Brad DeLong: Worthy reads on equitable growth, September 21–27, 2018

Posted on by Ed Paisley

Worthy reads from Equitable Growth:

  1. This may well be the most important paper we publish this year: Suresh Naidu, Eric A. Posner, and E. Glen Weyl, “Antitrust Remedies for Labor Market Power,” in which the authors examine how “labor market power has contributed to wage inequality and economic stagnation.”
  2. Kate Bahn puts her finger on something that has long, long bothered me about the labor market literature on inequality. She writes that “good jobs” are jobs that are well-paid, “respected occupations” are occupations that lead to good jobs, and that the “intrinsic” characteristics of the work have very little to do with whether a job is well-paid or not, and thus has little to do with whether it is a “good job” or not. Check out Kate @lipstickecon.
  3. Equitable Growth Research Advisory Board member Arindrajit Dube and friends have a pick-up discussion on how to characterize the impact of employer monopsony power. Dube kicks it off with: “I think growing evidence suggests “laissez faire” equilibrium is monopsonistic. So shocks like de-unionization, outsourcing and eroding wage norms can push down pay  in ways hard to understand with competitive lab mkts. But the shock may not be increased concentration itself.”
  4. Equitable Growth Research Advisory Board member Lisa D. Cook is worried that the quantity of Big Data cannot compensate for its low quality. Statistics gives us lots of power with representative random samples. Nothing can give us power without the tools to do what representativeness does. She writes: “Without taking data quality into account, population inferences with Big Data are subject to a Big Data Paradox.”

 

Worthy reads not from Equitable Growth:

 

  1. Laura Tyson and Lenny Mendonca in their “Universal Basic Income or Universal Living Wage?” write that “the challenge for the future of work is not really about the quantity of jobs, but their quality, and whether they pay enough to provide a decent standard of living … A universal basic income (UBI) would be both regressive and prohibitively expensive. Yet the idea continues to attract a motley crew.”
  2. Rob Johnson and George Soros in “A Better Bailout Was Possible,” argue that “a critical opportunity was missed when the burden of post-crisis adjustment was tilted heavily in favor of creditors relative to debtors …. When President Barack Obama’s administration arrived, one of us (Soros) repeatedly appealed to Summers … [for] equity injection into fragile financial institutions and … writ[ing] down mortgages to a realistic market value … Summers objected that … such a policy reeked of socialism and America is not a socialist country.”
  3. I highlighted this two years ago. I am highlighting it again as I think it has not received the attention it deserves. Read Ernest Liu, “Industrial Policies in Production Networks,” in which he asks: “Many developing countries adopt industrial policies favoring selected sectors. Is there an economic logic to this type of interventions?”
  4. Paul Krugman writes in “What Do We Actually Know About the Economy?” that “among macroeconomists, the self-criticism seems to me to be mainly too narrow: people berate themselves for, say, not giving financial markets a bigger role in their models, but few have done what they should, which is to question the whole direction macroeconomics has gone these past four decades or so.”
  5. Silvia Merler writes in “Economy of Intangibles” that “over the past 20 years, there has been a steady rise in the importance of intangible investments … Intangibles share four economic features: scalability, sunkenness, spillovers, and synergies. Haskel and Westlake argue that—taken together—these measurements and economic properties might help us understand secular stagnation.”
  6. Lawrence Mishel in “Further Evidence That the Tax Cuts Have Not Led to Widespread Bonuses, Wage or Compensation Growth” writes that “following the bill’s passage, a number of corporations made conveniently-timed announcements that their workers would be getting raises or bonuses … Newly released Bureau of Labor Statistics’ Employer Costs for Employee Compensation data allow us to examine nonproduction bonuses in the first two quarters of 2018.”

 

 

Equal Pay Day and data equality for Native American women

Posted on by Emilie Openchowski
A woman performs a traditional Native American dance on the Blackfeet Indian Reservation in Browning, Montana.

American Indian and Alaska Native women are frequently overlooked or omitted from labor market research. Work examining gender gaps often categorizes women into a single group. Research that does explore the racial and ethnic dimensions of economic outcomes typically continues to lump Native American women into some other aggregated category. In both of these cases, the individual experiences of American Indian and Alaska Native women are rendered invisible. September 27 is designated as Equal Pay Day for Native American women to raise awareness of labor market inequalities they face. On average, Native American women have to work from January 1, 2017 until nearly the very end of the third quarter of 2018 to obtain the equivalent amount earned by white, non-Hispanic men in 2017.

The history of the United States is reflected in the demographic differences between our various subpopulations. The percentage of American Indian and Alaska Native, Asian, black or African American, Hispanic, and white populations by state provides evidence of our past. The legacy of Manifest Destiny, Indian removal, and slavery are especially well-exhibited. Native Americans are disproportionately represented in states west of the Mississippi river, while black and African American populations tend to be concentrated in states where slavery was legal prior to the Civil War.

Current data tells us about the present state of society and informs us of possible progress. Statistics that demonstrate that women earn 80 cents for each dollar earned by men are important because they document current inequities within our system and should make us question why they exist. Because this ratio was much lower in 1970, we can investigate the institutional or societal changes that contributed to this change and consider how society can achieve gender wage equality for women from all races and ethnicities.

Research focusing on Native Americans or that even includes them as a stand-alone category is comparatively scarce due to data limitations. Currently, American Indians and Alaska Natives are estimated to comprise 1.3 percent of the total U.S. population. The small size of the Native American population relative to other demographic groups increases the cost of maintaining reliable data and creates privacy issues. As a result, government reports have failed to publish data and frequently insert an asterisk as a place holder—a practice so common that American Indians and Alaska Natives are often referred to as the “Asterisk Nation.” This occurs despite mandates such as Section 17 of Public Law 102-477, which requires the collection and publication of labor market data on the Native American population. The dissemination of data that accurately describes Indian country plays a key role in helping ensure accountability, informs policy, and fulfills the federal Indian trust responsibility.

