Page 135 – Equitable Growth

Modernizing U.S. work scheduling standards for 21st century families

Posted on June 25, 2018July 2, 2018 by Emilie Openchowski

It is difficult to address both work and other life obligations in jobs that require long hours, as well as part-time jobs, especially as the rise of unpredictable and nonstandard work hours make it difficult to schedule other life obligations around work schedules. These issues of overwork, underwork, and unpredictable scheduling all contribute to the need for policies to promote fair scheduling that allow workers to create boundaries between work and other aspects of their lives.

Download File
Modernizing U.S. work scheduling standards for 21st century families

Luckily, there are models that federal policymakers can look to as they consider how to address scheduling challenges. In our paper for the Hamilton Project, “Modernizing U.S. Labor Standards for 21st-Century Families,” we highlight examples from states and municipalities that have enacted fair scheduling laws, as well as the example of the federal Schedules That Work Act, and explore how enacting policies that allow workers to balance their work and other life obligations will better address the challenges of today’s labor force—providing a boost to the national economy through increased productivity, greater labor force participation, and increased demand for goods and services.

Why is there a need for fair scheduling?

Overwork and the overtime threshold

Shifts in the way firms organize work in some occupations over the past 40 years has meant that some jobs now require long hours with little flexibility regarding schedules. This particularly affects women and has led them to scale back their career aspirations or quit, the latter of which hurts women’s labor force participation rates.
- In a survey, one-third of women who quit and nearly two-thirds of women who scaled back from full- to part-time work cited long, inflexible hours as the reason.¹ ²
The Fair Labor Standards Act sought to check overly long work weeks, but since its overtime salary threshold has not increased with inflation, it is increasingly ineffective at curtailing long hours for most U.S. workers.
- Salaried workers will not earn overtime pay unless they earn $23,600 or less per year. This threshold covers only 8 percent of salaried workers and is below the federal poverty level for a family of four.

Underwork and unpredictable schedules

An estimated 5.2 million workers are currently working part time but would prefer full-time employment.
- Part-time workers are often ineligible for benefits and tend to have lower wages than full-time counterparts.
- Part-time jobs are most prevalent within the low-wage retail and hospitality industries and are disproportionately held by Hispanic and African American women.
The schedules and hours for many part-time jobs are also unpredictable and unstable.
- About 17 percent of workers nationally have unpredictable schedules, which means that they don’t have a set “9-to-5” schedule every week and often receive their schedule less than a week in advance. In addition, the total number of hours a part-time worker might work can fluctuate from week to week.
- Jobs with unpredictable and unstable hours are more concentrated among low-income workers, especially in the low-wage retail and hospitality industries, and among women of color.
Unpredictable and unstable work hours translate into unpredictable and variable paychecks and make it difficult to meet both work and other life commitments, including second jobs or further education.
- Workers who don’t know how many hours they can expect to work don’t know how much they can expect to earn, and therefore can’t plan their finances to ensure they’re covering all their bills.
- Families are unable to arrange for childcare in advance, which particularly negatively affects women’s labor force participation.

Principles for fair scheduling

Federal policymakers should ensure that workers can create boundaries between time for work and time for other parts of their lives by considering the following principles for fair scheduling policies:

Require employers to bear costs associated with their last-minute decisions. Employers should be required to provide advance notice of schedules, predictability pay when they alter a worker’s schedule with less than seven days of notice, and reporting pay in the form of two to four hours of wages when a shift is cancelled less than 24 hours in advance, as is required in San Francisco³ and Seattle⁴.
Mitigate involuntary overwork and underwork.
- The Fair Labor Standards Act’s overtime-income threshold should be raised to keep pace with inflation, and its definition of exempt employees should be reconsidered to reflect the modern workplace and provide sufficient worker protection against overwork.
- In addition, employers should be required to offer additional work hours to qualified part-time employees before hiring new employees to protect against underwork.
Give workers the right to talk to their employers about flexible schedules without fear of reprisals. A right-to-request law would allow employees to ask their employers for a schedule change without fear of reprisals. It would not require an employer to grant the request but would require the employer to have a compelling business reason for denying a request. The city of San Francisco and the state of Vermont have recently passed and implemented such a law.

To learn more about the research and state and local policy examples behind the policy recommendations summarized here, you can read our full paper, “Modernizing U.S. Labor Standards for 21st-Century Families.”

