Page 133 – Equitable Growth

Weekend reading: “where are the wages?” edition

Posted on July 13, 2018 by David Evans

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

Elisabeth Jacobs discusses California’s comprehensive paid family leave policy and how since the policy was enacted in 2004 there has been an 11 percent decline in nursing home utilization.

Earlier this week, the U.S. Bureau of Labor Statistics released the newest data from the Job Openings and Labor Turnover Survey covering the month of May. Kate Bahn and Austin Clemens put together four graphs utilizing JOLTS data.

Dionna Cheatham and Iris Marechal explain a recent research paper that finds there are respiratory health disparities between different socioeconomic, racial, and ethnic communities. They detail how disadvantaged communities live in areas where they are more exposed to adverse environmental conditions. They argue that worsening respiratory health results in job insecurity due to limited paid leave and job schedule flexibility.

Somin Park recapped the Work and Family Researcher’s Network’s bi-annual conference held this past June, where Equitable Growth Executive Director and Chief Economist Heather Boushey spoke on connecting research to policy debates by establishing strong relationships with policymakers to help them understand the connection between certain research and their specific policy goals.

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

Equitable Growth economist Kate Bahn and co-authors Meg Benner, Erin Roth, and Stephenie Johnson published a report for the Center for American Progress analyzing teachers’ salaries and the effects of increasing teachers’ wages on job tenure, student achievements, and diversity. The authors advocate for a $10,000 Teacher Tax Credit, arguing it would give teachers economic stability to make long-term financial decisions as well as help provide low-income students with higher-quality education.

Links from around the web

Six months after the passage of the 2017 Tax Cuts and Jobs Act, data show that while corporations argued that they’d pass along the tax cut benefits through higher wages, they’ve held onto those benefits. Jason Furman, Harvard Kennedy School professor and Equitable Growth Steering Committee member, states that the corporate tax cut needs to improve wages in order for the tax changes to benefit the lives of U.S. workers. [the hill]

Studies show that union workers in the United States earn roughly 20 percent more than nonunion workers in similar positions, indicating that unions play a large role in decreasing income inequality. The authors believe that with the recent Janus v. AFSCME ruling, weak union membership may lead to greater income inequality. [nyt]

For the first time in 20 years, there are more job openings than unemployed workers in the United States, yet wages haven’t been improving over the past year. Minor wage growth coupled with low inflation resulted in a decline in real hourly earnings for a majority of laborers compared to May 2017. A new report from the Organisation for Economic Co-operation and Development points to a political explanation for this sluggish wage growth: U.S. policymakers have chosen policies that direct economic growth to shareholders rather than workers. [nymag]

In the city of Des Moines, Iowa, near-full employment has increased labor competition, forcing employers to seek labor outside of the standard application pool. Formerly incarcerated residents, retirees, and high-school graduates have access to training programs that allow them to be competitive applicants and workers, providing opportunities to negotiate for higher wages. [atlantic]

The office of Washington State’s attorney general came to an agreement with seven major fast-food and restaurant chains to prohibit “no-poach” clauses in their employee’s contracts. No poach previsions prevent employees from transferring within individual food chains. These rules prevent low-wage workers from working more hours, getting promoted, or experiencing greater labor mobility among these chains and franchisee-owned stores. [nyt]

Friday figure

Figure is from “JOLTS Day Graphs: May 2018 Report Edition”

Brad DeLong: Worthy reads on equitable growth, July 5-12, 2018

Posted on July 12, 2018July 26, 2018 by Emilie Openchowski

Worthy reads on Equitable Growth:

“In a dynamic monopsony model, so-called search frictions—including imperfect information and other constraints to job mobility … would give employers more power to set wages below competitive levels, while still maintaining a sufficient supply of workers,” writes Kate Bahn in “Understanding the importance of monopsony power in the U.S. labor market.” She cites Doug Webber, who “tests the hypothesis of widespread dynamic monopsony and whether search frictions appear to maintain low wages across the U.S. labor market in his 2015 paper, “Firm market power and the earnings distribution.” Webber finds pervasive monopsony across the labor market, with the key finding that less monopsony power would lead to less income inequality.”
At the “Work and Family Researchers Network’s latest conference,” Heather Boushey “participated in an “author-meets-readers” event for The Triple Bind of Single-Parent Families: Resources, Employment and Policies to Improve Well-Being, a collection edited by Rense Nieuwenhuis at the University of Stockholm and Laurie C. Maldonado at the Stone Center of Socio-Economic Inequality at the Graduate Center of the City University of New York. The book, available through Open Access, deals with the challenges faced by single parents and their children—an interplay of inadequate resources, employment, and government policies—drawing from research across disciplines and countries.”
“JOLTS Day Graphs: May 2018 Report Edition”—“The Beveridge Curve, which estimates the unemployment rate for a given amount of job openings, has returned to its level during the expansion of the early 2000s.”
Elisabeth Jacobs writes in “California’s paid family leave policy is decreasing nursing home use and saving Medicaid dollars” that “Kanika Arora and Douglas Wolf provide the first-ever empirical study assessing the impact of paid family and medical leave … utiliz[ing] longitudinal, state-level data to assess whether California’s state paid family and medical leave policy led to a decrease in nursing home utilization. California enacted a comprehensive paid leave policy in 2004, providing access to six weeks of leave for both new parents and family caregivers. The estimated effect of paid family and medical leave on nursing home utilization in California is a decline of more than 11 percent in the share of the elderly residing in nursing homes.”