Historical and societal issues that are unique to American Indians and Alaska Natives present additional challenges for collecting data. There are several unique ways in which these groups are commonly classified. Scholars have argued that race is socially constructed, a position supported by the evolution in race and ethnicity classifications. Native Americans, however, are unique as a race in that there is a government-to-government relationship that exists between Native American nations and the U.S. federal government, which stems from treaties dating back to the United States’ founding fathers. There are currently 573 federally recognized American Indian and Alaska Native nations, each with its own distinct history, culture, and concerns. Further complicating classification, tribal citizens are enrolled members of Native American nations and possess a legal status that is different from those who are not enrolled but instead, because of a community attachment, self-identify as American Indian or Alaska Native. This begs the question for those seeking to understand the American Indian experience: What population of American Indians are you interested in researching, and how do you ensure that your data hasn’t been misclassified?

Researchers have employed an array of approaches to explore the inequalities experienced by American Indians and Alaska Natives. A commonly used method is to focus on Native Americans as a whole and combine all self-identified individuals into a single category. This method is employed to calculate the statistic for Equal Pay Day. Studies seeking to differentiate between tribal and nontribal citizens tend to concentrate on location or race as a means of sifting the two groups. For instance, economists Randall Akee of the University of California, Los Angeles and Jonathan Taylor of the Taylor Policy Group use a method that looks at whether a self-identified individual resides in an area that contains a reservation to proxy for enrollment status as they document the social and economic change on American Indian reservations from 1990 to 2010. In contrast, economists Donna Feir and Rob Gillezeau, both of the University of Victoria, limit their analysis to single-race Native Americans and find evidence that during the Great Recession, Native Americans without employment were more likely to return to or stay in traditional homelands than other groups.

Recent work investigating inequalities in the labor market for Native American women is limited. Feir and Gillezeau document that unemployment rates for Native American and African American women from 2007 to 2010 were higher than their white counterparts, while their labor force participation was lower. My research finds similar results and examines hourly wage changes for different percentiles by race and gender. A result from that study relates wage growth, income status, and race. Wage increases occurred for white women at the higher income ranges while wages for Native American and white women with lower incomes was stagnant or even decreased from 2003 to 2014. Overall, research such as this provides consistent evidence that race, ethnicity, and gender matter when examining economic outcomes.

A foundational step toward overcoming disparities for American Indian and Alaska Native women is collecting data that can be used to document differential outcomes and accurately describes the experiences of Native American women. Current research has devised a number of ways to estimate and describe the challenges faced by Native American women, but it is unable to provide a complete picture because data is limited. Only once society is able to understand the barriers preventing Native American women from receiving equal pay will it be possible for these obstacles to be eliminated.

—Jeffrey Burnette is assistant professor of economics at the Rochester Institute of Technology.

Posted in Uncategorized

Testimony by Heather Boushey before the Joint Economic Committee

Posted on by Maria Monroe


Heather Boushey
Washington Center for Equitable Growth
Testimony Before the Joint Economic Committee
Hearing on “Examining the Rise of American Earnings and Living Standards”
September 26, 2018

Thank you, Chairman Paulsen, Vice Chairman Lee, and Ranking Member Heinrich for inviting me to speak here today. It’s an honor to be here.

My name is Heather Boushey and I am Executive Director and Chief Economist at the Washington Center for Equitable Growth. We seek to advance evidence-backed ideas and policies that promote strong, stable, and broad-based economic growth.

I’m here today to talk about how we can improve economic outcomes for American workers. Over the past four decades, the typical American worker has been left behind. While incomes and wealth surge at the top, earnings for low- and middle- income Americans have stagnated.

Unfortunately, the recently passed Tax Cuts and Jobs Act will, according to all credible observers, contribute to inequality in the United States. And, because it limits our ability to bring in revenue, it will also hinder our ability to finance infrastructure, social insurance, education, and other spending priorities that strengthen our economy and support workers and families.

High levels of inequality have real consequences. The “American Dream,” an article of pride and faith for Americans, is being undermined by policies like the Tax Cuts and Jobs Act. Income mobility in the United States has fallen precipitously since the middle of the 20th century. It was once the case that all Americans enjoyed the fruits of economic prosperity, but as the economy works for fewer and fewer people, it is more difficult than ever for children to exceed the reach of their parents.

Policies that have benefits primarily for the rich are often justified by the promise of economic growth. But “growth” doesn’t automatically benefit everyone. And if growth does materialize, the pattern of our modern economy is to reward it to those who need it least.

These realities are given little attention in part because we do not always know who benefits when the economy grows. Our statistical agencies report aggregate growth and in an era of rising inequality, average and aggregate measures are becoming less informative about the experience of most Americans. While the administration was touting the 4.1 percent growth in GDP in the second quarter as evidence of the success of the tax cuts, the question we need to ask is who benefitted from that growth? Did it mostly go to those at the top of the income ladder – just like the tax benefits themselves?

Because we don’t know the answer to these questions, policymakers like you have a limited view of how our economy is performing. This lack of data hinders our ability to diagnose problems in the economy and preempt them with appropriate policy. Our economy has changed fundamentally, and, in many ways, we are flying blind when it comes to responding appropriately.

The Measuring Real Income Growth Act of 2018, which was introduced by Senator Schumer and Ranking Member Heinrich this month, and an identical bill that was just introduced by Representative Maloney, would help us to understand more about what is happening to our friends and family in your districts and across the United States. This legislation would add distributional measures of economic growth to our policymaking toolbelt. These measures are already the subject of a major academic project that dozens of economists at universities and within the OECD are participating in. They break down growth at the national level to report growth for workers up and down the income spectrum and give us new insights into how the economy has changed and where it might be going.

Implementing Distributional National Accounts here in the United States would provide policymakers with a new tool to track the progress of the economy, evaluate how past policy is changing our economic fortunes, and guide future economic decision-making. It is especially important to implement now as the American economy continues to exhibit increasing inequality, returning us to levels of inequity that we have not seen for nearly a century.

Implementing these measures is critical to the wellbeing of Americans across the country. Present policies may be exacerbating the rise of inequality, but the currently available data requires us to assemble this story piecemeal, sometimes with lags of several years, and we still do not have a complete picture. If we want to build an economy that benefits all Americans, we need to add these distributional statistics to our arsenal now so that policymakers, pundits, and the public can assess where we are and plan for more broad-based, stable economic growth.

Distributional National Accounts: Measuring the right things

Distributional national accounts refers to adding subpopulation estimates of income growth to our existing National Income and Product Accounts reports. Currently, 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 disaggregates National Income growth from 1962 to 2014. 1 This dataset gives us a complete picture of how inequality has changed in the United States over time and how recent growth in national output is being shared by Americans. In 2014, for example, total National Income growth was 2.1 percent. According to the DINA dataset, income growth for the lowest-earning 50 percent of all Americans was just 0.4 percent, while growth for the richest 1 percent of Americans was 5.3 percent. (See Figure 1.)

