perspective that I’ve defended in debates with more orthodox libertarians here and here).”
  3. The world is becoming richer, and dire poverty is becoming rarer, but is the world becoming more equal? Smart thoughts from Dietz Vollrath, “New Evidence on Convergence,” in which he writes: “Dev Patel, Justin Sandefur, and Arvind Subramanian posted the other day some new evidence on cross-country convergence … poor countries grow faster than rich ones, on average.”
  4. A piece heading more into political sociology than I am comfortable assessing, but I trust Sandy Darity as a very thoughtful economist. Read his “The Latino Flight to Whiteness,” in which he writes: “Hispanics collectively are unlikely to share common cause with black Americans over a common racial identity … If a coalition ever forms … it will not be on the basis of linked fate or fictive kinship anchored on race.”
  5. I would find the wise and public-spirited Ricardo Haussmann more convincing here if he’d had an explanation for why mandated wage compression by John Dunlop in the United States during World War II was not a huge success. Read Ricardo Hausmann, “How Not to Fight Income Inequality,” in which he writes: “Trying to combat income inequality through mandated wage compression is not just an odd preference. It is a mistake, as Mexico’s president-elect, Andrés Manuel López Obrador, will find out in a few years, after much damage has been done.”
  6. I have never understood this argument—that raising and then lowering interest rates does more good to fight recessions than does not raising them in the first place. And, to my knowledge, there is no underlying model behind it at all. What is the mechanism by which raising interest rates now so you can lower them later beats keeping interest rates the same now and then lowering them later if both ultimately wind up at the same place? Martin Feldstein makes his case in “Raise Rates Today to Fight a Recession Tomorrow,” in which he continues to argue: “As I have argued in these pages since 2013, the Fed should have begun raising the Fed funds rate several years earlier. Doing so would have prevented the recent sharp increases in the prices of equities and other assets, which will collapse when long-term interest rates rise.”

 

Posted in Uncategorized

U.S. income growth has been stagnant. To what degree depends on how you measure it.

Posted on by Maria Monroe

A recent Congressional Budget Office report on the distribution of incomes in the United States back in 2015 has sparked debate over whether Americans are actually experiencing good income growth. By some measures, middle-class Americans have seen very little income growth, dating back to the 1990s or even the 1980s. It is a common view among economists that wage growth is the one sore spot in an otherwise good U.S. economy—to the point that the trend boasts the colloquial name of the “wage puzzle.”

But according to Washington Post columnist Robert Samuelson, the new CBO report is evidence that talk of stagnation is overblown. This report, called “The Distribution of Household Income 2015,” is one of the best federal data products for tracking income and income inequality in the United States. Instead of relying on survey data, as the Census’s “Income and Poverty in the United States” report does, CBO uses administrative tax data, which gives a clearer picture of how incomes are changing for high-income individuals.

Nonetheless, the CBO report needs to be interpreted carefully. Ultimately, this debate is a reminder that we do not currently have a regularly produced national data product that is designed to accurately measure the distribution of income in the U.S. economy. The adoption of better official measures of inequality is long past due.

Overall, the CBO report finds a significant growth in inequality since 1979, with incomes among the top 1 percent rising 242 percent, compared to an overall average of just 70 percent (after accounting for inflation). But Samuelson points to what he considers strong growth of 79 percent for the bottom fifth of income earners. CBO finds that earners in the middle class—those between the 20th and 80th percentiles of income—fared the worst over this same period, accruing income gains of only 46 percent. (See Figure 1.)

Figure 1

But this graph should be interpreted carefully. Despite the name of the report—“The Distribution of Household Income”—the statistical design is primarily focused on analyzing the impact of federal welfare policy and federal taxation on incomes of Americans up and down the income ladder. In fact, earlier iterations of this report were simply called “Effective Federal Tax Rates.”

This analytical focus has important consequences for talking about income growth, as Samuelson does, and about income inequality generally. State taxes, for example, are not part of the analysis at all—even though state taxes are generally regressive, and including them would increase income inequality and could also have an impact on income growth patterns over time.

