Weekend reading: “Monopsony and mobility” 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 addition to our In-Conversation series, Economist Kate Bahn and Director of Markets and Competition Policy Michael Kades discuss market concentration and wage stagnation with economist Ioana Marinescu and law professor Herbert Hovenkamp of the University of Pennsylvania. In addition to reviewing recent research documenting how anticompetitive mergers exacerbate monopsony and drive down workers’ wages, they explain the role for antitrust law and policy to reverse this trend. The researchers conclude with suggestions for further research in the law and economics of labor market competition.

In his weekly worthy reads column, economist Brad Delong highlights recent publications by researchers at Equitable Growth and in our network along with other writing on macroeconomics. In particular, he discusses the recent report by Senior Director for Family Economic Security Elisabeth Jacobs and Senior Policy Advisor Liz Hipple detailing the substantial headwinds faced by many Americans seeking upward mobility throughout their childhoods and professional careers. Brad also points out Matt O’Brien’s article citing Equitable Growth grantee and University of California, Berkeley economist Gabriel Zucman’s extensive work on the use of tax havens by multinational corporations and the ultra-rich.

Links from around the web

In The Washington Post, Andrew Van Dam discusses further evidence that upward mobility is stagnant in the United States even for the most high-performing students from low-income families. Van Dam summarizes the findings of two recent genetic and economic studies demonstrating that genetic endowments associated with academic achievement are equally distributed across the income spectrum, but labor market success is concentrated at the top. Indeed, the evidence shows that the least gifted students from high-income families are more likely to graduate from college than the most gifted students from low-income families.

Brendan Greely of the Financial Times dives into another aspect of the mobility divide: social capital. Using frequent Equitable Growth guest authors and economists Raj Chetty, Nathaniel Hendren, and John Friedman’s recently published Opportunity Atlas as a starting point, Greely explains why relationships and communities are more important than the mere availability of jobs in determining economic mobility. Beyond enhancing a neighborhood’s services and amenities such as public schools, growing up in proximity to people with a diversity of highly paid jobs provides children with role models and connections to higher quality jobs and more numerous economic opportunities.

Noah Smith at Bloomberg takes up the individual and corporate tax cuts implemented in 2017 as another case study in the negligible effects of tax cuts on growth and wages. In addition to citing several studies testing this relationship, he contends that the minimal growth effects of tax cuts for the richest taxpayers will only decrease further in the United States as individual rates, which were already among the lowest in the developed world, reach new lows. Finally, Smith leverages several datasets to argue that the corporate tax cuts had virtually no effect on wages and other compensation for most workers.

Maureen Callahan at the New York Post points out that Amazon.com Inc.’s recent staff compensation decisions provide evidence of the firm’s growing market (and monopsony) power. While focusing on Amazon’s rapid expansion in a variety of markets in the past decade, Callahan considers the roles of a variety of prominent technology companies in driving market concentration. Callahan concludes with a quote from NYU business professor Scott Galloway positing that innovation in the workplace of the future will require the existence of truly competitive markets.

Friday Figure

Figure is from Equitable Growth’s, “Are today’s inequalities limiting tomorrow’s opportunities?”