Weekend reading “summer solstice” edition

Posted on June 22, 2018June 22, 2018 by Ed Paisley

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 released two new working papers this week!

The first working paper comes from Boston University’s Adam M. Guren and Alisdair McKay and Columbia University’s Emi Nakamura and Jon Steinsson. In “Housing wealth effects: The long view,” the authors analyze whether an increase in housing wealth results in increased consumption and retail employment. The paper is accompanied by a policy brief outlining the authors’ results.

The second working paper by University of Pennsylvania’s Ioana Marinescu and Herbert Hovenkamp, entitled “anticompetitive mergers in labor markets,” looks at whether growing market consolidation in the United States has contributed to lower wages. Michael Kades also provides an overview of the work and discusses its implications for U.S. antitrust policy.

Belief in the ability to make a better life for oneself is an American creed as old as the country itself. But do today’s high levels of economic inequality hamper economic mobility? Liz Hipple provides an overview of the research on this topic–much of which finds an inverse correlation between inequality and mobility—and suggests future avenues for exploration.

The political momentum in support of paid family leave continues to gain pace around the United States, but it is important to step back and consider the design of the policy itself, which can be critical in determining whether paid family leave is actually effective. We take a look at the principles necessary to create successful paid leave policies.

Links from around the web

Alexia Fernández Campbell looks at the research to see how Initiative 77, which raises the minimum wage to $15 an hour and phases out the tipped minimum wage for Washington, DC workers, could affect workers, businesses, and customers. [vox]

With lots of attention focused on the large number of U.S. men dropping out of the workforce since 2000, Dean Baker wonders why there is not similar notice of women’s declining labor force participation. He writes, “let’s stop looking for labor market explanations that focus on the problem of men not working and instead look for explanations for the problem we actually see in the data: men and women not working.” [cepr]

With the unemployment rate hovering near record-low levels and attitudes around disability shifting, Danielle Paquette writes about how employers are hiring disabled workers at a growing rate—and are often paying higher wages than in the past when doing so. [wapo]

The U.S. economy has been marked by rising market consolidation since the 1980s—and it’s no secret that big businesses are thriving. David Leonhardt writes about what it means for workers and our economy as businesses get bigger and the share of workers employed by a small-businesses continues to fall. [nytimes]

Heather Gillers, Anne Tergesen, and Leslie Scism bring us a feature on how aging Americans today are entering old age with vastly lower levels of financial security compared to those of decades prior due to higher debt burdens, lower wages, and less savings for retirement. This is not a temporary phenomenon as the authors write that “things are likely to get worse for a broader swath of America.” [wsj]

Friday figure

From “The surprisingly constant ‘housing wealth effect’ in the United States.”

Inequality, mobility, and the American Dream

Posted on June 22, 2018June 22, 2018 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 the rest of June and early July, our expert staff are 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 Economic Mobility.

Intergenerational mobility is at the heart of the American Dream. An economist’s definition of “intergenerational mobility” is the correlation or association between a parent and a child’s income. Most people probably don’t think of mobility in such technical terms but rather in terms of the chances that, with hard work, children can do better than their parents. Put in those terms, intergenerational mobility is about opportunity. The United States is supposed to be a place where everyone has the opportunity to make a good life for themselves regardless of the luck and circumstances of their birth. And in turn, this faith in equality of opportunity implies that today’s record-high levels of economic inequality aren’t concerning.

But does research back up this faith in mobility, or is equality of opportunity for the next generation in fact being impeded by today’s inequalities? Well, as so often is the case with economics research, the answer is “it depends.” As City University of New York economist Miles Corak points out, looking across developed countries, there’s an inverse relationship between income inequality and mobility. That is, countries with high income inequality tend to have low mobility. This relationship was dubbed “the Great Gatsby Curve” by former Council of Economic Advisors Chair Alan Krueger. (See Figure 1.)

Figure 1

In addition to the variation in mobility across developed countries, there’s also dramatic variation in mobility within the United States, as research by Stanford University economist and Equitable Growth Steering Committee member Raj Chetty demonstrates. This variation is large, as the map below shows, with mobility particularly low in some regions of the country such as the Southeast. Mobility in some cities such as Salt Lake City, UT, and San Jose, CA, is comparable to that in countries with the highest rates of mobility such as Demark. Yet other cities such as Milwaukee, WI, and Atlanta, GA, have lower rates of mobility than any developed country. Similar to the Great Gatsby Curve, Chetty and his co-authors find that greater income inequality is correlated with low mobility in the United States, which is also correlated with more segregation, lower school quality, lower social capital, and more single-parent headed households. (See Figure 2.)