Worthy reads not on Equitable Growth:

Barbara Kiviat writes in “The art of deciding with data: evidence from how employers translate credit reports into hiring decisions” that “half of US employers consider personal credit history when hiring [and] faced with the context-free numbers of a credit report, and without predictively valid credit scores to fall back on, hiring professionals struggle to make sense of financial data without knowing the details of job candidates’ lives. They therefore reach beyond credit reports, both by inferring events that led to delinquent debt and by testing to see if candidates can offer morally redeeming accounts. A process of moral storytelling re-inflates credit reports with social meaning and prevents people with bad credit from getting jobs.”
In “Uses and Abuses of Ideology,” Nathan P. Kalmoe argues that “ideology is a central construct in political psychology, and researchers claim large majorities of the public are ideological, but most fail to grapple with evidence of ideological innocence in most citizens.” In my view, Kalmoe distinguishing between ideology and partisanship seems to be a potentially fatal flaw in what is otherwise an absolutely brilliant essay. We East African Plains Apes think in groups: We outsource a great deal of what we believe to others whom we trust. Thus “partisanship” and “ideology” reinforce each other massively. But that also means that when thought-leader elites change what the partisans with access to audiences say, people’s “ideologies” will change as well—without them thinking about it much, if it all. At least, that is what I see as the potential hole in Kalmoe’s argument.
Nicholas Bloom, John Van Reenen, Charles I. Jones, and Michael Webb argue in “Are Ideas Getting Harder to Find?” that “one of the key drivers of economic growth during the last half century is Moore’s Law: the empirical regularity that the number of transistors packed onto an integrated circuit serving as the central processing unit for a computer doubles approximately every two years.” I am provoked by this framing that technology is becoming harder to develop. “Harder” in what sense? In the sense of being more complicated, or more difficult relative to our (increasing) resources? The benchmark of constant research productivity defined as the same real dollar expenditure on research produces the same proportional increase in output? I have heard people say that the benchmark should be that the same share of national product spent on R&D should produce the same proportional increase in output. I have heard people say that the benchmark should be that the natural growth in the share of national product spent on R&D should be such as to produce the same proportional increase in output. I have never heard anybody say that the benchmark is that the same real dollar expenditure on research produces the same proportional increase in output.
Joseph Gagnon writes in “QE Skeptics Overstate Their Case” that “David Greenlaw, James Hamilton, Ethan Harris, and Kenneth West … argued that the consensus of previous studies overstates the effects of quantitative easing (QE) on long-term interest rates.”

Respiratory health disparities in the United States and their economic repercussions

Posted on July 12, 2018July 12, 2018 by Emilie Openchowski

Chronic respiratory diseases such as asthma, lung diseases, and pulmonary hypertension are now the third-leading cause of death in the United States, killing more than 150,000 people a year. While the overall cardiovascular mortality rate has dropped sharply over the past 50 years, a large portion of the population has not experienced this decline. A recent research paper shows the uneven prevalence of chronic diseases and exposure to risk factors among demographic groups defined by race, ethnicity, and socioeconomic status.¹ The prevalence of asthma is sharply higher among the poor and in African American communities. (See Figure 1.)

Figure 1

Respiratory diseases intensify economic inequality through the cyclical nature of disparate health outcomes. Disadvantaged groups end up living in areas more exposed to risk factors. These groups develop respiratory problems that prevent them from going to work, and they struggle to improve their economic situation. This issue brief contextualizes the relationship between respiratory health problems and how structural inequities such as environmental segregation and residential racism play a role in the persistence of economic inequality.

How does respiratory disease impact economic growth?

The inflexible work culture in the United States contributes to the financial strain of adequately providing care for families while maintaining stable employment. Sickly people and primary caregivers experience job insecurity by not having paid leave and flexible work schedules. Connecting social inequities with health inequities provides insight on how people are locked out of obtaining and building wealth.

Indeed, having a chronic disease impacts working conditions and worker productivity significantly, slowing down economic growth. Estimates indicate that Chronic Obstructive Pulmonary Disease, or COPD, and asthma cost U.S. society between $50 billion² and $56 billion³ a year, respectively. Professors Thomas LaVeist of John Hopkins University, Darrell Gaskin of the University of Maryland, and Patrick Richard of George Washington University, focusing on the years 2003 to 2006, estimated that eliminating health disparities would have considerably decreased medical expenditures by $229 billion during this period.⁴

University of California, San Francisco professors Mark Eisner, Edward Yelin, Laura Trupin, and Paul Blanc demonstrated a strong relationship between chronic respiratory diseases and work disability in their 2002 study, “The Influence of Chronic Respiratory Conditions on Health Status and Work Disability.”⁵ The co-authors used the California Work and Health Survey to interview workers about their health conditions and observed that employees with asthma, COPD, or other breathing disorders perceived “a limitation in the amount of work they could perform.” Additionally, among COPD-infected adults, the likelihood of current employment was lower than for people with no chronic diseases. These costs are a significant drag on the economy. Sarah Barnett and Tursynbek Nurmagambetov of the Centers for Disease Control and Prevention estimate that the economic costs of asthma in 2007 resulting from missed workdays were $3 billion.⁶

Families with small children are hit the hardest, according to the authors of “State-level medical and absenteeism cost of asthma in the United States.”⁷ Children aged 0 to 17 years old with major respiratory health concerns miss an average of 2.2 days of school upon entering primary and secondary education, and fall behind their peers who do not miss school due to asthma-related issues. And parents suffer work-related concerns. The authors find that parents who take parental leave if offered by their employers lose an estimated total average of $1.19 billion. Single-parent homes are especially hard hit if forced to miss work to take care of children.