But the most significant and often overlooked aspect of CBO’s focus on the impact of federal policy is how it treats incomes before and after the federal government redistributes income in the form of transfer and tax policies such as supplemental nutrition assistance and the Earned Income Tax Credit. CBO calculates income before these taxes and transfers and then ranks everyone by income.1 After separating individuals into quintiles, they hold those groups constant and report incomes after taxes and transfers for each of those quintiles without re-ranking any of the individuals in them.

This approach is useful for describing the impact of federal policy on the people who compose a pretax quintile. But it does not accurately describe the shape of the income distribution after taxes and transfers have been applied. Because many individuals in the bottom fifth of the income distribution on a pretax basis will move up into the second fifth of the income ladder on an after-tax-and-transfers basis, while others will move down the after-tax income ladder, the bottom fifth after taxes and transfers will consist of different people, and the group will overall be worse off than the group of individuals ranked by before tax and transfer income. If, instead, individuals are re-ranked in the post-tax-and-transfer distribution,2 then incomes for those in the bottom fifth have increased by 62 percent since 1979 not 79 percent, as CBO reports, while income growth among the top 1 percent is virtually unchanged because government taxes and transfers do not cause significant re-ranking in this group.

Neither method is more correct; they just do different things.

CBO’s method is a better way to think about the effects of federal government policies related to U.S. incomes. Re-ranking is a better way to think about the overall shape of the income distribution and income growth within different quintiles of income earners over time. The CBO report is a great data product, but it’s not the right one for every situation. Importantly, its analytical limitations underscore how urgently we need better measurement of inequality by our federal statistical agencies.

Let’s return to Samuelson’s claim that the report shows that income stagnation is a myth. Is 62 percent income growth good income growth? That’s a matter of perception. From 1979 to 2015, overall income growth averaged 1.4 percent annually (with re-ranking, as described above). But for the middle class, it was just 1.1 percent. The top fifth of income earners accrued 1.9 percent growth annually, while the top 1 percent of households saw annual growth of 3.3 percent. The bottom fifth saw growth in line with the average at 1.4 percent.

And an analysis of just the recent data reveals even bleaker trends. Average annual growth between 2000 and 2015 is just 0.8 percent. This income growth was shared more equally, thanks to large declines in income at the top of the distribution due to the Great Recession (as seen in Figure 1). Stagnation is in the eye of the beholder, but income growth of less than 1 percent per year is consistent with the idea that our economy is producing poor wage gains for most workers.

Posted in Uncategorized

Marriage is an unexpected fringe benefit of a quality job in the United States: Food for thought this holiday shopping season

Posted on by Maria Monroe
A Target employee helps a Black Friday shopper find top deals at Target on Thursday, Nov. 22, 2018 in Maple Grove, Minnesota.

The holiday shopping season is now upon us, and U.S. retail workers are in a crunch. They are working long, often unpredictable hours. The stresses of retail work are on high volume during the holidays, but retail workers experience low pay, lack of fringe benefits, and volatile hours year round. In fact, 87 percent of retail workers who are early in their careers report instability in their work hours.

While research has long shown that working under these difficult conditions causes stress, financial instability, and health problems, research released in an Equitable Growth working paper today shines a new light on a surprising consequence of poor job quality: Working a low-quality job affects a worker’s propensity to marry. Unstable working conditions reach past the bounds of the workplace to affect deeply personal aspects of workers’ lives, impeding their ability to form and formalize the families they desire.

Since 1970, low-educated workers, including retail workers, have experienced precipitous drops in compensation, job security, and job quality, while more highly educated workers have been relatively insulated from these changes. Over this same period, rates of marriage have declined and that decline, too, has been concentrated among people with low levels of education.

Existing research convincingly demonstrates the link between marriage and earnings. For men in older cohorts, higher earnings are predictive of marriage. And today, higher earnings for both men and women predict entry into first marriage. This means that low-earning men and women are less likely to tie the knot than their higher-earning counterparts.