Figure 1

Over the period from 1980 to 2014, average growth was about 1.4 percent annually. However, the bottom 90 percent of all adults saw income below this. Only those in the top ten percent experienced better than average growth.

This is a new phenomenon. The DINA dataset shows that prior to this period, there was little need to disaggregate national growth because the headline GDP growth statistic was broadly representative of most Americans. Average growth was around 1.7 percent between 1963 and 1979 – higher than in the years since. And, that growth was broadly shared as the scatter plots of pre- and post-tax income growth for each percentile of income show. Most Americans saw income growth at or above that average. (See Figure 1.)

GDP growth, in effect, is now decoupled from the fortunes of most Americans. What was once a useful indicator of how most families were fairing is now unmoored from the experience of most families. It is because of this divergence that the Income Growth Indicators proposed by Senator Schumer, Ranking Member Heinrich, and Representative Maloney must be added to our monthly GDP reports so we can understand how the economy is performing for Americans up and down the income ladder.

GDP growth has been treated for decades by pundits and policymakers alike as synonymous with prosperity, but this is no longer a useful indicator of well-being. President Kennedy famously alluded to it when he said that “a rising tide lifts all boats.” In the decades since, economists and commentators have used the metaphor of “growing the pie” to indicate that we should first and foremost be concerned with growing the economy rather than concerning ourselves with who gets a slice.

But GDP is a first and foremost a tool for thinking about total output and how different sectors of the economy are faring. It was never really intended to be a measure of the wellbeing of individuals in the economy, as it is now sometimes used. Simon Kuznets, the economist who assembled the first report to Congress on national income back in the 1930s, warned against interpreting GDP as indicative of the welfare of the nation’s families. He wrote that “The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income.” Robert Kennedy was more explicit when he said that GDP “measures everything… except that which makes life worthwhile.”

Rising inequality means less informative aggregate statistics

Over the past four decades, the U.S. economy has undergone a significant transition. Prior to the 1980s, economic growth was equitably shared between most Americans. But we are now in a new economy, where it is growing slower than in the past and where most growth benefits only those at the very top of the economic ladder. Incomes for the working class and the middle-class have grown slowly for decades while incomes at the very top have exploded.

There is now ample evidence for this seismic shift in the fundamentals of the economy. Just two weeks ago a new U.S. Census Bureau report on Income and Poverty in the United States showed that median income for all households has only just now recovered from the Great Recession. Before the Great Recession, income had only just recovered from the collapse of the dotcom bubble. As a result, there has been no rise in median incomes since around the turn of the century 2 (although the recent Census report shows higher median income, it is based on a revised survey question that led to higher reported incomes and the report states that this new estimate is not statistically different from incomes in 2007 and 1999). (See Figure 2.)

Figure 2

Distributional national accounts tell the same story. The economists Piketty, Saez, and Zucman find that between 1980 and 2014 the bottom half of Americans by income saw average annual income growth of just 0.6 percent. The richest ten percent of Americans, by contrast, enjoyed annual income growth of 2.2 percent, adding up to a total after-tax increase of 113 percent over the 35-year period. But even they were left behind by the top one percent, who saw their income triple over the same period.

The result is that the pre-tax distribution of income has returned to the Gilded Age levels of the 1920s. The story is not quite so dramatic after government taxes and transfers, but by either measure the share of total national income held by the top 1 percent has nearly doubled since hitting lows in the 1970s. (See Figure 3.)

Figure 3

We see these same divergent trends across multiple measures of economic wellbeing: wages, income, and wealth. The implication for how we evaluate the economy is that mean economic progress is pulling away from median economic progress. Almost all of our national economic statistics are becoming less representative of the experience of most Americans. Reforming our national statistical infrastructure to account for this reality is long overdue.

Tracking growth all along the income curve will inform policy

Distributional national accounts would be an important tool for crafting policy today in our unequal economy. Economic inequality has a number of detrimental effects on society that researchers are still working to understand. Inequality has been linked, for example, to both high crime and poor health outcomes. I am going to focus on two important ways in which inequality may hinder the economy and in which distributional national accounts could therefore improve our stewardship of the economy. First, it has now been conclusively shown that unequal patterns of growth are reducing economic mobility in America. Second, evidence suggests that the economy depends critically on the fortunes of lower-income consumers who have higher propensities to consume.

It is intuitively unsurprising that societies with higher inequality are also societies with low economic mobility. Economist Miles Corak created what former CEA chair Alan Krueger has called “The Great Gatsby Curve,” which plots the relationship between inequality and intergenerational mobility across countries. Countries with higher inequality tend to have lower economic mobility. Figure 4 shows one version of this curve.

Figure 4

While critics often suggest that the relationship is not causal, more recent research shows that increasing inequality in the United States has significantly reduced absolute intergenerational mobility. Economist Raj Chetty has shown that children born in 1940, just before the baby boom, when inequality was low and growth was high had a 90 percent chance of earning more than their parents. Generation Xers born in 1980, when income inequality was high and growth was low, however, have just a 50 percent chance of surpassing their parents’ income.3

More importantly, the evidence shows that even if children born in 1980 had experienced the same higher growth experienced by children born in 1940, this would have closed only about one-third of the mobility gap. But if children born in 1980 had instead faced the same levels of inequality as children in 1940 (even with the lower growth), this would have closed two-thirds of the mobility gap. Figure 5 illustrates rates of absolute mobility by parent income percentile and shows these counterfactuals.

Figure 5

The implication is clear: growth alone is not enough to produce strong absolute mobility. Distributional national accounts would allow us to track how growth is distributed annually and manage the economy accordingly to increase economic mobility. Notably, to diagnose this problem it is not enough to know that median household income is stagnant. Understanding how mobility might be changing requires a complete picture of how growth is accruing to families all along the income curve, including at the very top.

Distributed national accounts would also give us important insights into the future performance of the economy. One of the lessons of the Great Recession, as economists Atif Mian and Amir Sufi document in their book “House of Debt,” was that robust consumption in the 2000s was being financed in large part by borrowing. Homeowners who had relied on withdrawing equity from their mortgages suddenly found themselves deeply indebted when housing prices began to collapse. The result was a collapse in consumption as these low- and middle-income households, sensitive to changes in their income, reined in spending.