Even more striking is this survey conducted by the University of Michigan: Roughly one-third of parents claim that taking days off in order to take care of their sick child could lead to them losing pay or losing their job.⁸ These economic outcomes unevenly harm African Americans, Hispanic migrants, and lesbian, gay, bisexual, and transgender Americans. Below, we discuss the unique challenges facing each of these populations.

African Americans

Black children uniquely experience environmental harm because they live in neighborhoods that are oftentimes too close in proximity to chemical waste fields and factories. Federal Reserve economist Diana Alexander and Janet Currie of Princeton University sought to explain the disparity of asthma rates between black children and nonblack children.⁹ They examined the relationship between asthma, race, birth weight, and location. Using data on health outcomes and geographic location of children in New Jersey, they found key environmental differences between black and nonblack ZIP codes that determine the prevalence of asthma among children with low birth weights.

Because of the neighborhoods they live in, black children are more likely to experience structural racism—social and institutional factors that contribute to racial inequality. These social structures and economic systems include the social environment, physical environment, health services (or lack thereof), residential segregation, inadequate enforcement of housing policies, and lack of access to economic opportunities. African Americans are much more likely to be uninsured relative to whites and those with higher incomes. Low-income individuals and people of color face increased barriers to accessing care, receive poorer quality care, and ultimately experience worse health outcomes.

In Detroit, for example, the average family income is $25,764; the residents are 82 percent black; and there is the world’s largest municipal incinerator. The toxins emitted by the incinerator have been shown to be hazardous to human health and particularly children in their formative stages.¹⁰ The connection between the location of the incinerator, built in the mid-1980s, and the racial composition of Detroit neighborhoods over the past three decades is telling. (See Figure 2.)

Figure 2

The placement of polluting industries near low-income and majority-black neighborhoods is a pattern repeated across the country. Outcomes for health in New York City, for example, also demonstrate the drastic difference of living in black ZIP codes as opposed to white neighborhoods. The Dyker Heights and Bay Ridge communities are both 60 percent white and experienced just 94 avoidable adult-asthma hospitalizations per 100,000 residents. In contrast, residents in Bedford-Stuyvesant in Brooklyn—where the population is 64 percent black—experienced a rate almost 6 times as high: 531 avoidable adult-asthma hospitalizations per 10,000 residents.¹¹ To make matters worse, in this community, one in five adults had no health insurance, and one in eight went without needed medical care prior to 2014 (implementation of the Affordable Care Act has reduced these rates in New York City generally and should also reduce rates in these neighborhoods). The residents in this neighborhood experience the poorest housing conditions due to housing-related exposures to cockroaches, mice, and lead. In fact, Bedford-Stuyvesant is affected by the most harmful air pollutants in New York City.

Studies of Baltimore also demonstrate the impact of ZIP code on respiratory disorders.¹² Residents in ZIP code 21223 visit hospitals for asthma at 4 times the rate of other, wealthier areas. Ironically, prestigious medical centers—Johns Hopkins and the University of Maryland Medical Center—are located close to this neighborhood and receive substantial tax breaks for providing “community benefits.” These health institutions’ lack of attention is likely to increase the cost of this issue; as explained by Ben Carson, currently the secretary of the U.S. Department of Housing and Urban Development and previously a surgeon at Johns Hopkins, “the cost of not taking care of people is probably greater than the cost of taking care of them.”¹³

Hispanic migrants

Asthma is a complex sickness due to both genetic and environmental factors, which lead to increased prevalence of the disease among migrants. As explained by University of Pittsburgh’s Fernando Holguin and Mark Schenker of the University of California, Davis, migrants who move from less-industrialized countries to more-developed ones face increased prevalence of asthma over time.¹⁴ They discuss two main reasons for this phenomenon: acculturation and occupational hazard. Additionally, Wake Forest University professors Ann Hiott, Joseph Grzywacz, Stephen Davis, Sara Quandt, and Thomas Arcury found that in 2008, the combination of stress, depression, or anxiety with environmental factors led to a higher risk of developing chronic respiratory diseases for migrant farm workers.¹⁵

Then there are the health problems associated with acculturation, the process by which migrants change their attitudes toward those of the host society.¹⁶ This phenomenon seems to affect the prevelance of respiratory diseases, especially for the Hispanic population. Although Hispanics of Mexican descent have a lower prevalence of asthma (5.3 percent) than the rest of the American population (7.6 percent),¹⁷ the risk of having asthma among Mexicans that have migrated to the United States is less than half the risk facing Mexicans born in the United States.¹⁸

A study of Canadian migrants examined what the reserachers call the “healthy immigrant effect.” They find that the risk of having a disease for more acculturated families approaches the one of the host country. Elizabeth McQuaid of Brown University and Daphne Mitchell and Glorisa Canino of the University of Puerto Rico explain that acculturation leads to migrants having contact with new types of allergens, an increased smoking rate compared to Mexico, and higher rates of obesity.¹⁹ Spanish-speaking parents are also less likely to be taught what to do during asthma attacks or to have access to health insurance.