Figure 2

But these relationships between income inequality and mobility both across countries and within the United States are merely correlations—they don’t show that high inequality causes low mobility. But the differences in mobility in different places hint at where researchers should be looking to explore what the potential drivers of low mobility are. For instance, comparisons across countries find the relationship between a parent and child’s income is particularly “sticky” at the top and bottom of the income spectrum in the United States compared to other countries. This suggests that one of the causes of the United States’ overall low mobility is that kids born to parents at the bottom of the income distribution get stuck there—pointing to the importance of considering the relative impact of poverty rather than just income inequality to improve mobility.

In addition, recent research into the relationship between inequality and mobility finds not only that mobility in the United States has declined since 1940, but also that income inequality plays a large role in explaining why. Chetty and his co-authors find that 92 percent of children born in 1940 earned more than their parents as adults, but that only 50 percent of children born in 1980 out-earned their parents. Furthermore, they find that greater economic growth would close only 29 percent of this gap between generations. But if economic growth was more broadly shared, then more than 70 percent of that gap would be erased. (See Figure 3.)

Figure 3

Both low mobility and the decline in mobility are threats to the American Dream, as well as to stronger and more stable economic growth. A tight relationship between your parents’ income and your own looks more like the aristocracies of yore than a modern 21st century economy. It also risks leaving productivity and innovation on the table. If your ability to bring your full suite of talent and creativity is impeded by forces beyond your control—your birth weight, what neighborhood you grow up in, the color of your skin—then the U.S. economy isn’t efficiently matching skills with jobs, depressing economic growth. Equitable Growth is eager to see where research into the channels through which economic inequality could be intermediating mobility—and therefore growth—takes our understanding of the American Dream.

Brad DeLong: Worthy reads on equitable growth, June 15-21, 2018

Posted on June 21, 2018July 26, 2018 by Emilie Openchowski

Worthy reads on Equitable Growth:

Very nice to see “Janet Yellen Joins Equitable Growth Steering Committee“. “There are few economists with the depth of academic and policymaking experience that Janet Yellen possesses,” said Heather Boushey, Equitable Growth’s executive director and chief economist. “She has worked tirelessly, in her research and in her high government positions, to promote strong economic growth that benefits workers and to ensure that the American Dream is within reach for all.”
Suggestions for what kinds of information economists and policymakers will want to be capturing in 20 years are very welcome, courtesy of Michael Strain in “Equitable Growth in Conversation.” In the interview, he says “to the extent that you are figuring out ways to update this statistical system to account for the way that we live and work now would be important. But more importantly, to account for the ways that we might live and work 20 years from now, to really have a plan, to have statistically valid surveys that capture the information that we want to capture is, I think, a very worthy research program.”
Really surprised that there is no evidence of boom-bust asymmetry here. I am going to have to dig into what reasonable alternatives are and how much power the authors’ techniques have against them after reading the new working paper by Adam M. Guren, Alisdair McKay, Emi Nakamura, and Jon Steinsson, “Housing Wealth Effects: The long View.” They find that: “1) Large housing wealth effects are not new … substantial effects back to the mid 1980s; 2) Housing wealth effects were not particularly large in the 2000s … 3) There is no evidence of a boom-bust asymmetry.”
Susan Helper and Timothy Krueger worry that the organizational disaggregation produced by this age of supply chains is harming the development of our communities of engineering practice in their 2016 report “Supply Chains and Equitable Growth.” They write: “Deregulation, market failures, and corporate policies have led to the rise of supply chains comprised of small, weak firms that innovate less and pay less. These problems in supply chains threaten U.S. competitiveness by undermining innovation, and also contribute to the erosion of U.S. workers’ standard of living. A different kind of outsourcing is possible.” Annalee Saxenian’s Regional Advantage: Culture and Competition in Silicon Valley and Route 128 is now 20 years old, and yet somehow I do not think we know as much about this as we should.