In their most basic form, distributional national accounts could help us spot phenomena like this by alerting us when incomes are declining in households at the bottom of the income distribution with a high marginal propensity to consume. But we could potentially do much better by disaggregating some of the components of national output measures to also report savings rates by income quantile. These kinds of statistics are more difficult to develop and may require us to improve some of our existing economic surveys. But they promise an important advance over current statistics. Because of the rapid rise of inequality, it is hard to say when we look at the national savings rate whether savings will be a hedge against recession because we don’t know if all households have strong savings or if these savings are concentrated at the top of the income distribution. It is entirely possible that aggregate household savings measured in the aggregate is good yet obscures weaknesses in the balance sheets of many households—weaknesses that suggest stormy economic weather ahead.

Recent policy changes may be exacerbating the problem

We have little information today about the current state of inequality in our nation. Some commentators believe that inequality may have peaked, but we have little data to support such a pronouncement. The best government-produced report on inequality, CBO’s “Distribution of Household Income” report, is published on a four-year lag, with the most recent estimates covering 2014. Since then, a number of important policy changes have been made that could increase inequality across the United States. Because there is no standard report of how growth is distributed, we may not know how these policies affect families for several years.

Most notably, the Tax Policy Center estimates that the Tax Cuts and Jobs Act of 2017 will have a sharply regressive effect, with high-income families enjoying larger income gains in both the short- and long-term than low- and middle-income families. Because of sunsets on most personal tax provisions in the act, only families in the top quintile see gains after ten years while those in the lowest two quintiles will actually see declines in their income. 4 (See Figure 6.)

Figure 6

The purpose of the tax system, as with public policy in general, is to support the living standards of American families. Core to this purpose is raising the revenues necessary to finance the investments in children and families, the social insurance programs, and the many other basic governmental functions that support our quality of life. The Tax Cuts and Jobs Act cut taxes for those at the top in the long run, while leaving us with decreased revenue to fund the things that matter for the well-being of the typical American family.

These are regressive policy changes that are likely to increase inequality in the United States, but we will not know how they affect incomes for years and currently have no way of knowing how they will affect the distribution of economic growth in the years to come as these changes take effect. Smart stewardship of our economy in an era of high inequality requires us to start to disaggregate our topline statistics and report on economic prosperity for all Americans. Distributional national accounts are a critically important step in that direction.

Posted in Uncategorized

The Federal Reserve is set to raise interest rates again for probably all the wrong reasons

Posted on by Emilie Openchowski

Federal Reserve Chair Jerome Powell arrives to a news conference after a Federal Open Market Committee meeting in Washington, D.C.
The meeting this week of the Federal Open Market Committee—the principal policymaking body of the U.S. Federal Reserve system—is overwhelmingly likely to raise the benchmark interest rate it controls, the Federal Funds rate. The rate, which governs short-term safe nominal bonds, is likely to go up by one-quarter of a percentage point, from the range of 1.75 percent to 2 percent per year to the range of 2 percent to 2.25 percent per year. That would make it a little more expensive to borrow and spend and a little more attractive to cut spending and save. Thus, there would be a little less spending in the economy, and so a few fewer jobs. Economic growth would be a little slower. The U.S. economy would be a little less resilient in the face of adverse shocks to resources or confidence that might generate a recession. These are all minuses—small minuses from a 25-basis-point increase in the Federal Funds rate, but minuses nonetheless.

Offsetting these minuses is supposed to be a plus: Raising the Federal Funds rate by 25 basis points is supposed to lessen the chances of a disruptive upward outbreak of inflation. But I really do not see this plus as valuable enough to offset even these small minuses.

This particular widely anticipated move, however, will not shake the economy in any way because it is already baked into the cake, in the sense that economic and financial decision-makers have already taken it into account and readjusted their portfolios and plans assuming it will come to pass. It is a continuation of the existing policy, another step on a well-marked path. The relevant question is: Is this the best policy path?

The Federal Reserve is on this policy path right now because the typical member of the Federal Open Market Committee believes that:

  1. The current 2 percent per year inflation rate is appropriate and is a good choice for the Federal Reserve’s target.
  2. The unemployment rate at 3.9 percent is already so low that employers are having a hard time finding workers without offering wages that would accelerate inflation.
  3. With actual and expected inflation around 2 percent per year, the “neutral” Federal Funds rate is roughly 2.9 percent per year.
  4. When the Federal Funds rate is at the “neutral” rate, monetary policy is not putting pressure on the economy for either excess supply or excess demand in the labor market—it is not causing employers to have an increasingly hard time finding workers without offering them wages that would accelerate inflation, nor is it causing workers to have an increasingly hard time finding jobs and sit pointlessly and destructively idle.
  5. Thus it is important that the Federal Reserve be moving the Federal Funds rate without hesitation from its current 1.75 percent to 2 percent per year range toward the “neutral” of about 2.9 percent per year.
  6. It is likely that the Federal Reserve should then keep raising the Federal Funds rate higher: The unemployment rate at 3.9 percent is probably too low to be sustainable without eventually generating rising inflation.

Of these six beliefs, the fourth is essentially a definition of what the “neutral” Federal Funds rate is, so the fifth and sixth beliefs then follow from the first three beliefs. That’s how the Federal Reserve arrived at the decision that its primary mission is to stabilize inflation at a low level and not to seek higher employment levels when doing so would conflict with that mission.

The problem—or, at least, the problem as I see it—is that the Fed’s first three beliefs are all extremely debatable, especially the belief that 2 percent per year is a proper inflation target, which is surely erroneous. I, at least, see it as surely erroneous because, as Jeffrey Frankel put it late last month: “In the past, the Fed has moderated recessions by cutting short-term interest rates by around 500 basis points. But, with those rates currently standing at only 2 percent, such a move is impossible.”

Thus, successful recession-fighting would turn on the competence, ability, and willingness of others to use the budget of the federal government to keep the economy on an even keel when the next recession comes. Yet there is unpleasant stabilization policy arithmetic that suggests a lack of ability by the federal government to do so and an even more unpleasant failure to learn the lessons of 2008–2018 that produced a lack of willingness to do so. The only feasible plan to repair the situation would be for the Federal Reserve to raise its inflation target from 2 percent per year to 4 percent per year—because the costs to the economy in the long run from returning to the inflation rates of the 1990s would be vastly less than the consequences of accepting the crippling of the ability to fight recessions.

