Worthy reads from Equitable Growth:

1. Will McGrew in his latest blog post sends us to a new study, “The New Wave of Local Minimum Wage Policies: Evidence from Six Studies,” by Sylvia Allegretto, Anna Godoy, Carl Nadler, and Michael Reich, which takes a narrow look at food services and drinking places and the minimum wage. Back when David Card and Alan Krueger wrote their “Myth and Measurement” study about how the costs of rising minimum wages had been vastly overstated, many—I might even say most—U.S. economists believed that their claim that the evidence showed that recent minimum wage increases had raised rather than lowered business demand for employees was overstated. Now I believe that is no longer the case: The majority view is that employers have market power, so a minimum wage is much more like good rate regulation of a monopoly utility rather than an anti-competitive “interference” in a well-working competitive market.
2. An oldie but very goodie from our Research Advisory Board member and working paper author Sandy Darity, Jr.: “Africa, Europe, and the Origins of Uneven Development: The Role of Slavery.” It has recently become more fashionable in history to think harder about the long-term consequences of slavery for the development of the Commercial Revolution-era transatlantic economy and then for the Industrial Revolution. Darity was there more than a decade ago: “The economic foundations of the Atlantic slave trade and [its] … role in generating European and American … growth.”
3. Praise for Heather Boushey‘s 2016 book, Finding Time: The Economics of Work-Life Conflict, comes courtesy of the New School’s Teresa Ghilarducci in Forbes: “Economist Heather Boushey argues that solving work-family conflicts would help drive more sustainable economic growth. And Americans agree.”
4. Yes, the relationship between the U.S. unemployment rate and the vacancy rate is back to its pre-2008 normal, but the relationship between the prime-age employment rate and the vacancy rate is not. Whether the U.S. economy is now at “full employment” is thus a very dicey and unsettled question. To understand why, read Austin Clemens and Kate Bahn’s latest “JOLTS Day Graphs: July 2018 Report Edition.”

Worthy reads not from Equitable Growth:

1. This is very well done by the Economic Policy Institute: “Interactive: The Unequal States of America.” EPI finds that “income trends have varied from state to state, and within states. But a pattern is apparent: the growth of top 1 percent incomes.”
2. A piece that would be very valuable in any normal political-policy environment. Alas, we do not have a normal environment. Read Robert Z. Lawrence’s “How the United States Should Confront China Without Threatening the Global Trading System,” in which he writes: “The Trump administration’s willingness to violate trade rules to maximize its negotiating leverage is undermining its most important and most legitimate objective.”
3. As the Rise of the Robots comes closer, the issues concerning the relationship between state and market become more complicated and more fraught. Read William H. Janeway’s “American Political Economy, Disrupted,” in which he writes: “Digitalization has also opened up a new front in the age-old confrontation with the state.”
4. Take another, deeper, more accurate look at the origins of American “scientific management” and other fads and fashions that try to shift knowledge and control to the very top of hierarchical, bureaucratic organizations by reading Caitlin Rosenthal: “How Slavery Inspired Modern Business Management.” She writes: “To move beyond denial requires not only an acknowledgment that slaveholders practiced a kind of scientific management but also a broader rethinking of deep-seated assumptions about the relationship between capitalism and control.”
5. A good piece from one of the—alas, very few—staffers at conservative-funded organizations who regards his duty to be truthful to his readers as more important than his desire to be useful to his organization’s funders. Read Michael R. Strain, “The Economics and Emotions Behind Slow Wage Growth,” in which he writes: “Why does wage growth continue to be so tepid? As unemployment falls and the number of open jobs increases, businesses should have to increase pay in order to attract increasingly scarce available workers as well as retain the employees they have.”
6. A good piece from a decade ago about how smart economists have been wrestling with the assumptions about human thought and action that underpin their—our—well, not quite “science” was written by Cosma Shalizi in 2007—”Foundational Dismal Science Blogging”—in which he writes: “Who knew that Reinhard Selten was the author of a dialogue on the foundations of economics?”