Worthy reads not on Equitable Growth:

Somebody who I have long thought deserves more attention and mindshare, and is very much worth following, is Karl Smith at Bloomberg View, at the Niskanen Center, and on Twitter.
In the internet economy, traditional antitrust doctrines and nostrums are much less helpful than we would wish. We need new thinking and new legislating here. Not that I know what we need, exactly, but we do need it, after reading Ben Thompson’s “AT&T, Time Warner, and a Framework for Neutrality,” in which he concludes that “Unfortunate[ly]… a bad case by the government has led to … a merger … never examined for its truly anti-competitive elements.”
A search model that produces the right cyclical elasticity of wages but does not produce the right cyclical volatility of employment has the wrong micro-foundations. It is producing the right cyclical elasticity of wages because it is producing the wrong cyclical volatility of employment. Thus I think this approach is pretty much tapped out. Read Christopher A Pissarides’ “The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?,” in which he writes that in “an equilibrium search model … focus on the model’s failure to match the observed cyclical volatility of unemployment.”
Very wise words from close to where the rubber meets the road about how the rise of the robots is likely to work out for the labor market over the next generation or so. Read Shane Greenstein’s “Adjusting to Autonomous Trucking,” in which he writes, “Let’s come into contact with a grounded sense of the future. … Humans have invented tools for repetitive tasks, and some of those tools are becoming less expensive and more reliable.”
Blame the Pollyanna-ish fecklessness of the Bank of England and the feckless indolence of Britain’s reporters. Read Simon Wren Lewis’ “How UK deficit hysteria began,” in which he writes, “Monetary policy ran out of reliable levers to manage the economy. However, journalists wouldn’t know that from the Bank of England, who tended to talk as if Quantitative Easing was a close substitute to interest rates as a monetary policy instrument.”
This comes as no surprise from Paul Krugman. He says in “Tax Cuts and Leprechauns” that “the immediate effect of cutting the corporate tax rate … a big fall in taxes collected from corporations.”
The thoughtful and pulls-no-punches Amitabh Chandra snaps on Twitter: “GOP thinktanks are the biggest milksops. From healthcare policy to environmental policy, from national security policy to fiscal policy, they have tacitly endorsed a mountain of anti-market + anti-growth + anti-America policies to not upset their political masters. … I don’t consider myself a Democrat, but the quality of the conversation at CAP or Brookings is orders of magnitude richer, and more sophisticated, than what is happening at GOP thinktanks. And I say this as someone who often disagrees.”
I missed this! Ed Cara writes in “Fed-Up Hospitals Are Starting Their Own Drug Company so They Can Lower Generic Drug Prices” that “a coalition of U.S. hospitals … is going to start its own drug company to compete with big pharma.”
I am still clinging to the probably vain hope that the slowdown in measured productivity growth is a problem of measurement. I cannot see anything that has happened in the world that would have eroded both the incentives and our collective ability to make the things we made last year 2 percent more cheaply this year. Read Martin Wolf for some insights: “The long wait for a productivity resurgence,” in which he writes, “We live in an age judged to be one of exciting technological change, but our national accounts tell us that productivity is almost stagnant. Is the slowdown or the innovation an illusion? If not, what might explain the puzzle? … Mismeasurement … diminished competition and expensive rent capture … new technologies are simply not what they are claimed to be.”
Looking back at the Piketty debate, it appears to me that much of the virulence of the criticism arose because the empirical and reality-based case against Piketty’s arguments was so weak. Read Ryan Avent from 2014 in his “Inequality: “Capital” and its discontents,” in which he asks: “Is inequality the defining issue of our era? … Not everyone is convinced … [by] Mr Piketty’s magnum opus. [It] is certainly not without its weaknesses, but the quality of the criticism it has attracted provides a sense of the strength of the argument he makes.”

The surprisingly constant “housing wealth effect” in the United States

Posted on June 20, 2018June 20, 2018 by Emilie Openchowski

What was new about the housing bubble experienced across most of the United States from 2002 to 2006? The common story of the housing bubble and the resulting crash is that homeowners used their houses like ATMs, borrowing against the increased value of their homes to increase their consumption in a way they hadn’t before. In other words, homeowners were more able to turn a dollar increase in housing wealth into even more consumption. Economists would call this new relationship a higher “housing wealth effect.” But new research casts doubt on this narrative.