But the Federal Reserve does not see it that way.

I, at least, see the notion that the unemployment rate at 3.9 percent is already so low that employers are having a hard time finding workers without offering wages that would accelerate inflation as not surely erroneous but probably wrong. I think this for two reasons. First, while the unemployment rate is especially low today, the share of working age adults ages 25 to 54 with jobs is not especially high. And as Adam Ozimek of Moody’s reiterated yet again earlier this month, the employment share of workers ages 25 to 54 and other wider measures of labor-market slack that see no high labor pressure in the economy right now have done a better job of capturing the reality of inflationary pressures over the past generation. Second, the higher wage growth that we would be seeing in a high labor-pressure economy is not there. Employers are not yet willing to offer workers wages higher than last year’s level plus inflation plus productivity growth. Wage pressure is still markedly weaker than it was at the last business cycle peak in 2007.

But the Federal Reserve does not see it that way.

And I, at least, see the belief that the current Federal Funds rate is a full 1 percentage point lower than “neutral” as debatable. I would just note, as current Federal Reserve Chair Jerome Powell does, that the Federal Open Market Committee has steadily lowered its estimate of the “neutral” rate by fully 1.5 percentage points over the past five years. And I would also note that history shows us that there is a lot of momentum in the trajectory of the Committee’s estimates of the structure of the economy: The way to bet is that a process of revision in one direction or the other will continue. It is a committee, after all.

I could well be wrong. But I think it is more likely than not that 10 years from today, those on the Committee will wish that they would have cut interest rates this week rather than raise them.

Posted in Uncategorized

Competitive Edge: Judge Kavanaugh – Would he increase the divide between the public and judicial debate over antitrust enforcement?

Posted on by Maria Monroe

Antitrust and competition issues are receiving renewed interest, and for good reason. So far, the discussion has occurred at a high level of generality. To address important specific antitrust enforcement and competition issues, the Washington Center for Equitable Growth has launched this blog, which we call “Competitive Edge.” This series features leading experts in antitrust enforcement on a broad range of topics: potential areas for antitrust enforcement, concerns about existing doctrine, practical realities enforcers face, proposals for reform, and broader policies to promote competition. Howard Shelanski and Michael Kades have authored our second entry.

The octopus image, above, updates an iconic editorial cartoon first published in 1904 in the magazine Puck to portray the Standard Oil monopoly. Please note the harpoon. Our goal for Competitive Edge is to promote the development of sharp and effective tools to increase competition in the United States economy.

For the first time in decades, antitrust policy is part of the national political debate. Widespread concerns about the conduct of digital platforms, arguments over whether a narrow focus on prices is missing larger competitive harms, and studies showing trends toward increased market concentration and higher profit margins have all motivated calls from diverse quarters for stronger U.S. antitrust enforcement. The data and concerns underlying this public discussion are rightly subject to serious debate, yet the pro-enforcement motivation evident in the current policy debate differs starkly in direction from the U.S. Supreme Court’s recent antitrust jurisprudence.

Over the past decade, the Supreme Court has, with one exception that we discuss below, followed a path of reduced enforcement, reflected in decisions weakening prohibitions against vertical restraints (Leegin Creative Leather Products Inc. v. PSKS Inc.), limiting the role for antitrust in regulated industries (Credit Suisse Securities (USA) LLC v. Billing), and increasing burdens on plaintiffs challenging conduct by “multisided platforms” (Ohio v. American Express Co.). Senator Amy Klobuchar (D-MN) underscored this divergence when questioning Judge Brett Kavanaugh in his recent Supreme Court confirmation hearings about how he might further limit antitrust doctrine. Although antitrust issues are not a central issue in his confirmation, the evidence is strong that Judge Kavanaugh would cement a five-judge conservative majority that would likely raise, not lower, barriers to antitrust enforcement.

The delicate balance on the Supreme Court, in which Kavanaugh would become a factor, is evident in the last two substantive antitrust cases the Supreme Court decided. In FTC v. Actavis, Inc., which is the exception we refer to in the paragraph above, a 5-to-3 majority (Justice Samuel Alito was recused) found that patent settlements can violate the antitrust laws in a decision that favored enforcers. In Ohio v. American Express Co., a 5-to-4 majority ruled that the plaintiffs had failed to establish anticompetitive effects, increasing the burden of proof at least in cases involving so called two-sided transaction markets. In each case, Justice Anthony Kennedy, whom Kavanaugh would replace, was the deciding vote. The available evidence suggests that Kavanaugh would side with the more conservative Justices in similar cases down the road.

Although Kavanaugh has penned only a few substantive antitrust decisions, those decisions reflect the conservative economic approach of the so-called Chicago School, which refers to a group of academics who began criticizing antitrust enforcement in the 1960s from an efficiency-oriented, neo-classical economic perspective, some of whom went on to become judges, such as Robert Bork, Frank Easterbrook, and Richard Posner. Through their lens, the Chicago School argued that many previously prohibited commercial activities were more likely to reduce prices for consumers than to harm competition and ushered in more lenient legal rules and policies.

More recently, those legal rules have been criticized for going too far and allowing businesses to get away with too much anticompetitive activity. Whether one agrees with that criticism, it is an important question whether a new Supreme Court Justice makes it more or less likely that the federal courts will shift to a more enforcement-oriented antitrust jurisprudence.

In the case of Judge Kavanaugh, the answer seems clearly to be no. In recent decisions, he has taken a strongly Chicago-School approach, invoking Judge Bork’s Antitrust Paradox in dissents that, if they were to become law, would weaken antitrust law’s limitations on horizontal mergers (mergers between competing firms) in two important ways. 5 First, he would weaken the presumption of illegality that arises when the government makes its initial case for harm. Second, he has articulated a narrow view of what evidence an enforcement agency or plaintiff can use to define a market. Let’s look at each of these issues in turn.

Weakening the presumption

Under current merger doctrine, the government must establish a prima facie case that a merger is anticompetitive, usually by showing it will substantially increase concentration in a relevant market. The defendants may then argue that the merger would create efficiencies that will outweigh the harm. Typically, courts are skeptical of efficiencies and require strong evidence that they will in fact materialize and offset any harm to competition.