Brad DeLong: Worthy reads on equitable growth, October 5–11, 2018

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

  1. I remember debating Glenn Hubbard about the inheritance tax a few years ago. He claimed that the cultural and educational transmission of wealth from him to his children was more important than inheritance, hence there should be no inheritance taxes. That argument did not make sense to me. And it now looks as though his initial claim that inheritance was less important was wrong. Read Elisabeth Jacobs and Liz Hipple, “Are Today’s Inequalities Limiting Tomorrow’s Opportunities?” They write: “An individual’s place on the economic distribution is supposed to reflect individual effort and talent, not parental resources and privilege. Yet this perspective ignores the mounting evidence of the myriad ways that poverty and economic inequality foreclose equality of opportunity.”
  2. I have never understood why the other justices on the U.S. Supreme Court do not differ with Justice Stephen Breyer on antitrust issues. They really ought to, but they do not. Read Howard Shelanski and Michael Kades, “Competitive Edge: Judge Kavanaugh-Would he increase the divide between the public and judicial debate over antitrust enforcement?” They write: “Over the past decade, the Supreme Court has … followed a path of reduced enforcement, reflected in decisions weakening prohibitions against vertical restraints.”
  3. Equitable Growth 2018 grantee Gabriel Zucman is getting a very welcome increasing share of global attention for his very important tax haven work. His is a research team very much worth supporting and expanding. Read Matt O’Brien, “Inequality is worse than we know. The super-rich really do avoid a lot of taxes,” in which The Washington Post columnist writes: “On the legal end of the spectrum … companies shift their profits to show up in low-tax jurisdictions. … According to UC Berkeley economist Gabriel Zucman and his co-researchers. … as much as 40 percent of all multinational profits and 50 percent of U.S. ones.”
  4. As Google chief economist and University of California, Berkeley emeritus professor Hal Varian said a decade ago, the right solution to the housing financial crisis was for everybody in the United States to default on their mortgages and move one house to the right. The policies pursued by the Obama administration wound up being very effective at rescuing banks and their shareholders, option holders, and executives, keeping them from experiencing financial harm. But those policies proved totally ineffective at helping homeowners in distress. Read Corey Husak, “How not to help distressed mortgage borrowers: Evidence from the Great Recession in the United States,” in which he writes: “The federal government has been criticized by many for failing to provide adequate assistance to U.S. homeowners who were financially devastated by the housing crisis and subsequent Great Recession and its aftermath in the late 2000s. New evidence suggests that even when assistance was given, it was poorly designed.”
  5. We do not have to have a society in which the most important economic decision you make in your life is your choice of parents. Read New York University School of Law’s Lily Batchelder—in Equitable Growth’s 2016 report “Delivering Equitable Growth: Strategies for the next administration”—who contributed this piece: “The “Silver Spoon” Tax: How to Strengthen Wealth Transfer Taxation.” She wrote: “30 percent of the correlation between parent and child incomes—and more than 50 percent of the correlation between the wealth of parents and the wealth of their children—is attributable to financial inheritances. This is more than the impact of IQ, personality, and schooling combined.”

 

Worthy reads not from Equitable Growth:
 

  1. Get your increased industrial concentration and market power here. There is something wrong with the press corps when a merger is spun as increasing efficiency first. There may be efficiencies. Those efficiencies are not why this merger is being pursued: Read Diane Bartz and Caroline Humer, “CVS, Aetna Win U.S. Approval for $69 Billion Merger,” in which they write: “Pharmacy chain CVS Health Corp (CVS.N) won U.S. antitrust approval for its $69 billion acquisition of health insurer Aetna Inc (AET.N), the Justice Department said on Wednesday.”
  2. This seems to me to be too strong: There is every reason to think that the financial crisis could have been handled in a way that built a successful firewall between Wall Street distress and unemployment. Read the (firewall accessible only) Financial Times’ Martin Wolf, “How To Avoid the Next Financial Crisis,” who writes: “proximate explanations for the huge shortfalls in output were collapses in investment … This weak investment must also help explain low rates of innovation, which is particularly visible in directly-hit countries. New technology is often embodied in new equipment.”
  3. This gets the essence of the Trump administration right. Read Jeffrey Frankel, “The New and Not Improved NAFTA,” in which he writes: “U.S. President Donald Trump has called the United States-Mexico-Canada Agreement, which succeeds NAFTA, ‘the single greatest agreement ever signed’. In reality, it is not as good as the Trans-Pacific Partnership, from which Trump withdrew the U.S. While this outcome is better than an end to free trade in North America, the USMCA is no improvement over the status quo. Of course, this is Trump’s modus operandi: threaten to do something catastrophic, so people are relieved when things get only a little bit worse.”
  4. Hal R. Varian in “Causal Inference in Economics and Marketing” writes: “This is an elementary introduction to causal inference in economics written for readers familiar with machine learning methods. The critical step in any causal analysis is estimating the counterfactual—a prediction of what would have happened in the absence of the treatment.”

 

Posted in Uncategorized

Weekend reading: “Who gets the wage growth” 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

Research indicates that there is a strong relationship between intergenerational mobility and economic inequality, as Liz Hipple and Elisabeth Jacobs reports. They reviewed the vast body of research regarding the factors and metrics that influence the relationship between mobility and inequality. Based off of research conducted by former Steering Committee member Raj Chetty, they explain how mobility varies drastically throughout the country and that growing inequality was one of the main contributing factors. They emphasize the importance of the difference between relative and absolute mobility because, while relative mobility has been relatively stable, absolute mobility has been steadily declining since the 1940s.