The bifurcation of the U.S. labor market extends past earnings to job quality, and that’s where the new research by Kristen Harknett of the University of California, San Francisco and Daniel Schneider and Matthew Stimpson of the University of California, Berkeley comes in. The three authors take advantage of the rich set of job-quality variables in the National Longitudinal Survey of Youth, a unique survey that starts following people when they are young and collects data as their lives unfold. Using NLSY’s measures of job quality—including salaried pay and access to fringe benefits, paid maternity leave, and predictable schedules—the authors look at the trajectories toward romantic-union formation for men and women in recent cohorts. They find that for both men and women, these measures of job quality are predictive of marriage.

This in itself is not surprising. Low-quality jobs tend to be poorly compensated and demographers know that earnings levels affect marriage rates. But the authors use a rich set of controls that includes earnings, and yet they still find that differences in job quality explain at least 15 percent of the difference in rates of first marriage between people with bachelor’s degrees and people without high school diplomas. Overall, the authors find that a worker with a low-quality job and a worker with a higher-quality job who are taking home identical paychecks have very different chances of walking down the aisle.

While initially surprising, this finding makes intuitive sense. When a worker lacks fringe benefits that could cover a partner and struggles to make financial plans because her take-home pay changes week to week, when maternity leave is not in the cards, and when work hours fluctuate so that scheduling childcare (not to mention a date night) is a nightmare, formalizing a partnership and forming a family is hard. This is not a story about pay alone: Job quality matters.

In October, I wrote about the importance of ensuring that people have the resources they need to form the families they desire. Proponents of marriage should note that a larger paycheck is not enough—job quality matters, too. Marriage advocates should explore ongoing initiatives to provide today’s workers with the stable schedules and fringe benefits to which more of us had access in the past.

The next time the cashier scans your stocking stuffer, take a moment to think about the bifurcation of the U.S. labor market and its far-reaching consequences for America’s workforce.

Posted in Uncategorized

Refocusing the minimum wage debate on the well-being of U.S. workers

Posted on by Maria Monroe
Bettie Douglas, a 59-year-old mother of three, stands inside the McDonald’s she works in St. Louis.

The public debate over the minimum wage in the United States has not always aligned with the breadth of academic research that shows how this policy, by and large, does not harm workers’ employment opportunities. Meta-analyses of research on the so-called dis-employment effect find there is a negligible effect on the unemployment rates of low-wage workers, who are likely to be affected by minimum wage increases. Nonetheless, a study last year by the University of Washington made headlines because it called this academic research into question, concluding that minimum wage increases in Seattle led employers to cut worker hours and thereby reduced worker incomes.

That study was the subject of much debate because of the methodology it used to measure the impact of increasing the minimum wage. That research team recently released an updated study with more nuance, finding little overall impact on employment due to the minimum wage increase in Seattle but finding varying effects based on the employment status of workers in the months prior to the increase in the minimum wage in 2016. These more nuanced findings are still a hot subject of debate among economists, including the Economic Policy Institute’s Ben Zipperer, who told The New York Times that many of the effects found by the team at the University of Washington can be explained by the booming labor market that Seattle is now experiencing.

More broadly, the majority of academic research in economics does not find overall negative effects from raising the minimum wage. In a report for the Center for Economic Policy Research, economist John Schmitt reviewed the broad literature, including meta-analyses, and concluded that a majority of studies find “no discernible effects on employment” in the United States. And a recent Equitable Growth working paper by U.S. Census Bureau economists Kevin Rinz and John Voorheis, which looks at earnings trajectories of affected workers in the 5 years following a minimum wage increase, finds that gains are greater for those at the bottom of the income distribution—and that those gains grow over time up to 5 years.

A forthcoming paper by EPI’s Zipperer and U.S. Census Bureau economist Evan Totty presented recently at the Association for Public Policy Analysis & Management conference in November also analyzes the income dynamics for workers who are impacted by minimum wage increases to find positive outcomes in earnings over the long run.

These new lines of research—often made possible due to access to cutting-edge linked administrative data with U.S. Census surveys such as the Current Population Survey used in Rinz and Voorheis’ paper—redirect our attention in analyzing the impacts of minimum wage increases to worker well-being rather than dis-employment effects. Indeed, in an Equitable Growth working paper, economists David Howell at the New School, the late Kea Fiedler of the New School, and Stephanie Luce of the City University of New York’s Graduate Center argue that the focus on a “no job loss” standard of minimum wage impacts is too narrow and should be broadened to analyze a “minimum living wage.”