Fernando Holguin of the University of Pittsburgh and Marc Schenker of the University of California, Davis focus on the incidence of working conditions and occupational hazard among Hispanic migrants.²⁰ According to the NAWS 2009–2010 Survey, 82 percent of the 5 million people hired as farm workers are Hispanic. Since nearly half of them are not legally authorized to work in the United States, they have limited access to health benefits. Moreover, farming work increases the risk of asthma because workers are exposed to pesticides and dust, and live in low-quality housing with poor ventilation and mold. No wonder researchers documented rates of depression as high 30 percent to 46 percent for migrant workers,²¹ mainly explained by their isolation from the rest of the society due to cultural and language barriers.

Lesbian, gay, bisexual, and transgender Americans

More than 10 million Americans self-identify as LGBT, but the respiratory disparities linked to sexual orientation remain understudied. John Blosnich, Joseph Lee, Robert Bossarte, and Vincent Silenzio of the University of Rochester examined the 2004 Behavioral Risk Factor Surveillance System and found a significantly higher rate of asthma among same-sex partners.²² In the sample studied, the prevalence of asthma among same-sex male couples was 12.3 percent, compared to just 5.9 percent for heterosexual men. This pattern was even more pronounced among women: 21.4 percent for same-sex partners, versus 9.5 percent for heterosexual ones.

Emily Clausen of Duke University and Alison Morris of the University of Pitsburgh suggest two factors to explain the higher prevalence of respiratory disease among LGBT Americans.²³ First, they are less likely to see a physician for fear of disapproval. They experience a “perceived pressure to hide sexual orientation” that does not affect other populations. A 2010 study quantifies this pressure.²⁴ It found that only 60 percent of bisexual and homosexual women get a routine annual checkup, compared to 71 percent of heterosexual women. Moreover, physicians are not always trained to deal with LGBT health-related issues: One-third of medical education programs do not include this theme.²⁵

Second, cigarette and alcohol use is more prevalent in the LGBT community. A review of the available data in 2009 highlighted the higher prevalence of smoking in the LGBT population.²⁶ The data show that 23.9 percent of LGBT adults smoke cigarettes, compared to just 16.6 percent of straight adults.²⁷ In addition, the rate of binge drinking among lesbian and bisexual women is roughly twice that of heterosexual ones.²⁸

How can respiratory health equality be achieved?

Respiratory inequalities are an ethical issue but also are an important component of equitable economic growth. Some groups are held back economically because of where they are born or where they live due to health-related disparities. Comprehensive policies to protect these vulnerable populations should address this issue by promoting health reform that targets specific populations. Prevention campaigns targeting minorities, promotion of ethnic diversity among medical school students, and an increase in Medicaid coverage for medical fees associated with respiratory diseases are among the policies that could be pursued to address these health inequities and break the cycle of economic deprivation caused by respiratory diseases.

—Dionna Cheatham previously worked at the Washington Center for Equitable Growth and is now a BSC Consultant for the Office of Planning, Research and Evaluation at the U.S. Department of Health and Human Services. Iris Marechal was an intern at the Washington Center for Equitable Growth in 2017–2018 and is now pursuing a double master’s degree in corporate and public management at HEC and SciencesPo Paris.

Work and Family Researchers Network’s latest conference focuses on transparent, evidence-based family economic security research

Posted on July 11, 2018July 12, 2018 by Emilie Openchowski

At the end of June, members of the Work and Family Researchers Network came to Washington, D.C., for their biennial conference, bringing together a global community of work and family academics and scholars, as well as policymakers, advocates, and journalists. This year, the theme of the WFRN conference was “Open Science: Assumptions and Translation of Work and Family Research.” The proceedings focused on the need for transparent science for evidence-based policy that helps today’s working families. WFRN provides an important forum for interdisciplinary work on family scholarship.

Equitable Growth Executive Director and Chief Economist Heather Boushey participated in WFRN’s pre-conference day on “Translating Scholarship into Action,” a full day of training to help scholars—many of them early in their careers—identify opportunities for research that policymakers and business leaders might use to decide which policies will help us best reach key goals. During the training, Boushey joined a panel with WFRN co-president Kathleen Christensen of the Alfred P. Sloan Foundation and Brad Harrington of the Center for Work and Family at Boston College. The panelists focused on how to connect research to the policy debate through relationship-building and willingness to go the extra step to help policymakers understand how one’s research addresses their specific policy goal.

Boushey also participated in an “author-meets-readers” event for The Triple Bind of Single-Parent Families: Resources, Employment and Policies to Improve Well-Being, a collection edited by Rense Nieuwenhuis at the University of Stockholm and Laurie C. Maldonado at the Stone Center of Socio-Economic Inequality at the Graduate Center of the City University of New York. The book, available through Open Access, deals with the challenges faced by single parents and their children—an interplay of inadequate resources, employment, and government policies—drawing from research across disciplines and countries.

Triple Bind is an important contribution to our understanding of the disadvantages faced by single-parent families and how those issues are shaped by inequality. Research described in the book also highlights that policies aimed at all families are just as beneficial for single-parent families, as is the importance of job opportunities and employment protections. Jobs matter, but to truly support families, they must be good jobs.

Building a bridge between academics and policymakers is an ongoing mission for Equitable Growth, and the work of groups such as WFRN helps turn this goal into reality.