The U.S. Bureau of Labor Statistics on Friday released new data on the U.S. labor market during the month of September. Kate Bahn and I put together five graphs highlighting important trends in the data. We found that while wages have been growing, they still remain lower than what would be expected in a tight labor market.

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

Last week, Equitable Growth hosted the 2nd Grantee Conference, where we brought together grantees, academics, policymakers, and the press to discuss the growing body of research around the issues contributing to growing economic inequality. I recapped the events that took place over the course of the conference, including our Research on Tap event where panelists discussed the relationship among mobility, race, and place, and our Wealth Panel, where we explained how wealth has been increasingly concentrated among the top 1 percent, which contributes to greater wealth volatility and lack of wealth buffers for middle- and low-income households.

Corey Husak discussed a recently published working paper by Equitable Growth Grantees Peter Ganong and Pascal Noel, who studied the Home Affordable Modification Program (HAMP), that supported 1.7 million homeowners who struggled with mortgage payments. He details the results of their study, which indicated that HAMP lowered borrower’s monthly payments until they reached 31 percent of the borrower’s monthly income. Had HAMP allocated the money towards principle forgiveness instead, it would have been more successful at keeping households solvent.

Links from around the web

Earlier this week, Jeff Bezos, the CEO of Amazon and the world’s richest man, announced that on November 1st, all starting wages for U.S. employees would increase to $15 per hour. This wage increase, fueled by Senator Bernie Sander’s Stop BEZOS Acts, which would tax Amazon for the public safety-net benefits their employees rely on as a result of low wages, comes at a time of massive public outcry over the harsh working conditions that Amazon fulfillment employees must face in order to earn barely-livable wages. The Economist’s Idrees Kahloon explains how economists blamed employers control over the labor market, such as instituting no-poach clauses, for poor wage growth at a time of low unemployment rates. He discussed growing monopsony power with Equitable Growth’s Kate Bahn, who noted that “monopsony exercises a downward pressure on wages that exacerbates income inequality.” [economist]

While Amazon’s actions of increasing their starting salary to $15 per hour are a step forward in granting workers the ability to afford the increasing cost of living in the United States, more still needs to be done in order protect workers as employers continue to expand their monopsony power over the labor market. Janet Nguyen at Marketplace discussed with Kate Bahn about the various employment sectors in which companies have gained control over the labor market, including K-12 school districts, companies that bind employees to “no-poach” contracts, and tech and retail corporations. Bahn explained how economists are seeing trends in these sectors where employees are able to take advantage of geographic limitations in order to limit competition within the labor force, trapping workers into jobs that fail to support their cost of living. [marketplace]

Rex Nutting at MarketWatch argues that GDP has been an inadequate tool to measure growth in the 20th century. He mirrors Equitable Growth’s message that GDP measures growth for the upper class and fails to take into consideration the socio-economic challenges faced by lower- and middle-class households, such as wages, job stability, or mobility. He turns to the Measuring Real Income Growth Act of 2018 proposed by Senators Schumer and Heinrich that instructs the Bureau of Labor Statistics to report on income distributions between the low, middle, and upper classes. He quotes Equitable Growth’s Executive Director, Heather Boushey, who says “‘It is not enough to know how rapidly the economy is growing … Americans want and need to know how the economy is performing for people like them.’” [marketwatch]

Equitable Growth’s former Steering Committee Member Raj Chetty released an interactive data tool that indicates how economic mobility varies by states and neighborhoods. He combined data collected by the Internal Revenue Service and the U.S. Census Bureau to understand how individuals from different socio-economic backgrounds and communities move up the ladder. He found that when a low-income person moves from one neighborhood to a relatively better neighborhood, their lifetime earnings increase by an average of $20,000. [npr]

Research conducted by the Federal Reserve Bank found that only the top 10 percent of working-age households were on average wealthier in 2016 than in 2007. The bottom 90 percent are between 17 to 35 percent poorer today than a decade ago. The reason is because low- and middle-class households don’t hold their wealth in stocks or multiple homes, they tend to hold wealth solely in their primary residence. Recovery efforts have been concentrated in improving the stock market, which benefited wealthy households who do hold large amounts of wealth in the stock market. In addition, homeownership among the middle class fell by 12 percentage points between 2007 and 2016, which can predominantly be credited to the fact that households who didn’t own homes prior to 2007 did not buy homes during this period of time. [wapo]

Friday Figure

Figure is from “Equitable Growth’s Jobs Day Graphs: September 2018 Report Edition”

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Equitable Growth’s Jobs Day Graphs: September 2018 Report Edition

Posted on by Austin Clemens

Earlier this morning, the U.S. Bureau of Labor Statistics released new data on the U.S. labor market during the month of September. Below are five graphs compiled by Equitable Growth staff highlighting important trends in the data.