Looking ahead, when economists begin to conduct empirical research on minimum wage increases recently enacted through successful ballot initiatives in Missouri and Arkansas, they could consider broader measures of how low-income workers are doing. Specifically, are they earning a living wage over time that allows them to provide for themselves and their families?

The purpose of raising the minimum wage in the United States—whether at the municipal, state, or federal level—is to increase worker well-being and minimize employer exploitation. Remembering these goals should frame how economists and policymakers alike consider new research such as the original and recently revised study published by the research team at the University of Washington. Minimum wage increases should be considered within the larger goal of addressing economic inequality. Dis-employment is one important aspect of raising the minimum wage for which there is ambiguous or no evidence, but minimum wage increases also interact with income growth for low-wage workers and the standard of a minimum living wage. Stepping back, the body of evidence demonstrates that increasing minimum wages is an important tool to ensuring economic growth is broadly shared in a tight labor market with workers at the bottom of the earnings distribution earning more over time.

Posted in Uncategorized

Remembrance: Scholar Devah Pager (1972–2018)

Posted on by Maria Monroe

The Washington Center for Equitable Growth joins other friends and colleagues in mourning the loss of Harvard University sociologist Devah Pager, the recipient of a 2018 Equitable Growth grant, “The organizational bases of discrimination,” with Stanford University sociologist David Pedulla. Pager passed away on Friday, November 2 from cancer.

Pager’s research and its impact on policy discussions was a powerful example of why research matters and how well-formed policies based on evidence can make a difference. Pager’s research on labor market discrimination was pivotal to Equitable Growth’s understanding of how human capital development and deployment serves as a channel through which inequality affects economic growth and stability. The effective deployment of human capital in the labor market is a critical factor driving innovation and productivity, two key engines of economic growth. Pager’s pathbreaking work utilized cutting-edge methodologies to expose race-based hiring discrimination, an unjust practice that drags down individual outcomes and overall growth. Her research also showed that hiring discrimination is not an insurmountable problem—it can be addressed through thoughtful policies.

Equitable Growth is dedicated to furthering research and informing policy discussions, and we recognize the importance of community. Through the financial and professional support offered by our grant program, we seek to foster a community of academics to accelerate research and to strengthen the pipeline of scholars working in this space. We are proud we had the opportunity to support Pager, a scholar with an exemplary track record of rigorous research. Her reputation as a thoughtful collaborator and a tireless mentor only added to the value that she offered to our community.

The academic community has lost a skilled researcher, but in the many wonderful tributes to Pager that have been published elsewhere, it is clear that the community has also lost a dear friend, colleague, collaborator, and teacher. Our thoughts are with those who are grieving the loss of Devah Pager. Her example is an inspiration to all of us.

Posted in Uncategorized

Weekend reading: “HQ2” 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

In a new blog post in Equitable Growth’s Competitive Edge blog series, former Federal Trade Commission commissioner Terrell McSweeny discusses the rise of pricing algorithms and the implications they raise for competition policy.

In an interview for Equitable Growth’s In Conversation series, Heather Boushey and University of California, Berkeley economist Hilary Hoynes discuss the impact of social safety net programs on economic growth.

Check out Brad Delong’s latest worthy reads from Equitable Growth and around the web.

Will McGrew discusses the implications of the rise of job-matching platforms on economists’ job search and matching theory for understanding how workers transition between jobs and get jobs that are the best matches for their skills.