Judge Kavanaugh’s dissent in the Anthem case reflects an assumption that efficiencies are likely and large. The case arose out of the U.S. Department of Justice’s challenge to Anthem Inc.’s proposed acquisition of Cigna Corp. The district court found that the health insurance market for large employers was presumptively anticompetitive, but then it rejected the merging parties’ defense—that the merger would create efficiencies and those procompetitive benefits would outweigh any harms. The district court rejected the defense expert’s opinion and found that both internal documentary evidence from Anthem and testimony from Cigna contradicted the efficiency defense. On appeal, the majority of the D.C. Circuit Court of Appeals agreed with the district court, stressing that the efficiency defense was a factual issue and could be reversed only if there were clear errors. The majority explained in detail why the efficiencies evidence was limited and failed to meet the requirements for rebutting the presumption of harm. 6

In dissent, Judge Kavanaugh agreed that the merger was presumptively anticompetitive, but he believed the defendants had met their burden in providing a procompetitive justification for the deal: the combined company would negotiate lower prices from health providers that would be passed along to its customers. Relying on the defendants’ expert and a consultant report, Judge Kavanaugh concludes, “In short, the record overwhelmingly establishes that the merger would generate significant medical cost savings for employers in all of the geographic markets at issue here … and employers would therefore spend significantly less on healthcare costs.” 7

In Judge Kavanaugh’s assessment, the district court should have flipped the burden back to the federal government, which had failed to return the volley. He wrote: “By contrast, the Government’s expert, Dr. Dranove, never did a merger simulation that calculated the amount of the savings that would result from the lower provider rates and be passed through to employers. … So we are left with Anthem-Cigna’s evidence showing $1.7 to $3.3 billion annually in passed-through savings for employers.” 8

On the one hand, the dispute between the majority and Judge Kavanaugh may be over the application of the standard of review, or how much evidence is required for an appellate court to overturn a district’s factual finding. But it is well established that where the evidence admits two different inferences, the trial court’s conclusion stands, even if the reviewing court would have chosen differently. On the other hand, the dispute may be over substantive antitrust law. Judge Kavanaugh’s dissent could reflect a view that, once defendants provide an estimate of savings that offset the potential harm, the government must offer a contrary estimate; it is not enough for the district court itself to reject the defendants’ efficiencies evidence.

Market definition

While Judge Kavanaugh’s dissent in the Anthem case suggests lowering the burden on defendants to establish an efficiency defense, his dissent in Federal Trade Comm’n v. Whole Foods suggests he would require a higher burden on the government to establish a presumption of illegality in a merger case. In that case, the district court had denied the Federal Trade Commission a preliminary injunction against Whole Foods’ acquisition of Wild Oats on grounds that the Commission failed to prove its definition of the relevant market as consisting of “premium natural organic supermarkets” rather than all supermarkets. On appeal, the majority reversed that decision, finding that the district court abused its discretion in denying the injunction. Judge Kavanaugh would have affirmed the district court’s ruling.

The dispositive issue in the case was showing what the Federal Trade Commission needed to make to obtain a preliminary injunction and whether the evidence satisfied that standard. That issue was, and continues to be, highly contentious, and Judge Kavanaugh’s dissent again indicated a view that the government should bear a relatively high burden of proof.

Importantly, Judge Kavanaugh appears to find that the government must have pricing evidence to prove a relevant market, arguing that: “In the absence of any evidence in the record that Whole Foods was able to (or did) set higher prices when Wild Oats exited or was absent, the District Court correctly concluded that Whole Foods competes in a market composed of all supermarkets.” 9 While courts often do rely on pricing evidence to define markets, such evidence is not always available and is not always required.

Indeed, the government’s economic expert (Kevin Murphy, from the University of Chicago) presented sophisticated economic analysis and the Federal Trade Commission presented significant documentary evidence in support of the Commission’s narrower market definition. If Judge Kavanaugh believes that such evidence is insufficient to meet the government’s burden—at least in the absence of quantitative price effects—then the Supreme Court, with Judge Kavanaugh’s membership, could change merger jurisprudence, making it less hospitable to stronger enforcement.

One might agree or disagree with Judge Kavanaugh’s positions in the above dissents, just as one might agree or disagree with recent calls for stronger antitrust enforcement. Our purpose here is to demonstrate why Judge Kavanaugh’s presence on the Supreme Court would likely widen rather than narrow the divergence between the direction of the Supreme Court and the direction of the public debate with respect to antitrust enforcement.

—Howard Shelanski is a professor of law at Georgetown University and a partner at the law firm Davis Polk & Wardwell LLP. Previously, he served as the Administrator of the Office of Information and Regulatory Affairs at the Office of Management and Budget in President Barack Obama’s White House. Michael Kades is the director for Markets and Competition Policy at the Washington Center for Equitable Growth. Prior to joining Equitable Growth, he worked as antitrust counsel for Sen. Amy Klobuchar (D-MN), the ranking member on the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights

Weekend reading: “low wage workers” edition

Posted on by Maria Monroe

This is a weekly post we publish on Fridays with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth published this week and the second is the work we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.

Equitable Growth round-up

Equitable Growth’s Executive Director and Chief Economist, Heather Boushey, had an op-ed featured in The Hill about her concerns with a report released by a bipartisan group convened by the American Enterprise Institute and The Brookings Institution that included herself. Boushey fears that shortcomings in their proposed paid family and medical leave plan could steer policymakers in the wrong direction and encouraged further bipartisanship on the issue. Additionally, Equitable Growth released a piece on the issue reflecting on Boushey’s comments in the op-ed.

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

Equitable Growth’s Director of Tax Policy, Greg Leiserson, participated in the Tax Policy Center’s event “Cost and Benefits of Tax Regulations: Exploring Treasury’s and OMB’s New Responsibilities.” Leiserson provided slides for the event in which he argues that the traditional tools for tax analysis are the appropriate tools for the cost-benefit analysis of tax regulations, that social benefits and costs should not be qualified in this approach, and that the IRS should not claim to have definitive answers to these questions in a regulatory impact analysis.