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

The U.S. Bureau of Labor Statistics on Friday released new data on the U.S. labor market during the month of June. Kate Bahn and Austin Clemens put together five graphs highlighting important trends in the data.

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

 Peter Ganong and Pascal Noel studied the outcomes for distressed mortgage borrowers of reducing principle owed or monthly payments. Using regression discontinuity and difference-in-difference designs to measure default rates and consumption, they find that reducing principle owed had no effect on default or consumption rates, whereas reducing monthly payments had widespread positive effects on default rates. This suggests that access to financial liquidity plays a larger role in borrowers’ financial decision-making than total debt or net wealth.

A new study published by the Institute for Research on Labor and Employment at the University of California, Berkeley explains the effects of gradually increasing the minimum wage to $15 as displayed by many urban cities across the United States. The authors, economists and Equitable Growth grantees Sylvia Allegretto, Anna Godoey, Carl Nadler, and Michael Reich, find that a 10 percent increase in the minimum wage results in an earnings increase of 1.3 percent to 2.5 percent among low-wage jobs. In addition, the 10 percent increase has an ambiguous effect on employment, ranging between a 0.3 percent decrease to a 1.1 percent increase in employment. Here is a summary of the study and related Equitable Growth research on the topic of minimum wage.

Links from around the web

The Affordable Care Act’s bundle-payments program, in which the government pays hospitals a single amount for each category of surgery rather for individual procedures, lowered the costs per procedure and increased the quality of care that patients received. This program has the potential to save patients thousands of dollars, thus making these procedures more affordable and accessible to low-income patients. [vox]

After experiencing hardships and cutbacks during the Great Recession of 2007-2009, Generation Z is now entering the workforce determined to experience wealth, economic mobility, and financial security. Driven by the idea of financial stability and growth, members of this generation born in the 1990s have prioritized their education and their careers over social factors such as drinking and partying. They have made financial decisions that benefit their long-term monetary and career goals, such as decreasing the amount of student loans taken on and choosing less-expensive colleges to attend. Gen Z also is the most diverse population of students and workers, indicating a future growth of ethnic and racial minorities in the workforce. [wsj]

Similar to the United States, Nordic countries such as Denmark, Finland, and Sweden have experienced declines in unionization since the 1990s, yet the overall union membership rate is still 41.7 percent to 56.9 percent higher than U.S. rates. Between 84 percent to 90 percent of Nordic workers have collective bargaining coverage, which is roughly 72 percent to 78 percent higher than U.S rates. Denmark, Finland, and Sweden—so called “Ghent system” countries that have a union structure with the dual priority of preserving employment and competitiveness—believe in the economic benefits of outsourcing jobs, especially the aspect of establishing these countries as competitive in the global markets. Thus, unions in these nations provide generous unemployment benefits subsidized by the government to incentivize union membership. Conservative fans of the Ghent system in the United States advocate for unions to increase services and trainings for members rather than promoting collective bargaining practices as a means of creating a more competitive workforce. [bloomberg]

Occupations that don’t require college degrees, such as food manufacturing and maintenance, used to pay above-average wages in the 1990s, but new data shows that these professions pay far less than average wages today. These jobs used to provide workers with only a high-school education a path to the middle class, yet this new data indicates that well-paying jobs require higher education and training not available to low or middle-class workers. [wapo]

Social mobility is largely determined by parents’ profession, which has contributed to a decline in American children who out-earn their parents. Michael Hout, a professor at New York University, finds that mobility between generations shrank by 15 percent between those born in 1945 and 1985. Massive structural changes in the U.S. economy, especially with the transition from an industrialized economy to a service-based one, means that growth in white-collar, high-wage jobs rapidly increased for those born in the 1940s. Successive generations saw the consolidation of wage growth among upper class families, thus increasing the difficulty of children out-earning their parents. [wsj]

Friday figure

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

Worthy reads from Equitable Growth:

1. A working paper that I thought was very good but that, for some reason, did not get a lot of attention is “The wages of care: Bargaining power, earnings and inequality” by Nancy Folbre and Kristin Smith, who write: “The earnings of managers and professionals employed in care industries (health, education, and social services), characterized by high levels of public and non-profit provision, are significantly lower than in other industries.” My take was always this was overwhelmingly because “feminized” occupations have low pay.
2. Another working paper from our past that should have gotten more buzz than it did is “The U-shape of over-education? Human capital dynamics & occupational mobility over the life cycle” by Ammar Farooq, who writes: “the proportion of college degree holders working in occupations that do not require a college degree is U-shaped over the life cycle and … there is a rise in transitions to non-college jobs among prime age college workers.” Yes, “overeducation” is a thing.
3. Applause for our attempt to focus on the broader implications of rising monopoly. Read Noah Smith, “Economists Gear Up to Challenge the Monopolies,” who writes: “The antitrust movement is making a comeback. … Think tanks like the Washington Center for Equitable Growth are starting to zero in on the issue as well.” Also read “How the rise of market power in the United States may explain some macroeconomic puzzles” by co-author and former Equitable Growth visiting fellow Jacob Robbins, who writes: “Gauti Eggertsson, Ella Getz Wold, and I at Brown University argue that these diverse trends are closely connected, and that the driving force behind them is an increase in monopoly power together with a decline in interest rates.”
4. Homeowner bankruptcy and foreclosure are liquidity events, not solvency events, argue Peter Ganong and Pascal Noel in “Liquidity vs. wealth in household debt obligations: Evidence from housing policy in the Great Recession.” They write: “We use variation in mortgage modifications to disentangle the impact of reducing long-term obligations with no change in short-term payments (‘wealth’), and reducing short-term payments with approximately no change in long-term obligations (‘liquidity’).”

Worthy reads not from Equitable Growth:

1. A plea for economists and policymakers to focus on unionization, societal priorities, and worker bargaining power—rather than speculate about “artificial intelligence” trends that are, really, probably 50 years away from achieving criticality. Read Sarita Gupta, Stephen Lerner, and Joseph A. McCartin’s “It’s Not the ‘Future of Work,’ It’s the Future of Workers That’s in Doubt,” in which they write: “Nearly every discussion of labor’s future in mainstream media quickly becomes mired in a group of elite-defined concerns called ‘The Future of Work.’”
2. This former president of the Minneapolis Fed has become one of the very best Fed watchers and Fed analysts. Read Narayana Kocherlakota’s “The Fed Should Prepare for the Unexpected,” in which he writes: “The staff paper downplayed and Powell ignored what I see as the most important risk.”
3. Read Kevin Drum’s “Technology Is the Key to Success, But Probably Not the Technology You Enjoy,” in which he writes: “I’d put it more bluntly: unless they’re forced to at the point of a metaphorical gun … service-sector managers are lazy … in a very specific way: they don’t really understand technology.” Yet, somehow, manufacturing managers learned to understand electricity in the 1920s and 1930s. How? Why? According to Kevin’s theory, it was that they were forced to learn or watch their firms disappear in the Great Depression.
4. Sociological distance, the present and the legacy of past discrimination, and preventive treatment in Oakland, California, means that perhaps 20 percent of the black-white cardiovascular health gap is due to the fact that black patients are seen by sociologically distant white doctors. Read Marcy Alsan and her co-authors’ working paper “Does Diversity Matter for Health? Experimental Evidence from Oakland,” in which they write: “We study the effect of diversity in the physician workforce on the demand for preventive care among African-American men.”
5. I disagree with Jeff Frankel in his column “The Depth of the Next US Recession,” in which he writes “Whatever the immediate trigger of the next US recession, the consequences are likely to be severe. … Pro-cyclical fiscal, macro-prudential, and even monetary policies … [leave] authorities …in a weak position to manage the next inevitable shock.” My take is that the Federal Reserve has not been doing a good job since 2010. Its central task as of 2010 was to get the U.S. economy rapidly back to full employment at a configuration of economic variables that would give it a short-term safe nominal interest rate of 5 percent or more so it would have room to properly fight the next recession whenever it should come. You could argue that the rest of the government makes it impossible for the Fed to do a good job. But you cannot argue that the Fed should be satisfied with the job it has done since 2010.