Links from around the web

New reports highlight regional differences in economic prosperity within the United States. In conjunction with a decline in geographic mobility, this trend suggests poor Americans are stuck in poor places. [the economist]

Reed College economist and Equitable Growth grantee Kimberly Clausing and University of California, Berkeley economist Hilary Hoynes explain the policy implications of rising income inequality, particularly as it relates to social safety net programs and tax policy. [econofact]

Derek Thompson of The Atlantic reports that the rise of expensive, elite traveling youth sports teams explains differential rates of participation in youth sports between high- and low-income families: “Just 34 percent of children from families earning less than $25,000 played a team sport at least one day in 2017, versus 69 percent from homes earning more than $100,000. In 2011, those numbers were roughly 42 percent and 66 percent, respectively.” [the atlantic]

New research finds that hospital consolidation in the United States has increased costs for patients. [nyt]

This week’s announcement by Amazon.com Inc. that its new secondary headquarters will be split between New York City and the Washington, DC suburbs in northern Virginia demonstrates that proximity to already highly skilled workers trumps tax incentives in companies’ location decisions, not that that stops local leaders from offering them. [wapo]

Friday Figure

Figure is from “The intersectional wage gaps faced by Latina women in the United States” by Kate Bahn and Will McGrew

Posted in Uncategorized

How job-matching technologies can build a fairer and more efficient U.S. labor market

Posted on by Maria Monroe

Economic theory tells us that there are benefits to a dynamic labor market in which workers are matched with jobs based on their skills, interests, and ambitions so they can earn wages equivalent to the value they contribute to production. “Job search and matching theory” is a framework economists use to understand the mechanisms underlying the process of workers transitioning between jobs, as well as the obstacles to efficient matching of workers with jobs. Since its inception, the theory has been applied in a variety of contexts, and it is a particularly helpful frame both for understanding how the advent of new job search, matching, and recruitment technologies may influence workers’ job opportunities and for shedding light on how these innovations can be crafted to secure fairness and competition in the U.S. labor market.

Despite the rise of online job-matching platforms over the past decade, search frictions and skills mismatch continue to be persistent problems for both employers and employees. While new companies such as LinkedIn Corp. and Indeed Inc. have eased the process of identifying vacancies for job-seekers and attracting applicants for employers, online job boards have also created new frictions by proliferating the average number of applications per job-seeker and per job opening. Costs remain particularly high for low-skill, low-wage job-seekers, who are the least likely to have access to and proficiency in new digital technologies and are simultaneously the most likely to spend substantial amounts of time completing numerous burdensome job applications on their smartphones. Among other factors, these search frictions contribute to a persistent skills mismatch between workers and jobs. According to an employer survey by McKinsey & Co Inc., 40 percent reported lack of skills as the primary reason for job vacancies. In contrast, 37 percent of job-seekers in a LinkedIn study said they were underutilizing their skills in their current positions.

The central theoretical model describing the process of looking for and finding a job in the contemporary economics literature is the search and matching model developed by economists Dale Mortensen, formerly of Northwestern University, Christopher Pissarides of the London School of Economics, and Kenneth Burdett of the University of Pennsylvania. Along with economist Peter Diamond at the Massachusetts Institute of Technology, Mortensen and Pissarides received the Nobel Prize in 2011 for their foundational work with this framework, which describes how search frictions’ lack of information, as well as mismatch between skills and interests offered by workers and wages and benefits provided by jobs, hinder the efficient matching of job-seekers with job openings. These obstacles affect job transitions and depress labor market dynamism, which can lead to prolonged bouts of unemployment, noncompetitive wages and benefits, and stunted productivity growth.

Despite its widespread impact, the search and matching model has faced criticism for failing to fully account for several empirical phenomena in contemporary labor markets, notably the cyclicality and persistence of vacancies, unemployment, and job creation, as well as the persistence of inflation in response to monetary shocks. As economist John Quiggin of the University of Queensland explains, one of the key criticisms of the search and matching theory has focused on its failure to accurately predict the effects of the internet on unemployment. Since the dominant framework models unemployment as a function of search and matching frictions, unemployment should have declined with the rise of the internet, which increased the information available to both employers and employees. Yet this empirical prediction did not materialize. Indeed, over the past two decades, despite sustained innovations involving the internet, unemployment spiked twice—in the early 2000s, after the dot-com bust and again in the Great Recession beginning in December 2007. In the latter case, the spike was particularly durable, as unemployment has only recently returned to healthy levels.

While these empirical critiques call into question the implications of the job search and matching model for key macroeconomic labor market variables, this model may nevertheless be helpful for understanding the internal dynamics of the job search process itself—and particularly the role of technological innovation in this process. Indeed, the centrality of transaction costs in terms of search and matching in the mainstream model is a logical frame in which to analyze the effects of technological innovations, which presumably have the capacity to reduce various types of frictions.