A new working paper, released yesterday as part of Equitable Growth’s Working Paper Series, takes a long view of the housing wealth effect. This new research comes from Adam M. Guren and Alisdair McKay of Boston University and Emi Nakamura and Jon Steinsson of Columbia University. Fundamentally, their paper tries to discern how much of an increase in housing wealth will flow into overall household consumption. The four economists use data going back to the mid-1980s, though their main results only cover 1990 through 2015.

It’s important to note that the four economists are looking at the relationship between housing wealth and consumption at the level of the local labor market (really a “core-based statistical area,” which is essentially a city and surrounding counties). The empirical results, then, will tell us how much consumption will increase in a specific area if housing prices increase.

How do we know that changes in housing prices are actually causally affecting retail employment? The economists develop a new “instrument” that exploits the fact that housing prices in cities are more or less sensitive to regional trends in housing prices. Since regional housing price trends shouldn’t be correlated with city-specific trends in retail employment (the authors’ measure of consumption), this should be a good instrument.

The results are quite interesting. The housing wealth effect was not particularly large during the 2002 to 2006 period. In fact, the elasticity seems to have declined from the early 1990s, hitting a peak of close to 0.2—representing a 2 percent fall in retail employment—in the 1990-to-2000 period and drawing closer to 0.5 during 2005 to 2015. (See Figure 1.)

Figure 1

Their research finds that over the whole time period, consumers would have increased their consumption by an extra 2.76 cents in response to an additional dollar of housing wealth. So, a $10,000 increase in housing wealth would lead to about $276 of additional consumption.

If the reaction to a given amount of housing wealth wasn’t particularly strong, then why did consumption increase so much during the boom and drop during the bust? Well, the swings in housing prices were historically huge. A big increase in housing wealth with such steady elasticity is still going to increase consumption quite a bit.

If households were using their homes like ATMs, they weren’t doing so more than past homeowners. Home equity line of credit loans that allow homeowners to borrow against the value of their home have been around for decades. The four economists quote a report written by former Federal Reserve Chair Alan Greenspan about increases in housing prices and consumer behavior. Greenspan writes, “The combination of very rapidly rising prices for existing homes and a sharp increase in sales … of these homes has created a huge increase in capital gains and purchasing power during the past two years … by far the greater part has been drawn out of home equities and spent on other goods and services or put into savings.”

The thing is, Greenspan didn’t write that during the 2000s housing bubble. It was published in 1982.

Anticompetitive mergers: They are not just a threat to U.S. consumers anymore

Posted on June 20, 2018June 20, 2018 by Emilie Openchowski

A new working paper released today by the Washington Center for Equitable Growth suggests that consolidation among employers in the United States has created market power over their current and prospective employees and is contributing to lower wages. In “Anticompetitive Mergers in Labor Markets,” University of Pennsylvania economist Ioana Marinescu and University of Pennsylvania law professor Herbert Hovenkamp find that “the antitrust law against anticompetitive mergers affecting employment markets is certainly underenforced, very likely by a significant amount.” They argue that merger enforcement should—but does not—address this anticompetitive environment in U.S. labor markets.

Antitrust enforcement may seem like a surprising tool to address stagnating wages. In the infancy of the Sherman Antitrust Act of 1890, the Supreme Court used it to limit the power of unions by prohibiting secondary boycotts. Congress ultimately amended the statute twice to avoid this result. Today, however, companies often argue that eliminating jobs is a benefit of their merger transactions and will reduce duplication and lower costs, which is a technical way to say the mergers will eliminate jobs. Antitrust lawyers and scholars have generally assumed that labor markets are highly competitive; Marinescu and Hovenkamp point out that there is no known case of the antitrust laws being used to block a merger because it would suppress wages.

Traditionally, antitrust law has been focused on whether mergers will harm consumers. When a seller faces little or no competition, it is a monopolist and can raise prices by lowering output. But in 1933, Joan Robinson, in The Economics of Imperfect Competition, explained that a similar effect occurs if an employer has no competition in hiring workers, coining the term “monopsony.” A monopsony employer will lower wages by hiring fewer workers.

Roughly 85 years later, the empirical evidence is catching up with the theory. Marinescu and Hovenkamp take an interdisciplinary approach, combining economic research with legal analysis to assess the role of antitrust law in protecting competitive labor markets. A growing body of research finds labor market monopsony is far more prevalent than previously thought. According to one study, labor markets on average are highly concentrated, with higher concentration in rural areas. And a 10 percent increase in concentration of a labor market leads to a 0.3 percent to 1.3 percent decrease in wages.