1.

Prime-age workers’ employment was unchanged in September and remains below it’s pre-Recession levels, but continues on a long-term upward trend.

2.

The ratio between unemployment and underemployment has been little changed this year, with no recent convergence after they converged significantly during the early recovery.

3.

Wages have grown 2.8 percent year-over-year, but this remains below what would be expected in a tight labor market with low unemployment.

4.

Involuntary part-time workers are now less than voluntary part-time workers, signaling that most workers who work part-time are reporting that they are choosing to do so.

5.

Employment continues to have the strongest growth in service sectors, but also continued upward in manufacturing and construction.

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How not to help distressed mortgage borrowers: Evidence from the Great Recession in the United States

Posted on by Maria Monroe

The federal government has been criticized by many for failing to provide adequate assistance to U.S. homeowners who were financially devastated by the housing crisis and subsequent Great Recession and its aftermath in the late 2000s. New evidence suggests that even when assistance was given, it was poorly designed to meet the needs of distressed borrowers and, as a result, failed to prevent many defaults and foreclosures.

In “Liquidity vs. wealth in household debt obligations: Evidence from housing policy in the Great Recession,” economists Peter Ganong of the University of Chicago and Pascal Noel of Harvard University study the Home Affordable Modification Program, or HAMP, which assisted 1.7 million struggling homeowners beginning in 2009. Ganong and Noel find that the program placed an inefficient emphasis on reducing borrowers’ total mortgage debt, instead of focusing on their liquidity, or the cash they had available to meet everyday needs. They show that the most important factor in preventing defaults is aggressive action to lower borrowers’ immediate monthly payments, not changing the total amount those borrowers owe.

The Home Affordable Modification Program offered homeowners who were both experiencing financial difficulties and “underwater”—meaning they owed more on their mortgage than their houses were worth—a chance to refinance their loans, reduce their mortgage interest payments, and possibly have some of their principal forgiven. Participants qualified for payment assistance, debt reduction, and debt refinancing depending on different program criteria, and similar homeowners who just missed qualifying for HAMP could apply for debt refinancing assistance from private debt servicers. By studying the outcomes of those who just barely qualified for mortgage principal forgiveness or did not, and those who just barely qualified for HAMP versus those who received private refinancing, Ganong and Noel can tell which interventions were most effective.

Unfortunately, HAMP principal forgiveness was completely ineffective at reducing defaults. The forgiveness was substantial at an average of $67,000 worth of debt. Yet borrowers with debt forgiven defaulted at the same rate as statistically similar HAMP participants who had no debt forgiven. Increasing consumption was also a broad macroeconomic goal of the federal government during the recession years, but using linked data from JP Morgan Chase & Co., the authors find that mortgage principal forgiveness also failed to have an effect on consumption in the households that received it.

HAMP did lower borrowers’ monthly payments, but only until payments reached a strict 31 percent of a borrower’s monthly income. Even when combined with principal forgiveness, this was not enough to prevent many defaults.

Private servicers shared the government’s goal of reducing borrower defaults but went about it differently. They tended to drastically lower borrowers’ monthly payments, and it seems that approach was much more effective at preventing defaults than forgiving mortgage principal. Ganong and Noel find that each additional 1 percent monthly payment reduction lowered the default rate by 0.26 percentage points. This suggests that if the Home Affordable Modification Program had used the money it spent on principal forgiveness to instead to reduce monthly payments beyond the 31 percent threshold, then HAMP would have been much more effective at keeping households solvent and families in their homes.

Though private servicers were much more aggressive than the federal government in reducing initial mortgage payments, those servicers never reduced the amount owed, so average borrowers are still on the hook for massive increases in payments 20 years after refinancing. Many will need to make drastically larger monthly payments to pay off their mortgages, or else further lengthen their mortgage terms (most private servicers already extended mortgage terms by many years). (See Figure I, which appears in Ganong and Noel’s working paper.)