Instead of discarding this model, a future research agenda should build on it while incorporating important structural frictions in the contemporary U.S. labor market, notably monopsony (or the dominance of a small number of employers), occupational segregation (the disproportionate concentration of women and ethnic minorities in certain fields), and labor market polarization (the recent increase in low-skill, low-wage and high-skill, high-wage jobs at the expense of middle-class employment). Including both structural and informational frictions in the Mortensen-Burdett model also sheds light on points of intervention where innovators and policymakers can help facilitate a more efficient and more equitable job search and matching process. For example, in Alan Manning’s book, Monopsony in Motion, the economist describes how lack of information, among other frictions, is pronounced when there are too few employers in a single labor market, underlying the importance of public intervention to prevent labor market concentration.

At the very least, better matching technologies could help reduce informational search frictions and the related skills mismatch—with positive implications for both inequality and growth. With the goal of improving existing job boards and similar platforms as a starting point, companies—including Alphabet Inc’s Google unit and Indeed—have begun to use artificial intelligence and machine learning to narrow down the most relevant jobs for job-seekers. Indeed also uses natural language processing to help employers identify the best candidates for vacancies by analyzing language from applicants’ resumes and other submitted materials. These technologies and further innovations in this vein would enhance both the equity and efficiency of labor markets by reducing the inequality associated with skills mismatch and search frictions, driving down unemployment given shorter search times and increasing labor force participation and work hours in response to improved matching to jobs consistent with workers’ skills and interests. A report by the McKinsey Global Institute estimates that these advances could add 2 percent to global GDP in the next decade.

Innovative job-matching platforms, especially those integrated with training programs, can also strengthen workers’ human capital, as well as their bargaining power in the labor market. Companies such as CodeSignal (formerly CodeFights Inc.), for example, are creating online platforms that allow job-seekers to practice their skills and earn credentials, which they can use to be matched with employers and job opportunities. If programs such as those offered by CodeSignal are successful in helping applicants develop the skills required for particular job opportunities, then the credentials they provide could become strong signals giving credentialed job applicants increased leverage in the recruitment process. In essence, these technologies could help create digital apprenticeships of the future, which combine training programs with pathways to gainful employment.

These platforms can further increase workers’ human capital, exit options, and bargaining power in their current jobs by providing them with opportunities for professional development and notifying them of relevant job postings as they open up. In particular, with the help of artificial intelligence, these services can keep workers informed of how their salaries and benefits compare to those of new vacancies, further solidifying their bargaining position without taking time and energy from their job responsibilities. The combined effects of innovations in this vein may reduce the search frictions workers face in transitioning between jobs in search of higher pay and a better overall fit. Program evaluation and further research on how job training and greater comparative information on wages and benefits impacts both matching and bargaining power are needed to ensure that technology is addressing the needs of workers and reducing structural inequality in labor market outcomes.

In addition to mitigating power imbalances between workers and firms, matching services powered by AI and machine learning can be crafted to reduce occupational segregation by race, gender, and socioeconomic class. This is important because segregation remains one of the most important factors leading to wage discrepancies faced by workers based on their demographic identity and not their productive capacity. From the labor demand side of the equation, job-matching services can bring more objective standards and processes to the recruitment pipeline, thereby reducing the influence of implicit biases and social networks in hiring decisions. Well-known research from Harvard University economist Claudia Goldin and Princeton University Woodrow Wilson School Dean and economist Cecilia Rouse finds that concealing demographic information of job applicants increased gender representation among orchestras, demonstrating the need for matching by observable skill rather than demographic characteristics that may reinforce discrimination.

Along with the training and credentialing efforts discussed above, other startups, among them the recruitment and talent assessment company Harver, have partnered with employers to create job-specific assessments along these lines that identify the most qualified candidates for a given position based solely on the actual skills required for the role. In turn, on the labor supply side, job-matching services can expand the horizons of job applicants from underrepresented gender, racial, and educational groups to occupations and industries they may not have traditionally considered. Specifically, these services could match workers to jobs that are higher paying but require skills these workers may have already gained or could acquire without much difficulty in a training program.