JOLTS Day Graphs: May 2018 Report Edition

Posted on July 10, 2018July 10, 2018 by Austin Clemens

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

1. The quits rate continued to change little in May, continuing it’s upward trend and indicating a tightening labor market as workers feel confident about their opportunities.

2. The vacancy yield, or the job-filling rate, increased slightly from 0.82 in April to 0.87 in May. But the long-term trend is downward and below historical levels.

3. The ratio of unemployment-to-job openings was 0.91 in May, continuing its trend below the significant barrier of 1.0. A ratio below one means there are more open jobs than officially unemployed workers.

4. The Beveridge Curve, which estimates the unemployment rate for a given amount of job openings, has returned to its level during the expansion of the early 2000s.

California’s paid family leave policy is decreasing nursing home use and saving Medicaid dollars

Posted on July 9, 2018July 16, 2018 by Emilie Openchowski

Nearly every American at some point will face a conflict between family caregiving responsibilities and paid work. Women now comprise nearly half of all employed workers; the majority of married mothers are either breadwinners or co-breadwinners; and the share of single-parent families has more than doubled since 1970. Family caregiving includes not only caring for a new child but also for an aging relative. As Baby Boomers age amid improvements to life expectancy, work-family conflicts for prime-age workers with both young children and aging parents will only grow stronger.

Government policy conversations about paid family and medical leave often focus on the direct and indirect benefits of parental leave, but an important new study sheds light on the impact of paid caregiving leave. The research implies that paid leave for family caregiving may change the way that families care for their aging relatives, with potentially important positive outcomes for aging Americans, their family caregivers, and state and federal budgets.

In their recent article published in the Journal of Public Policy and Administration, University of Iowa’s Kanika Arora and Syracuse University’s Douglas Wolf provide the first-ever empirical study assessing the impact of paid family and medical leave on long-term care patterns. Specifically, the two authors utilize longitudinal, state-level data to assess whether California’s state paid family and medical leave policy led to a decrease in nursing home utilization.

California enacted a comprehensive paid leave policy in 2004, providing access to six weeks of leave for both new parents and family caregivers. The authors analyze data on nursing home utilization (defined as the share of a state’s older population that resides in a nursing home at any point during a given year) for all 50 states plus the District of Columbia from 1999 through 2008. Their longitudinal data allows for a difference-in-difference model comparing the change in nursing home utilization in California before and after the enactment of paid family leave to the change in other states without a public paid family leave program in place—taking into account many other differences in the long-term care environment across states, as well as other related economic factors. The results are striking. The estimated effect of paid family and medical leave on nursing home utilization in California is a decline of more than 11 percent in the share of the elderly residing in nursing homes.

While the mechanism connecting paid leave to lower nursing home utilization is not directly tested in the study, the authors argue that paid leave allows family members to provide timely care to aging relatives in order to prevent institutionalization. Specifically, family leave may allow caregivers to step in and shorten post-acute institutionalization such as nursing home care following a surgical procedure, as well as delay the beginning of nursing home care for what could become a lengthy period of institutionalization for a progressive condition such as Alzheimer’s disease.

Three big take-aways from the study are worth keeping in mind.

First, the decrease in nursing home utilization has important implications not only for aging Americans and their families, but also for the bigger fiscal picture. Nursing home care accounts for the largest share of long-term care costs in the country. These costs not only strain family budgets but also place significant pressure on public finances. Medicaid, which is a joint federal-state program that is financed largely by the states, is the primary payer for 62 percent of nursing facility residents, some of whom deplete their assets in order to become eligible for the program. Medicare, which is fully federally financed and mainly applies to short stays following a hospitalization, covers the costs of about 15 percent of nursing home utilization overall. Institutional care is a substantial burden on state and federal budgets and also is unpopular, as most seniors prefer to receive family or community-based care. That’s why paid family caregiving is so important for policymakers to understand.

Second, the link between paid family and medical leave policy and other social policies designed to facilitate family economic security is an important and underexplored relationship for scholars and policymakers. Existing research on paid leave has focused on the direct effects of paid family leave on women’s labor market participation and long-term wages, as well as indirect effects including child health and business outcomes. Policymakers need more research like Arora and Wolf’s, which recognizes that paid leave policies may have effects on existing public programs. Given that existing social insurance programs such as Social Security Disability Insurance and Medicare are under considerable financial and political pressure, future research would do well to continue to explore the ways in which paid family and medical leave policies may interact with existing programs in ways that could alleviate (or exacerbate) fiscal pressures on both state and federal budgets in the long term.

Third, Arora and Wolf’s nursing home study illustrates the need for access to meaningful data on a host of related issues for policymakers seeking to boost family economic well-being. The authors note that assembling the necessary data for connecting the dots between paid family leave and nursing home care was a substantial challenge and required “a combination of publicly- and privately-available (i.e. supplied by helpful colleagues) and somewhat obscure and hard-to-locate sources.” Like others calling for more readily available administrative data, Arora and Wolf suggest that “a comprehensive repository of relevant state-level data, extending back over a long time period, would be a wonderful public resource, but one that is unlikely to be undertaken without a very substantial investment of funds.”

Paid family and medical leave that allows family caregivers to take time away from work to provide care for an aging family member is a critical element of the policy picture. It’s important for families and also a potentially critically important piece of solving the fiscal issues that arise in light of an aging population and looming fiscal challenges to social insurance programs such as Medicare and Medicaid.