This new strand of economic research has important implications for antitrust enforcement. First, a merger may reduce competition in a labor market without having any effect in a product market. Second, the high concentration levels in markets for employees suggest that mergers creating monopsony power may be a more pressing problem than those creating monopoly power. Third, the legal analysis used to determine whether a merger will harm competition applies in labor markets. The agencies can define a market for employees, calculate the change in concentration, and determine whether countervailing efficiencies exist.

Marinescu and Hovenkamp explain that, at first glance, lower wages caused by monopsony power appear to have the opposite effect of monopoly, which results in higher prices. Some merging firms such as health insurance firms Anthem Inc. and Cigna Corp., have tried unsuccessfully to argue that any merger lowering wages benefits consumers by reducing the prices they pay. This tension, however, is illusory. Antitrust laws prohibit the improper accumulation or use of market power whether the victims are consumers, competitors, or employees—even if this interpretation is rarely enforced.

In addition, as explained by economist Nancy Rose of the Massachusetts Institute of Technology and law professor Scott Hemphill of New York University in the Yale Law Journal’s “Unleashing Competition Symposium,” lower wages created by firms’ monopsony power will not benefit the ultimate consumers. If an employer also has market power in the product market, then consumers are directly harmed because the prices will increase for the product. If the employer faces a competitive product market, then it will lower wages, produce less, and sell its product at the same price, thus increasing its profit.

Marinescu and Hovenkamp’s paper comes at an important moment. Last year, Sen. Cory Booker (D-NJ) called on the U.S. Department of Justice’s Antitrust Division and the Federal Trade Commission to use the antitrust laws to protect workers’ ability to “fairly bargain among potential employers.” What’s more, Federal Trade Commission Chairman Joe Simmons has been explicit that harm to workers can be actionable under the antitrust laws, while Assistant Attorney General Makan Delrahim announced that the Justice Department will treat no poaching agreements among employers as criminal antitrust violations.

Equitable Growth, focusing significant resources in researching and understanding wage stagnation—including the role of technology, decline of unions, and increased buyer power—is finding that competition in the U.S. labor market affects different groups, and potential solutions include increased antitrust enforcement. More work needs to be done to refine the empirical analysis, and each transaction is fact-specific. Yet the creation of monopsony power through mergers or acquisitions is an issue that deserves attention.

As Marinescu and Hovenkamp’s paper explains, that concern falls squarely within the antitrust laws. They provide a clear guide for how enforcers should analyze a transaction’s impact on wages. If antitrust enforcers take up this approach, we may see increased competition for employees and higher wages.

Modernizing U.S. paid family leave for 21st century families

Posted on June 18, 2018July 2, 2018 by Emilie Openchowski

Women now make up almost half of the U.S. workforce and more than half of the U.S. population. Despite the central role women play in the economy, our labor laws and institutions do too little to address the various ways in which women are held back at work. This not only hampers women’s economic well-being, but also has implications for U.S. productivity, labor force participation, and economic growth.

Download File
Modernizing U.S. paid family leave for 21st century families

Luckily, there are models that federal policymakers can look to as they consider options for designing paid family leave. In our paper for the Hamilton Project, “Modernizing U.S. Labor Standards for 21st-Century Families,” we highlight the experiences of three states—California, New Jersey, and Rhode Island—that have enacted statewide paid leave programs and explore how enacting policies such as paid family leave will better address the challenges of today’s labor force and enhance women’s economic outcomes—providing a boost to the national economy through increased productivity, greater labor force participation, and increased demand for goods and services.

Discussions of paid leave often focus on the needs of new parents, but at some point in their lives, every worker will need to take time off from work for family or personal health reasons. Therefore, a gender-neutral, comprehensive paid leave program that covers all family care needs will help to improve labor force participation, families’ economic security, and workers’ health and productivity. As federal policymakers consider options for designing paid family leave, they can look to the states that have already enacted their own paid family leave policies to inform the design.

Why is there a need for paid family leave?