Figure 1

Those borrowers who chose to refinance rather than face that large payment cliff could be facing an entire lifetime of mortgage payments. Only 10 years out from the crisis, it is impossible for Ganong and Noel to study the long-term implications of these decisions, but clearly, reducing payments without giving borrowers a way out of the debt they’ve accumulated carries long-term risks.

The other option for policymakers is to design government aid to be more effective. If HAMP had been designed to focus on reducing monthly payments, then “our results imply that 240,000 defaults could have been avoided at no additional cost to investors or taxpayers,” the authors say. Using a 2010 U.S. Department of Housing and Urban Development estimate of the social cost of a foreclosure ($51,000), up to $12 billion in economic damage could have been avoided simply through better program design.

Other debt payment relief programs—such as federal student loan repayment programs—recognize the need to drastically reduce distressed borrowers’ monthly payments and utilize alternate measures of ability to pay such as “discretionary income,” rather than HAMP’s strict 31 percent payment-to-income ratio. The evidence from this study suggests that policymakers confronting a future mortgage debt crisis can achieve a policy “free lunch”—a program that is a win-win-win for borrowers, lenders, and the government—by redesigning the Home Affordable Modification Program and other debt relief initiatives along similar lines.

Continuing to examine the borrowers studied by Ganong and Noel could further help policymakers understand how households manage debt and how these programs affect economic growth and stability. For instance, though debt forgiveness didn’t help borrowers in the short term, is it possible these borrowers will be better off in the long term than those who will face extra decades of debt payments? And how will the next recession be different if we give distressed households better tools to maintain their monthly liquidity?

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Brad DeLong: Worthy reads on equitable growth, September 28–October 4, 2018

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

  1. One thing making me hopeful for our future is that as our technological powers and capabilities grow, our ideas of what people need to be fully included members of society also grow to keep pace. Just think of how high-speed computer access is becoming something that it is obvious that all Americans—and especially all American children—very much need to have. The fact that we (or some of us, at least) think that the failure to make sure this is provided is a “gap” is something I—at least, in historical perspective—find very heartening. Read Delaney Crampton, “Why Accessibility To High-Quality Broadband Matters To U.S. Schoolchildren,” in which he writes: “Nearly 5 million households with school-aged children in the United States lack high-quality broadband access at home … 31.4 percent of households earning an annual income lower than $50,000 with school-aged children … 40 percent of those with annual incomes lower than $25,000.”
  2. Heather Boushey said wise things about distributional national accounts before the U.S. Congress’ Joint Economic Committee: Read her “Testimony Before the Joint Economic Committee,” in which she says: “The U.S. Bureau of Economic Analysis releases a new estimate of quarterly or annual GDP growth every month. Distributional national accounts would add to this release an estimate that disaggregates the topline number and tells us what growth was experienced by low-, middle-, and high-income Americans. Academics have already constructed such a measure. The so-called DINA dataset constructed by economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman…”
  3. I was tremendously disappointed to find myself trapped in Berkeley, California, and so I missed Ellora Derenoncourt, David Grusky, Trevon Logan, and Kimberly Adams at Equitable Growth’s “Research on Tap: Economic mobility—The Impact of Race and Place,” where they discussed how “place-based disparities and structural barriers based on race shape economic outcomes.”
  4. This may well be the most interesting working paper we released last month. Read Daniel Schneider and Kristen Harknett’s “Consequences of Routine Work Schedule Instability for Worker Health and Wellbeing,” in which they write: “Wages certainly matter for outcomes like sleep and happiness, but schedules in our data matter much more … Research has overwhelmingly focused on the economic dimension of precarity, epitomized by low and stagnant wages. But the rise in precarious work has also involved a major shift in the temporal dimension of work such that many workers now experience routine instability in their work schedules.”