Despite these promising developments, recent research has documented that AI, machine learning, and other innovations can often be inadvertently programmed to reproduce existing biases in labor market institutions. Job-matching technologies undoubtedly have the potential capacity to reduce labor market inequalities—both between employers and firms and among various groups of workers. But in order to realize these objectives, technology developers and policymakers must recognize that labor market monopsony, occupational segregation, and job polarization create frictions in the contemporary U.S. labor market that are arguably as significant as those created by informational inefficiencies. As such, any truly efficient matching system must be intentionally calibrated with the help of rigorous social science research to reverse all three trends.

Beyond their potential role in reducing unemployment and improving workers’ human capital and bargaining power, public and private efforts to reduce search frictions and skills mismatch stand to strengthen aggregate productivity growth and thus the overall health of the economy by providing workers with more fulfilling opportunities, incentivizing employers to innovate and compete for talent, and ensuring workers have the skills necessary to help firms thrive.

Posted in Uncategorized

Brad DeLong: Worthy reads on equitable growth, November 9–15, 2018

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

  1. The most important thing: The deadline for Equitable Growth’s next set of grant proposals is January 31, 2019: “Request for Proposals.” Also read Korin Davis, our academic programs director, who presents the backdrop to the new request for proposals: “Our grantmaking is organized around key drivers of economic growth, allowing us to ask questions to better understand the mechanisms through which inequality may be affecting growth. After 5 years of funding research, we have, for the first time, altered how we organize our grantmaking. While the underlying questions have not changed, the reorganization captures what we’ve learned about what makes the U.S. economy grow. The updated funding channels are: macroeconomic policy, market structure, the labor market, and human capital.”
  2. A great interview with my University of California, Berkeley colleague, the wise Hilary Hoynes, “In conversation with Hilary Hoynes,” in which she says: “Our social safety net … very much moved toward work-contingent types of activity … Some quantification or estimation of the question: Does providing more assistance through the social safety net, particularly aimed at children, lead to differences in where children end up in adulthood?”
  3. We have a new blog at Equitable Growth! Hooray! Read this week’s “Competitive Edge,” featuring former Commissioner of the Federal Trade Commission Terrell McSweeney, who writes in “Competitive Edge: Antitrust Enforcers Need Reinforcements to Keep Pace with Algorithms, Machine Learning, and Artificial Intelligence” that: “Algorithmic price fixing isn’t science fiction. The U.S. Department of Justice’s Antitrust Division and the United Kingdom’s Competition and Markets Authority have already brought their first case in which competitors agreed to use specific pricing algorithms for the sale of posters online. This particular case did not stretch the traditional antitrust framework for price fixing because humans were involved. But as technology becomes more powerful and autonomous, some competition experts are raising concerns about whether analog antitrust doctrines can keep pace.”
  4. Read Delany Crampton, “Veterans in the U.S. Labor Market Face Barriers to Success That Can and Should Be Addressed,” in which he writes: “Anna Zogas of the University of Washington observes in her 2017 research that the U.S. military does an extremely effective job of training veterans to operate within the military and an extremely poor job of preparing them, especially young servicemembers, for post-military jobs.”
  5. Watch the video via Equitable Growth’s Twitter feed of its event on Capitol Hill, “Building a New Consensus on Antitrust Reform.”

 

Worthy reads not from Equitable Growth:
 