Weekend reading: “workers and wages” edition

Posted on July 6, 2018 by Ed Paisley

Equitable Growth round-up

Last week’s Supreme Court decision in Janus v. American Federation of State, County, and Municipal Employees is expected to decrease the size and budgets of public-sector unions and in turn decrease their effectiveness in collective bargaining for their members. Kate Bahn explains how the decline in worker power also could lead to an increase monopsony power, or the power of firms to set low wage levels.

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

Equitable Growth released its monthly Jobs Day Graphs. The graphs show wage growth remains positive but tepid and the employment rate of prime-age workers still trails its pre-recession peak despite increasing characterization of the U.S. labor market by the media as strong.

Links from around the web

An overview of recent economic research exploring the broader impact of unions on workers’ wages concludes that the continued erosion of workers’ bargaining power will further exacerbate wage stagnation. [ft]

Assumptions about who does or does not work in the United States and why have just as much insight to offer in to who does or does not support a Universal Basic Income program as does the economic rationale, Nathan Heller explains in a review of several new books about the concept. [new yorker]

Former U.S. Treasury Secretary Larry Summers argues that the idea of a universal job guarantee is a policy idea that’s worthy of serious consideration, but further thought about how to make the details work is needed before it could become reality. In other words—take the idea seriously but not literally. [wapo]

In the midst of the 2018 World Cup, University of California, Berkeley economist Gabriel Zucman points to Portuguese soccer star Christiano Ronaldo as an example of the prevalence of tax evasion by some of the world’s wealthiest people. Zucman argues that law and financial firms have made a lucrative business out of this evasion and should be sanctioned to decrease the prevalence of these practices. [nyt]

Eight years into the current U.S. economic recovery, the quits rate is almost back at its 2001 peak in the latest example pointed to as a metric of job market strength. [wsj]

Friday figure

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

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

Posted on July 6, 2018July 6, 2018 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 June. Below are five graphs compiled by Equitable Growth staff highlighting important trends in the data.

1. While the trend in prime age employment has been upward since the end of the Great Recession, this statistic remained flat in June and has moved little since February, and remains below its pre-recession levels.

2. Unemployment rates by race continue to demonstrate persistent disparities, with Black or African American unemployment twice that of White unemployment and Hispanic unemployment one percentage point greater than White unemployment.

3. Historic downward trends in unemployment and underemployment held off in June, with U-3 and U-6 unemployment both ticking upward slightly.

4. Wage growth remains positive but tepid. Year-over-year wages increased 2.7% before accounting for inflation.

5. The manufacturing sector added the most employment of any industry in June, with 36,000 jobs. But the long-term trend remains below healthcare, which has added 309,000 jobs in the past year compared to 285,000 jobs in manufacturing.

Brad DeLong: Worthy reads on equitable growth, June 29-July 5, 2018

Posted on July 5, 2018July 26, 2018 by Emilie Openchowski

Worthy reads on Equitable Growth:

Austin Clemens writes in “Realizing the promise of place-based economics requires more and better data from across the United States” that “the recent pivot by researchers and policymakers to studying the economics of place is a welcome development. But this research is especially data intensive. If policymakers are serious about the promise of place-based policymaking, then they also need to be serious about collecting good data and making it accessible to researchers.”
Raj Chetty, Nathaniel Hendren, Maggie R. Jones, and Sonya R. Porter note in “Race and economic opportunity in the United States” that “racial disparities persist across generations in the US. … Black men have much lower chances of climbing the income ladder than white men even if they grow up on the same block. In contrast, black and white women have similar rates of mobility.”
Heather Boushey and Greg Leiserson in The American Prospect write in “Worsening Inequality” that “the Tax Act worsens inequality both in the tax changes and in the program cuts used to address the resulting deficit.”
Antitrust experts Gene Kimmelman and Mark Cooper last year produced a report for Equitable Growth titled “A communications oligopoly on steroids” that is even more relevant today. They write: “Only with appropriately focused regulatory oversight alongside strict antitrust enforcement can the service providers in the cable, telecommunications, wireless, and broadband industries be driven to offer competitive, nondiscriminatory, innovative, and socially beneficial video and broadband services that maximize consumer value and choice in both the economic market and the marketplace of ideas.”

Worthy reads not on Equitable Growth:

Gabriel Zucman comments on the World Cup and tax evasion in “If Ronaldo Can’t Beat Uruguay, the Least He Can Do Is Pay Taxes.” Zucman writes: “Have you ever been invited by a Swiss bank to a golf tournament in Miami or an exhibition’s opening in Paris? Neither have I. But the world’s ‘ultrahigh-net-worth individuals’—whether they live in the United States, France or elsewhere—regularly are. Law firms and financial intermediaries sell the superrich on shell companies, offshore bank accounts, trusts and foundations—arrangements whose purpose is to conceal assets by disconnecting wealth, and the income it generates, from its actual owner. Although this industry presents itself as legal and legitimate, in many cases the products it sells are illegal.”
Janos Kornai notes in “Speaking for Open Inquiry at the Central European University” that “I am very proud to have been awarded the Open Society Prize. … CEU does more than merely advocate the idea of university autonomy, the fundamental principle of the world of universities that goes back hundreds of years. CEU embodies that idea in the way it works, giving us an example of how to put it into practice. The life of CEU is characterized by free debate, discussion of conflicting ideas, competition between schools of thought, openness to alternative principles, and diversity. Ideas do not recognize borders, do not apply for entry or exit visas.”
Given the magnitude of the shocks that have hit the world economy since 2005, then-Federal Reserve Chair Alan Greenspan’s decision in the mid-1990s to set the Fed’s inflation target at 2 percent per year rather than 3 percent or 4 percent per year looks like a bad mistake. Given what they learned and what we have been learning since 2005, his successors Ben Bernanke, Janet Yellen, and, now, Jay Powell’s refusal to revisit Greenspan’s decision is more likely than not to prove a worse mistake. So, I go further out on this limb than does the very sharp Karl Smith in “Hey Fed, Don’t Be Scared of a Little More Inflation,” in which he writes that “even if the economy is at full employment, there’s benefit to letting it run hot for a while.”
Required for equitable growth is predictability: established rules of the game and due process of law. Also required: an activist government willing to create and support the communities of engineering practice and the essential services that underpin the highly productive value chains of the future—plus a willingness to enforce an equitable income distribution. Ricardo Hausmann fears that the United States—at least the Trump-dominated United States—has none of these. Read his “Does the West Want What Technology Wants?,” in which he writes: “to ascertain what technology wants requires understanding what it is and how it grows. Technology is really three forms of knowledge.”
The ability to plan your family while being sexually active was a huge liberating force for young American women in the mid-20th century, write Claudia Goldin and Lawrence Katz in “The Power of the Pill: Oral Contraceptives and Women’s Career and Marriage Decisions.”
It is not clear to me that equal percentage income boosts relative to the baseline is what we “should” expect education to do. That we fall short of even that yardstick indicates that things are worse than I had believed. Noah Smith in “The Rich Get the Most Out of College,” writes: “Tim Bartik … Brad Hershbein found that the college earnings premium—the lifetime difference in earnings between those who get a bachelor’s degree and those who only finish high school—was substantial for people from all income backgrounds.”
“Perhaps smack of desperation, and … a tighter relationship with other parts of government”—those were the arguments of Vince Reinhart in 2003 against the aggressive policies (such as currency depreciation, money-financed tax cuts, discount-window lending, purchases of corporate debt and equity, and reductions in reserve requirements) that Ben Bernanke had previously argued a central bank should follow at the zero lower bound. But if you maintain your independence by not doing the right thing, then you were never independent in the first place. And desperation is the appropriate response to being at the zero lower bound on interest rates—it is a desperate situation. I think that somehow Bernanke (and Reinhart, and the Fed) came to believe that “encouraging investors to expect short rates to be lower in the future than they currently anticipate; shifting relative supplies to affect risk premiums; oversupplying reserves at the zero funds rate” had a good chance of being effective. It was not clear to me why they should have thought this. And it looks like they were wrong. Read Laurence Ball (2012): “Ben Bernanke and The Zero Bound.”
The search for “robust determinants” has always seemed to me to be wrong-headed. We should be searching for effective policies. Which determinants are “robust” will depend on what other determinants are in the mix. And an effective policy is likely to shift the values of more than one “determinant,” writes Dani Rodrik on Twitter, in “Is ‘export sophistication’ (as in Hausmann, Hwang, and Rodrik 2007) the only robust determinant of economic growth? Robust, that is, to correcting for endogenity and OVB as best as possible? This new paper from the IMF says yes https://t.co/C3DkRzqr8d…”

Understanding the importance of monopsony power in the U.S. labor market

Posted on July 5, 2018September 25, 2019 by Emilie Openchowski

With the launch of our new website, we are reintroducing visitors to our policy issue areas. Informed by the academic research we fund, these issue areas are critical to our mission of advancing evidence-based ideas that promote strong, stable, and broad-based economic growth. Through June and continuing in July, expert staff have been publishing posts on our Value Added blog about each of these issue areas, describing the work we do and the issues we seek to address. The following post is about Wages. For previous posts on other issue areas, please go to our Value Added home.

The recent U.S. Supreme Court decision in Janus v. American Federation of State, County, and Municipal Employees is predicted to decrease the size and budgets of public-sector unions, potentially limiting their effectiveness in collective bargaining for their members. The court ruling, following the decades-long decline in private-sector union membership, presents economists and policymakers alike with the strong possibility that more and more employers will be able to exercise so-called monopsony power over the wages of their workers. Not only is there research documenting the spillover effects of higher wages for union members leading to higher wages for nearby workers, but economic models show how unions can be useful in balancing this monopsony power—the power of firms to set low wage levels—as well.

Why is understanding monopsony power so important today? Evidence that helps policymakers understand the structure and the dynamics of the U.S. labor market will illuminate the importance of policies and institutions such as unions that ensure workers receive fair wages and that economic growth is broadly shared. This is the main thrust of Equitable Growth’s work on the U.S. labor market—endeavoring to improve our understanding of the forces and barriers that shape the lives of workers. A clearer picture of the labor market helps policymakers understand why workers earn what they do, what opportunities they have, and what policies can help all workers share in strong, stable, and broad-based growth.

Our work in the labor market at Equitable Growth begins with deconstructing the prevailing model of how the labor market works—the one taught in Econ 101 classes that paints a picture of the economy where all workers can find productive opportunities and competition will reduce barriers such as discrimination to earning fair wages equal to the value they produce. Data-driven evidence increasingly finds that the market does not work the way economists were taught in introductory economics courses. Understanding these emerging new realities will help economists and policymakers alike consider solutions for a more equitable economy.