 

Worthy reads not from Equitable Growth:
 

  1. One might, naively, think that the economies of scale that companies such as Walmart Inc. possess should redound to the benefit of workers, as well as consumers. More efficiencies from economies of scale should leave a bigger pie for everyone else, which would be shared, right? Apparently not. When a business earns more by selling to large buyers, its workers’ wages appear not to go up, but to go down. Something to watch very closely. The Wall Street Journal’s Sharon Nunn sends us to a report by Nathan Wilmers in her “Big Businesses Push Down Prices, and Perhaps Wages,” in which she notes: “As large firms … command increasing market share in the retail industry, they narrow the field of buyers for companies that make and move consumer products.” She then references Wilmers’ report, which “found that since the late 1970s … a 10 percent increase in [corporate] earnings that depend on larger buyers is associated with a 1.2 percent decline in wage growth.”
  2. Hal Varian writes in “Bots vs. Tots” that the “U.S. labor market is already beginning to tighten. Expect a tight labor market for the next 15-25 years. Retirees continue to consume. Robots don’t consume. Labor supply is growing more slowly than labor demand. Old intuitions no longer helpful.”
  3. Read Bradley L. Hardy, Trevon D. Logan, and John Parman’s “The Historical Role of Race and Policy for Regional Inequality,” in which they write: “Contemporary racial inequality can be thought of as the product of a long historical process with at least two reinforcing sets of policies: First are the policies governing the spatial distribution of the black population, and second are the policies that had a disparate impact on black individuals because of their locations.”
  4. Very clever article by Benjamin Born, Gernot Müller, Moritz Schularick, and Petr Sedláček, “£350 Million a Week: The Output Cost of the Brexit Vote,” and this certainly looks right: 2 percent of GDP as the (ongoing) cost of the Boris Johnson Brexit clown show. The four authors write: “The current cost of Brexit … counterfactual … a matching algorithm … combination of comparison economies best resembles the pre-referendum growth path of the UK economy … The negative drag from the Brexit vote now appears to be roughly £350 million a week.”

 

Equitable Growth hosts the 2nd Grantee Conference

Posted on by Maria Monroe
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The Washington Center for Equitable Growth last week hosted our second grantee conference, where we showcased research funded through our competitive grants program. This year, Equitable Growth awarded 24 grants to faculty and Ph.D. candidates in the social sciences whose research helps us understand the mechanisms through which economic inequality may impact economic growth and stability.

We kicked off our conference on the evening of September 26 with another installment of our Research on Tap series, where we discussed the role that “race and place” play in shaping economic mobility. Moderated by Kimberly Adams of Marketplace, the panel discussed the long-term effects of institutional racism such as how the now-illegal practice of redlining restricted the growth of black communities. Ellora Derenoncourt, an Equitable Growth grantee and Ph.D. candidate in economics at Harvard University, explained how cities that saw an influx of blacks during the Great Migration of the mid-20th century reallocated public spending, with large increases in policing and public safety. Trevon Logan, a grantee and professor of economics at The Ohio State University, explained how the allocation of public resources is critical for upward mobility, with transportation being one area that can greatly improve economic outcomes by connecting people with jobs and other services. And David Grusky, professor of sociology at Stanford University, noted how a lack of adequate data, particularly data that is broken down into racial and ethnic subgroups, is an obstacle to studying the role that race and place play in mobility.

During our grantee conference the next day, we brought grantees from up and down the career ladder to discuss the latest cutting-edge research during panel presentations and discussions. One panel revolved around the question of wealth and the role it plays in creating or sustaining economic inequality and growth. Moderated by Equitable Growth Executive Director and Chief Economist Heather Boushey, the panel discussed how wealth has been increasingly concentrated in the top 1 percent since the Great Recession. Federal Reserve economist and member of Equitable Growth’s Research Advisory Board, Claudia Sahm, explained how lower- and middle-class homeowners suffered the most during the recession since the majority of their wealth was in the value of their homes, but volatile home prices resulted in significant wealth instability, leading other panelists to ask if buying a home is as safe an investment now as it has been historically. Fisher described economic immobility as a byproduct of wealthy parents having the ability to protect their children’s financial futures through the purchase of homes in high-performing school districts, the ability to pay for higher education, and effectively insuring their entrance into the labor market by subsidizing internships and allowing them to take less lucrative but professionally advantageous positions early in their careers.

While discussing the relationship between wealth and income volatility, grantee and American University public policy professor Bradley Hardy detailed a study that found half of U.S. adults hold no wealth buffer in the event they need $400 for an emergency and would have to charge the expense, pay it off over time, or get a pay-day loan. Hardy discussed how the most vulnerable households are those with few to no buffers available in times of emergency.