Links from around the web

David Leonhardt argues in an opinion piece that GDP has become an outdated measurement for U.S. economic growth and that new sets of statistics are required to better capture the realities of everyday Americans. Leonhardt argues that because of inequality, the GDP skews toward an affluent segment of the population receiving a majority share of the economy’s growth. (nyt)

After interviewing hundreds of American men out of work, Andrew Yarrow discusses the decline in the male labor force participation rate since the Great Recession of 2007-2009. Specifically, Yarrow discusses the idea of a U.S. economy that no longer has a place for many working-class men, an opportunity President Trump seized upon when running for election. (vox)

In bustling metropolises such as Washington, D.C., restaurant workers and bartenders depend on tips to make ends meet. But so often, surviving off of tips is highly unreliable, with periods of slow work and foreign tourists who aren’t accustomed to tipping in their home countries. An anonymous bartender discusses how relying on tips has made workers more vulnerable to sexual harassment and discrimination while on the job in this opinion piece. (vox)

Weather can have a profound impact on the lives of many workers in the United States. After dumping rain across the Carolinas, low-wage workers in the path of Hurricane Florence are facing economic hardships after businesses that were forced to shutter from the effects of the storm. Alexia Fernández Campbell discusses how federal legislation including the Fair Labor Standards Act has made it difficult for low-income workers to be guaranteed a steady source of income. (vox)

Fenit Nirappil discusses the majority support of the D.C. Council to repeal a ballot measure that passed in June to pay the standard minimum wage for tipped workers. A majority of the Council members argue that it is necessary to protect the city’s dining industry and to prevent higher labor costs, higher prices, fewer jobs, and potential pay cuts. (washingtonpost)

Friday figure

Figure is from “Equitable Growth’s: In an age of inequality, aggregate and mean economic statistics don’t tell us enough”

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Let’s not waste bipartisan support for paid family leave in Congress

Posted on by Maria Monroe

A growing body of research drawing on state-level paid family and medical leave policies shows that these programs can be both effective and affordable. This is true not only for paid parental leave but also for leave covering one’s own serious illness and leave to care for an ailing loved one.

As Equitable Growth’s executive director and chief economist, Heather Boushey, writes in a new column posted by The Hill, the evidence suggests that paid family leave to care for a seriously ill loved one should be a federal policy priority that both parties can agree on and, indeed, both parties have expressed support for such an initiative.

Boushey has been serving as a member of an ideologically diverse group convened by the American Enterprise Institute and The Brookings Institution with the goal of identifying a set of policy principles on paid family and medical leave. She writes that the group, unfortunately, was not able to reach a consensus despite the demographic and labor force trends that point to a growing need and evidence that such programs at the state level work and are affordable. Moreover, the public is strongly supportive of such a plan.

She concludes:

“Bipartisanship is a terrible thing to waste. We have a moment to seize. Let’s not let the need for unattainably perfect evidence impede the progress that’s possible for all working families.

“As the United States crafts a paid leave plan, we must not leave anyone behind. More evidence can help us perfect a plan, but surely we should all be able to agree that there’s enough to get started.”

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Slide presentation: How should Treasury and the IRS conduct cost-benefit analysis of tax regulations?

Posted on by Maria Monroe

Equitable Growth’s Director of Tax Policy and Senior Economist Greg Leiserson participated today in the Tax Policy Center’s event “Costs and Benefits of Tax Regulations: Exploring Treasury’s and OMB’s New Responsibilities.” In his presentation, Leiserson argues that the traditional tools of tax analysis are the appropriate tools for the cost-benefit analysis of tax regulations, and that cost-benefit analysis should report estimates of the revenue, distribution, and compliance-cost impacts of a proposed regulation. Social benefits and social costs are not quantified in this approach—and should not be quantified—because doing so would require assumptions about the value of revenues and the appropriate distribution of the tax burden. Treasury and the IRS should not claim to have definitive answers to these questions in a regulatory impact analysis.

 

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Brad DeLong: Worthy reads on equitable growth, September 14–20, 2018

Posted on by Emilie Openchowski

Worthy reads from Equitable Growth:

  1. Back at the end of the 19th century, the quest for better economic statistics was a bipartisan, bi-ideology, bianalytic effort. Liberals and conservatives, reactionaries and Social Democrats, socialists and centrists in America—all thought that good statistics would reveal that the United States matched their images of it and would show that their policies were good ones. We need to recover that unity of purpose. Read Austin Clemens: “In an age of inequality, aggregate and mean economic statistics don’t tell us enough,” in which he writes: “I have argued that we should disaggregate the reporting of GDP growth so we can understand who prospers when the economy grows. But we don’t need to stop there. As income inequality increases and we increasingly see two Americas—one for rich and one for everyone else—it is more important than ever to see more granular breakdowns.”
  2. A timely reminder: Read Sarah Jane Glynn, “Gender wage inequality,” in which she writes: “Across countries, women’s labor force participation rates and per capita income have a U-shaped relationship.”
  3. Will McGrew directs us to David Leonhardt’s rant against the mainstream media’s addiction to gauging the overall health of the economy by statistical measures that are relevant only to the rich in “Weekend Reading: “Earnings Inequality” Edition,” in which McGrew notes: “Criticizing the relevance of the economic data the government makes available, David Leonhardt echoes an argument … that while stock values and GDP growth have increased in the past few years, the income and net worth of most families have remained stagnant.”
  4. Perhaps the best of the “Equitable Growth in Conversation” interviews: “Equitable Growth in Conversation: An Interview with David Card and Alan Krueger.”

Worthy reads not from Equitable Growth:

  1. Mark Thoma says that he does not write as many op-eds and webloggy literature summaries and takes these days because he has largely said what he had to say. But he is still the keenest-eyed aggregator and link generator for those who want a high-quality and balanced view of what is going on in economics these days. Peruse his recent “Economist’s View: Links (9/11/18).”
  2. This is the best short video on the blindnesses of economics in general in the mid-2000s that I have seen, by George Akerlof: “Why Economists Failed to Predict the Financial Crisis.”
  3. I continue to think that we should focus on people rather than places—that place-based policies have to be justified because the people in them lack opportunity. And I think we need a renewed focus on improving local governance: In places that are poor because the political system is captured by parasitic kleptocrats, pouring more resources into the places will merely further enrich the kleptocrats. The Hamilton Project, however, thinks differently, arguing that “depending on where they live, people across the United States experience drastically different economic outcomes.” Read its “Place-Based Policies for Shared Economic Growth.”
  4. The replication crisis comes for (some of) those who claim to have rock-solid identification; or, instrumental variables considered harmful, and difference-in-differences considered dangerous. Abel Brodeur says that “P-hacking is a substantial problem in research employing DID and (in particular) IV,” in his discussion paper “Methods Matter: P-Hacking and Causal Inference in Economics.” His take: “The economics ‘credibility revolution’ has promoted the identification of causal relationships using difference-in-differences (DID), instrumental variables (IV), randomized control trials (RCT) and regression discontinuity design (RDD) methods. The extent to which a reader should trust claims.”
  5. We continue to see little sign where the rubber hits the road of an “overheating” economy, says Adam Ozimek in his “Wider Labor Market Slack Implies Lower Rates.” He writes: “Wider slack measured using the prime non-employment rate—the share of people age 25 to 54 who don’t have a job—does a better job explaining wage growth over the last few decades than the unemployment rate, making it a plausibly better recent measure of labor slack…. Continued slack is consistent with strong monthly job growth alongside near-target inflation.”
  6. Larry Summers recommends “The Best Books on Globalization.”
  7. But when, if not now, would it be appropriate to relitigate the decision to let Lehman fail? Read Peter Doyle, “Crisis Firefighters Still Uninterested In Fire Prevention,” in which he writes: “Call[ing] out the elephants in the room at a time when everyone wants to agree that things are ‘safer’, but absolutely no-one wants to be asked if things are safe.”
  8. This is mistitled: The “consensus assignment” of stabilization to monetary policy alone ought to be dead. But it is not. Read Simon Wren-Lewis’s “Another Lesson of the GFC Unlearnt: The Consensus Assignment Is Dead,” in which he writes: “There was broadly shared understanding. … Fiscal and budgetary policy should be set to achieve microeconomic and distributive goals, and the desired share of the state in the economy; while monetary policy should take care of stabilising aggregate demand.’ … This is what I call the Consensus Assignment.”
  9. From my perspective, here we have Mariana Mazzucato picking up on themes (not original to us by any means!) of Steve Cohen’s and my Concrete Economics. In her “Who Really Creates Value in an Economy?” she writes: “Investment remains weak … [because] economic policy continues to be informed by neoliberal ideology … rather than by historical experience.”
  10. Depressing news: Hints that we are not still far from “full employment” and thus have little room to grow rapidly come courtesy of Rob Valletta and Nathaniel Barlow, “The Prime-Age Workforce and Labor Market Polarization,” in which they write: “U.S. labor force participation by people in their prime working years fell substantially … and it remains depressed.”
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Weekend reading: “Earnings inequality” edition

Posted on by Maria Monroe

This is a weekly post we publish on Fridays with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth published this week and the second is the work we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.

 

Equitable Growth round-up

Starting off the week, economist Kate Bahn and computational social scientist Austin Clemens analyzed the data from the most recent release of the Job Openings and Labor Turnover Survey (commonly known as JOLTS) by the U.S. Bureau of Labor Statistics. In short, the data substantiate a tightening labor market with hiring, firing, and other labor market flows largely restored to their pre-recession levels—despite persistent inequalities across demographic groups.

Responding to another federal data release, Clemens also commented on the U.S. Census Bureau’s report on “Income and Poverty in the United States for the year 2017.” Specifically, he contends that the Census Bureau’s disaggregation of data by age, gender, race, region, and other characteristics should serve as a model for other government agencies to produce data that more accurately reflects how Americans across the country are experiencing the economy. Nevertheless, given the declining representativeness of survey data, he also advocates for increased use of administrative data from the Internal Revenue Service to more accurately track rising income inequality.

In his weekly “Worthy Reads” blog post, economist Brad Delong reviewed recent work by Equitable Growth, including my blog on a paper by Equitable Growth grantees and economists at University of California, Berkeley on the positive earnings effects and negligible employment effects of local increases in the minimum wages. Among other work, Brad also highlights an interactive by the Economic Policy Institute on income inequality across states as well as interesting work by economist and Equitable Growth Research Advisory Board member Sandy Darity and by historian Caitlin Rosenthal on the long-term economic impacts of slavery on the modern U.S. economy.

Closing out the week, research assistant Raksha Kopparam followed up on a comment Equitable Growth submitted to the Federal Trade Commission about its recent action against Your Therapy Source, LLC for anticompetitive wage-setting practices. In her blog, Kopparam summarizes recent academic research documenting the growth of monopsony power in the U.S. economy as well as its negative impact on workers’ wages and market competition.

Links from around the web

John Cassidy focuses in on the meager middle class income gains revealed by the U.S. Census Bureau’s data release earlier this week. While growth in median household incomes has picked up since 2014, the gains have been modest, barely offsetting the large losses experienced by working and middle class families during the Great Recession. Since incomes for these families were also stagnant before the Recession, Cassidy points out that the richest households experienced 9.3 percent income growth between 2000 and 2017 whereas low- and middle-income households saw losses from 2 percent to 4 percent.

Criticizing the relevance of the economic data the government makes available, David Leonhardt echoes an argument frequently made by Equitable Growth Chief Economist Heather Boushey and computational social scientist Austin Clemens. In particular, Leonhardt notes that while stock values and GDP growth have increased in the past few years, the income and net worth of most families have remained stagnant. Similarly, while unemployment rates are down, a larger number of workers has stopped looking for jobs, thus exiting the labor force.

Concentrating on the microeconomic causes of rising inequality, Andrew Van Dam and Heather Long describe the changes that have taken places in six industries that once offered above-average wages in the 1990s but currently pay their workers below-average wages. These industries are motion picture and sound recording, warehousing and storage, food manufacturing, motor vehicle and parts dealers, repair and maintenance, and wood products. While each industry has dealt with its own challenges, workers across these industries have been negatively affected by deunionization, globalization, technological changes, and economic insecurity.

Turning to the implications of these changes across generations, Paul Kiernan summarizes the results of a study by sociologist Michael Hout on the relationship between the occupational choices of children and those of their parents. Hout finds that only half of Americans born in the 1980s landed better job opportunities than their parents compared to two thirds of Americans born in the 1940s. Kiernan argues these findings are consistent with research by Equitable Growth grantee and former Steering Committee member Raj Chetty that show the proportion of children earning more than their parents declined from 90 percent to 50 percent over the same time period.

Friday figure

Figure is from Equitable Growth’s, “In an age of inequality, aggregate and mean economic statistics don’t tell us enough.”

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