Currently, access to leave—paid or unpaid—is too limited

Under the Family and Medical Leave Act of 1993, only 60 percent of workers and about 20 percent of new mothers have access to legally mandated unpaid leave due to the law’s eligibility requirements. Those who are not eligible are disproportionately lower income⁵ and less educated.⁶
Only 14 percent of the private-sector workforce receive paid leave through their employer. This figure is as low as 4 percent for workers in the bottom tenth of the wage distribution.⁷
While 38 percent of workers have access to temporary disability insurance that would cover a personal medical issue without losing pay, it usually doesn’t cover care of a family member.⁸

With an aging population, fewer at-home caregivers, and more working parents, more workers need time off to care for family members or address their own medical needs

Among workers who provide care for an elderly relative, 7 in 10 have had to cut back on hours—and therefore wages—or drop out of the workforce altogether.⁹
One study of paid leave in California found that giving workers some time off increases the likelihood that workers—particularly low-income workers—will stay in the labor force following personal and family health events.¹⁰ ¹¹

Family economic security

For many families, the birth of a child is associated with a significant decline in families’ financial well-being.¹²
At the same time that a household’s income drops because a member needs to cut back on hours at work in order to care for a new child or a sick loved one, its expenses also increase because of the cost associated with providing that care such as medical bills or diapers.
Women who take paid leave are less likely to receive public assistance in the year following the birth of a child than women who don’t take paid leave.¹³

Workers’ health and productivity

Half of workers without leave postpone or never receive critical medical care, which has cost implications for the wider health care system.¹⁴
Because women continue to take on the bulk of caregiving responsibilities, paid family leave is particularly important to encourage and ensure their participation in the labor force.
Research finds that compared to unpaid leave, paid leave has a much bigger impact on long-term household incomes, as well labor force participation, for both men and women.¹⁵

Principles for paid family leave

As federal policymakers consider options for designing paid family leave, they can look to states such as California, New Jersey, and Rhode Island, which have already enacted paid family leave policies to inform federal policymaking.

In light of the challenges facing workers who seek to address both work and family obligations and the importance of retaining those workers in the labor market, paid family leave must:

Cover the range of family and medical needs that require time away from work. As the U.S. population ages and women’s labor force participation increases, more workers need time off to address either their own illness or that of a family member. Excluding any of these reasons would miss an opportunity to support both families’ economic security and their labor force participation.
Be available to all workers—men and women—equally. Regardless of employer identity or size, a worker’s status as full- or part-time or self-employed, or gender identity, paid leave should cover all workers and use an inclusive definition of family. Paid leave should also be gender neutral, following the example of the Family and Medical Leave Act in providing eligible men and women with the same amount of leave.
Provide adequate length of leave to address care needs. A paid leave of 12 weeks is consistent with the length of time provided by states that have enacted paid leave and will mean that children born to two-parent families will have up to 24 weeks of parental care.
Have a sufficiently high wage-replacement rate to make a difference in people’s lives. The period in which people have to cut back on their hours at work to care for a new child in the home, treat a personal illness, or care for a family member is often the same period during which their household expenses rise to provide for that new child or pay for medical treatment. National paid leave should follow New Jersey’s lead and have a 66 percent wage-replacement rate with a cap to prevent benefits from being overly generous to high-income families.

Weekend reading: “Job-hopping Millennial” edition

Posted on June 15, 2018 by Ed Paisley

Equitable Growth round-up

We at Equitable Growth launched our new website this week and welcomed Janet Yellen, former Chair of the Federal Reserve, to our Steering Committee.

Macroeconomists may have blind spots, but economic inequality is increasingly within their sights. The rise of distributional macroeconomics is a welcome trend and hopefully one that will continue.

Interest rates have steadily dropped in the United States over the past 30 years. This trend has given rise to the threat of secular stagnation. What should policymakers do to fight the next recession if secular stagnation does rear its head? Papers that model this situation offer some suggestions.

Greg Leiserson details the questions and kinds of research on taxes and tax policy that Equitable Growth is interested in.

In the latest installment of “Equitable Growth in Conversation,” Heather Boushey talks to Michael Strain about government data collection and the state of the 2020 U.S. Census.