Equitable Growth wrapped up the conference with a dinner and keynote speech by University of California, Berkeley economics professor Emmanuel Saez, who is also a member of Equitable Growth’s Steering Committee and the 2009 winner of the John Bates Clark medal from the American Economics Association. Saez discussed the importance of looking to the evidence when assessing the effects of wealth on economic inequality and growth. He noted the importance of data to uncovering trends in the distribution of wealth and income and how researchers, armed with new data, can begin to understand how growing inequality may impact the health and stability of our economy.

Equitable Growth works every day to support rigorous, cutting-edge research and to use that research to inform policy. The attendees and guests at our grantee conference experienced our mission in action.

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Weekend reading: “fair workweek” 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 the latest addition to Equitable Growth’s Competitive Edge blog series, Georgetown law professor and Davis Polk partner Howard Shelanski and Equitable Growth’s Michael Kades examine Judge and Supreme Court nominee Brett Kavanaugh’s record on antitrust cases.

In advance of the Federal Open Market Committee’s meeting this week, Brad Delong correctly predicted, “The Federal Reserve is set to raise interest rates again for probably all the wrong reasons.”

In the newest entry in Equitable Growth’s Working Paper Series, Columbia University economist and Equitable Growth grantee Suresh Naidu and his co-authors propose methods for judging the effects of mergers on labor markets and other tools for addressing monopsony power.

On Wednesday, Equitable Growth’s Executive Director and Chief Economist, Heather Boushey, testified before the Joint Economic Committee. Her testimony focused on the need for measurements of economic growth to include information on the distribution of that growth, which the Measuring Real Income Growth Act of 2018, recently introduced by Senators Chuck Schumer (D-NY) and Martin Heinrich (D-NM), would do.

September 27 was Equal Pay Day for Native American women. Rochester Institute of Technology economist Jeffrey Burnette writes about how research focusing on Native Americans or that even includes them as a stand-alone category is comparatively scarce due to data limitations, with important implications for understanding economic conditions for these Americans.

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

Delaney Crampton explains the role of broadband internet access in the “homework gap”—the divide between students who are able to support their schoolwork at home with high-speed internet access versus those who are not—and its implications for economic outcomes.

Links from around the web

A number of cities and states around the United States are beginning to implement “fair-workweek” laws, which require employers to post schedules up to two weeks in advance, eliminate “clopenings,” and pay workers for when they are on-call. The legislation in Seattle, New York City, Oregon, and other places, is based on research funded in part by Equitable Growth, including by sociologists Danny Schneider and Kristen Harknett of the University of California, Berkeley and the University of Pennsylvania, respectively, as well as by Joan C. Williams of the Hastings College of the Law, Susan Lambert of the University of Chicago, and Saravanan Kesavan of the University of North Carolina, Kenan-Flagler Business School. [wsj]

Analysis of a New York City program that expanded the Earned Income Tax Credit to workers without children found that it lifted the incomes of low-wage workers, increased employment, and that the effects were largest for the most vulnerable demographic groups, including those who had been incarcerated previously. [nyt]

Adriana Kugler, a Full Professor at the McCourt School of Public Policy at Georgetown University and an Equitable Growth grantee, surveys the research into whether conditional cash transfer programs achieve their goals of alleviating poverty and helping recipients improve their chances of getting out of poverty. [econofact]

Rising inequality has consequences beyond just the economic, explains Keith Payne, a social psychologist at the University of North Carolina. In wealthy developed countries with high inequality, higher rates of crime, incarceration, school dropouts, and worse health outcomes are more closely linked to inequality than to poverty rates. [vox]

In the lead-up to the 2020 Census, the U.S. Census Bureau has been without permanent leadership since July 2017. The confirmation hearing for Steven Dillingham, who was nominated by President Donald Trump in July, has been scheduled for next Tuesday, October 3. The decennial census is a key source of data for many researchers, and the insertion of a question about citizenship status to the 2020 Census has raised concerns about whether it will fully and accurately be able to survey all residents of the United States. [npr]

Friday figure

Figure is from “Testimony by Heather Boushey before the Joint Economic Committee”

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Closing the homework gap: Why accessibility to high-quality broadband matters to U.S. schoolchildren

Posted on by Emilie Openchowski

Homework increasingly demands the use of the internet, but recent estimates show that nearly 5 million households with school-aged children do not have high-quality broadband access, widening the so-called homework gap.