Monopsony is one increasingly recognized area of research in labor economics that illuminates imperfections in the U.S. labor market that have led to wage stagnation and reduced job opportunities. The concept was developed by the economist Joan Robinson in her 1933 book The Economics of Imperfect Competition to describe the labor market equivalent of a monopoly, where workers only have the option to work at one employer, so their wages will be set less than the value they create since they have no outside options. Think of a mining town—geographically remote so that workers cannot find mining employment elsewhere—where laborers are stuck with lousy wages and probably high prices at the company store, too. In her then-theoretical model, Robinson suggested that gains from economic growth are not balanced between workers and employers. In her original application of monopsony, Robinson also demonstrates how a trade union can increase wages to a level comparable to a competitive outcome, with profits more equitably split between workers and employers, through policies such as minimum wages and collective bargaining.

Once considered a rare anomaly, recent research sheds light on the likelihood that employers today have wage-setting power to undercut their workers’ wages and earn outsized profits. The availability of new sources of data and economists’ ability to discern previously undetected patterns through sheer computational power allow researchers to test the premise that employers have geographic concentration over jobs that lead to lower pay. Using new data from CareerBuilder.com, economists Jose Azar at the IESE Business School at the Universidad de Navarra, Ioana Marinescu at the University of Pennsylvania, and Marshall Steinbaum at the Roosevelt Institute find in a recent study that going from a less concentrated labor market to a more concentrated one was associated with a 17 percent decline in the wages employers were posting to the website. While mining towns may be more rare, increasing concentration in a number of sectors of the U.S. economy can still lend market power to individual employers, which leads to low wages.

But work pioneered by economist Alan Manning at the London School of Economics in his book Monopsony in Motion broadens the definition of monopsony to include labor market dynamics where workers do not respond to changes in wages as would be predicted by a competitive model, which means employers are able to set wages lower than a competitive level. In a competitive model, all workers would leave their jobs if they got a pay cut or if higher wages were available elsewhere. But in a dynamic monopsony model, so-called search frictions—including imperfect information and other constraints to job mobility such as caregiving responsibilities outside of work—would give employers more power to set wages below competitive levels, while still maintaining a sufficient supply of workers. This dynamic fosters inequitable outcomes for workers.

Temple University economist Doug Webber tests the hypothesis of widespread dynamic monopsony and whether search frictions appear to maintain low wages across the U.S. labor market in his 2015 paper, “Firm market power and the earnings distribution.” Webber finds pervasive monopsony across the labor market, with the key finding that less monopsony power would lead to less income inequality.

As Webber notes in his research, measuring the extent of monopsony can be difficult because of data constraints, which is why much of the exciting new research uses nontraditional sources such as data from career websites. His own research relies on restricted access to linked employer-employee data from the U.S. Census Bureau’s Longitudinal Employer Household Dynamics survey, but he also relies on the job-search model developed by economist Kenneth Burdett of the University of Pennsylvania and the late Nobel Laureate and Northwest University economist Dale Mortensen. Webber is able to examine worker flows to employers in response to pay levels at firms to measure labor supply elasticity to the firm.

Labor supply elasticity is the measure of how the supply of labor responds to wage levels. Remember that a competitive model would predict that all workers would leave their jobs if wages are cut, and all workers would flow toward firms with high wages. These flows of workers when there is competition supposedly keep wages in rough equilibrium across the labor market because workers are paid equal to the value they contribute to their firms. Elasticity would be very high in a competitive market, with the supply of labor being very responsive to wage levels. If elasticity is low, then workers are not responsive to pay levels, which means employers will have the ability to set wages lower than what would exist in a competitive market.

Webber’s econometric analysis finds an economywide elasticity of 1.08, which is much lower than what economists would expect in a competitive labor market. Yet there is still a lot of variation among firms. He finds that 3 percent of his sample of firms have elasticities of more than 5. Examining monopsony by industry, he finds that wages in manufacturing appear to be more competitive, while health care and administrative support are the least competitive, giving employers the most wage-setting power in these industries. His analysis also finds that low-wage firms and low-wage workers have higher labor supply elasticity.

Finally, dynamic monopsony across the economy may be one of the reasons we experience high income inequality in the United States, and why most workers have not been able to share in the economic growth of the wealthiest nation. Webber calculates a “counterfactual earnings distribution,” hypothesizing what things would look like without the patterns of monopsony that he finds. He presumes a one-unit increase in firms’ labor supply elasticity and finds that it would be associated with a 9 percent reduction in the variance of the earnings distribution. In other words, reducing the impact of monopsony across the economy would make it more equitable for workers.

Webber notes that employers boast less monopsony power in the heavily unionized manufacturing industry, something the late Joan Robinson back in the 1930s said was due to the role of unions in balancing monopsony power in her original conception of the theory of monopsony. New research proves her point that collective bargaining by unions lifts wages closer to what they would be predicted to be in a competitive market. The result would be that the earnings distribution would not be as wide and unequal as it currently is in the U.S. labor market.

Unfortunately, in light of the Janus v. AFSCME ruling, unions’ power to balance monopsony may well wane even more, exacerbating already tangible U.S. income inequality. Equitable Growth’s work on the U.S. labor market—through our academic grant-giving and in-house research and analysis—continues to find that the accepted economic narrative of an unchecked labor market leading to fair opportunities for workers is woefully mistaken, and seeks to understand the ways in which policies and institutions can lead to strong, stable, and broadly-shared growth.