  1. Read Ken Kuttner, “Outside the Box: Unconventional Monetary Policy in the Great Recession and Beyond,” in which he writes: “A preponderance of evidence nonetheless suggests that forward guidance and quantitative easing succeeded in lowering long-term interest rates. Studies using micro data have documented tangible effects of quantitative easing on firms and financial intermediaries. Macro models suggest that the interest rate reductions are likely to have had a meaningful impact. The adverse side effects appear to have been mild, and are dwarfed by the costs of the more protracted recession in the United States that likely would have occurred in the absence of the unconventional policies. The benefits of unconventional policy therefore probably outweighed the costs.” My read of the evidence is somewhat different here: My view is that forward guidance did something, but quantitative easing did very, very little. And the idea that quantitative easing made forward guidance more credible? I do not see that. Yes, quantitative easing was a big deal for the financial professionals who otherwise would have held the Treasury bonds that the Federal Reserve bought. But I do not see any channels through which their attempt to compensate had large effects on the real economy of production and demand.
  2. Since 2008, it is clear to me that the unemployment rate has no longer served as a sufficient statistic for whether the labor market is loose or tight. We need to look, and look hard, at those who do not have jobs and do not say that they are looking for jobs but who would take jobs if they existed. And we need to look very hard at hours. Read David Bell and David Blanchflower, “Underemployment in the US and Europe,” in which they write: “The most widely available measure of underemployment is the share of involuntary part-time workers in total employment. This column argues that this does not fully capture the extent of worker dissatisfaction with currently contracted hours. An underemployment index measuring how many extra or fewer hours individuals would like to work suggests that the U.S. and the U.K. are a long way from full employment, and that policymakers should not be focused on the unemployment rate in the years after a recession, but rather on the underemployment rate.”
  3. Dan Davies on financial fraud is certainly the most entertaining book on economics I have read this year. I highly recommend it. Read Chris Dillow’s “Review of Dan Davies: Lying for Money,” in which Dillow writes: “Squalid crude affairs committed mostly by inadequates. This is a message of Dan Davies’ history of fraud, Lying For Money … Most frauds fall into a few simple types … Setting up a fake company … pyramid schemes … control frauds, whereby someone abuses a position of trust … plain counterfeiters. My favourite was Alves dos Reis, who persuaded the printers of legitimate Portuguese banknotes to print even more of them … All this is done with the wit and clarity of exposition for which we have long admired Dan. His footnotes are an especial delight, reminding me of William Donaldson. Dan has also a theory of fraud. ‘The optimal level of fraud is unlikely to be zero’ he says. If we were to take so many precautions to stop it, we would also strangle legitimate economic activity.”
  4. Read the 2001 paper by Thomas Laubach and John C. Williams, “Measuring the Natural Rate of Interest,” in which they write: “A key variable for the conduct of monetary policy is the natural rate of interest—the real interest rate consistent with output equaling potential and stable inflation. Economic theory implies that the natural rate of interest varies over time.” The assumption driving the argument here is that the natural rate of interest varies one for one with productivity growth. That is probably right, but not certainly right. If it is right, the Federal Reserve’s 2 percent inflation rate target is a huge mistake generating huge risks.
  5. It is such a bad idea for a central bank to invert the yield curve. If central bankers can do only one thing, that is probably the thing they should know. Read Glenn D. Rudebusch and John C. Williams, “Forecasting Recessions: The Puzzle of the Enduring Power of the Yield Curve,” in which they write: “For over two decades, researchers have provided evidence that the yield curve … contains useful information for signaling future recessions. … Professional forecasters appear worse at predicting recessions a few quarters ahead than a simple real-time forecasting model that is based on the yield spread.”
  6. It is a surprise to most economists to learn that the outbreak of inflation in the 1970s was not due to central bankers and governments trying to exploit the Phillips curve to run a high-pressure economy. The most important shocks were the oil shocks. The second most important shocks were those that caused the productivity growth slowdown. The third most important shocks were Presidents Lyndon Johnson’s and Richard Nixon’s unwillingness to listen to their economic advisers, and Federal Reserve Board Chairmen William McChesney Martin’s and Arthur Burns’ unwillingness to pull a Volcker. Perhaps it is because it is such a surprise that so few have learned it and how many forget it immediately after it is pointed out. And since the 1970s, the strong belief that another 1970s is always and everywhere lurking around the corner has been very damaging. Read Paul Krugman, “The Demand-Side Temptation,” in which he writes: “[Nick] Rowe goes on to suggest that demand-side logic is dangerous … could lead to irresponsible policies. Well, there have been times and places … But what I think Nick misses is the power of the contrary narrative, of the notion of the government as being like a family that must tighten its belt when the rest of us do, of the evils of printing money (hey, I can’t do that, why can Bernanke?).”

 

Posted in Uncategorized