Nearly 5 million households with school-aged children in the United States lack high-quality broadband access at home. Known as the “homework gap,” this divide separates students who can support their schoolwork at home from those who can’t. These broadband-less students are often concentrated in low-income rural and outer suburban areas that are not served by high-quality broadband networks and are disproportionately students of color. With these characteristics in mind, it becomes easy to understand the reinforced socioeconomic divides and inequality that persist within low-income and racial minority communities in the United States.

According to the Pew Research Center’s analysis of the 2013 American Community Survey, 31.4 percent of households earning an annual income lower than $50,000 with school-aged children lacked broadband access in their homes. Additionally, 40 percent of those with annual incomes lower than $25,000 lacked broadband access at home, and this percentage was even greater among black and Hispanic households, where nearly one in two households lacked access to broadband at annual income levels lower than $25,000. Overall, the survey found that 5 million households with school-aged children lacked high-speed internet service at home, with low-income black and Hispanic families making up a disproportionate share.

By comparison, just 3.3 percent of children in families earning more than $150,000 per year lacked broadband in the home, including 3 percent of children in white households, and just 2.1 percent of children in Asian households. Even at income levels higher than $150,000 per year, black and Hispanic children fell around 4 percentage points behind children in white and Asian households. This means that regardless of income levels, children in black and Hispanic households disproportionately lack broadband at home and have greater difficulty in overcoming the homework gap as classrooms become increasingly reliant on needing internet access to complete homework.

Research by Federal Communications Commission senior economist Alexsandr Yankelevich and communucations professors Bianca Reisdorf and William Dutton at Michigan State University and Mitchell Shapiro at the University of Miami lays out the case for why the internet has become an integral component of everyday life and why internet-related skills have become increasingly important for individuals to remain competitive in the 21st century. The federal government has made investments in programs such as Educational Broadband Spectrum for the delivery of broadband to low-income schools, but supplying students with the technology required to complete many homework assignments in schools alone is insufficient if a child lacks broadband at home. The study further argues that even when broadband is brought into low-income communities, it doesn’t always translate into an uptick in usage. The co-authors conclude that “broadband has the potential to prevent students from disadvantaged socio-economic backgrounds from being left further behind their peers” because even when broadband is made available in low-income communities, it doesn’t make a difference if access remains unaffordable to individual households.

There is limited data on how this homework gap affects income inequality later in life, but there is already data to show that low-income students, especially black and Hispanic students, are falling behind in their classrooms. A review by the Brookings Institution on the 2017 National Assessment of Education Progress, or NAEP—the largest nationally representative and annual assessment of what U.S. students know and how they are performing in various subject areas—points to some progress made among black and Hispanic students over the past several decades, but the results vary widely across states that have made greater investments in broadband versus those which have not. Overall, when combining math and reading scores in the NAEP results, the white-black achievement gap is down 0.15 standard deviations in fourth grade and 0.11 standard deviations in eighth grade over the past 15 years. Among Hispanic students, the gap is down 0.15 and 0.2 standard deviations in fourth and eighth grade, respectively, during the same period.

While this progress is promising, when looking at a state-by-state comparison, the contrast is a little starker. States traditionally lacking access to quality broadband lag behind states that have made greater investments in their broadband systems, with children in the Appalachian South having the smallest gains in closing the achievement gap. These states saw less than 0.05 standard deviations across the board. Sean Reardon, a 2014 Washington Center for Equitable Growth grantee, expanded on this breakdown, examining the academic achievement gaps that persist between students from families in the top 90th percentile of income-earning households versus those in the bottom 10th percentile. In his analysis, he found that the achievement gap among children from high- and low-income families has grown by 30 percent to 40 percent among children born in 2001, compared to those born in 1976.

Increasingly, homework demands the use of the internet, with 94 percent of school districts serving low-income populations reporting that some of their teachers assign internet-based homework, including 73 percent of high schoolers reporting the need to use the internet outside of school daily. And when 40 percent of households with school-aged children and incomes lower than $25,000 lack broadband at home, low-income students face significant obstacles completing homework and applying to colleges, and are often forced to miss extracurricular activities that help enhance college admissions and going on to obtain a college degree. This is why academics must continue to study the effects of individuals who lack access to high-quality broadband in order to provide policymakers with more evidence about the links between the homework gap and economic inequality.

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