Links from around the web

The release of data on contingent work and alterative work arrangements last week blew up a lot of narratives about the “gig economy.” Annette Bernhardt goes through the data and makes some sense of them. [noteworthy]

The average life expectancy of a black American is roughly 3 years less than the average for white Americans. In the city of Baltimore, the gap reaches almost two decades. Olga Khazan tells the story of one woman trying to combat the forces that cause this life expectancy gap. [the atlantic]

The Federal Open Markets Committee met this week and raised interest rates as expected. Yet, as Nick Timiraos explains, the tough choices—especially when it comes to the labor market—lay ahead. [wsj]

Milton Friedman famously stated that the one social responsibility of a business is to maximize its profits. Justin Fox reports from a conference looking at one flaw in Friedman’s statement: corporation influence and rent-seeking. [bloomberg]

Being pregnant carries a cost in the labor market; research shows that a woman’s hourly wage drops by four percent after having a child. Natalie Kitroeff and Jessica Silver-Greenberg document the stories of women facing pregnancy-based discrimination. [nyt]

Friday figure

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

Unemployment and inflation once again…

Posted on June 15, 2018June 12, 2018 by Emilie Openchowski

The public discussion about inflation and unemployment appears to me to be substantially awry. It appears to incorporate two, and only two, lessons from history.

The first of these lessons is that pushing the unemployment rate below the level corresponding to full employment leads to strong upward pressure on inflation. The second of these lessons is that once inflation becomes embedded in expectations, the unemployment rate needs to be substantially elevated above the full employment rate for inflation to fall.

Even a moment’s thought, however, leads one to recognize that these two lessons are in enormous tension. If it requires substantial elevation of unemployment to wring inflation out of the system, then is it reasonable to also think that small undershoots of unemployment below the full employment rate can produce a significant acceleration in insulation? It might—the world is a surprising place. But that is certainly not the way to bet.

So where do these two lessons come from? The first comes from the 1970s. The second comes from the 1980s. During the Volker disinflation of the 1980s, it indeed required substantial elevation of unemployment to wring inflation out of the system, thus falsifying the hopes and predictions of rational-expectations economists such as Robert Lucas. And during the 1970s, inflation marched upward in fits and starts even in the absence of any substantial persistent inflationary gap between the unemployment rate and the full employment level.

Looking at the 1980s alone can justify the second lesson—that inflation is not very responsive to the unemployment rate. Looking at the 1970s alone can justify the second lesson—that inflation is very responsive to the unemployment rate. But looking at both creates a puzzle. And the most probable resolution of the puzzle is that the rise in inflation in the 1970s had other causes than an overheated, high-pressure, low-unemployment economy: the 1973 Yom Kippur Arab-Israeli War; the 1979 Iranian Revolution; the productivity slowdown of the 1970s that forced firms to raise prices by more in order to provide workers with their expected nominal wage gains.

Thus it seems to me more likely than not that the Federal Reserve’s current fear of a high-pressure economy is based on a misreading of a historical experience a generation and a half past. But those who might dissent from this policy—such as President Neel Kashkari of the Minneapolis Regional Federal Reserve Bank—do not command a majority on the Federal Open Market Committee. Kashari, however, in his eloquent “The Fed should not move too quickly to raise rates,” notes that “the US recovery took place after the Federal Reserve undertook extraordinary monetary policies.” He continues:

While some economists predicted these policies would lead to runaway inflation, the opposite has happened: inflation and wage growth have been surprisingly low. … With unemployment even lower now, why is wage growth so slow? Labour markets in other advanced economies shed some light on what is happening in America. … It could be that the 3.9 per cent measure does not capture the true slack in the labour market and that additional, hidden slack explains today’s modest wage growth. A better measure of labour market tightness appears to be the employment-to-population ratio of prime age workers, those aged 25 to 54 years old. … If you look at international comparisons, there is an astonishing contrast between the US and other developed economies. The percentage of prime-age Americans who are working has been declining during the past few decades, while the same ratio has climbed to new highs in the UK, Canada and Germany. …

Economists offer various theories. … Americans are addicted to drugs; too many have criminal records; workers do not have the skills needed for the available jobs. … The rise of Chinese manufacturing and of automation should affect other advanced economies as much as they do the US. …

The truth is we don’t know how much slack still remains in the US labour market. But international labour markets offer a hopeful sign.

This analysis has important implications for monetary policy. It suggests that as U.S. interest rates return to normal levels, policymakers should shift only to a neutral policy stance, and not move too quickly until we see more evidence that wages are climbing and that we really are at maximum employment.

Brad DeLong: Worthy reads on equitable growth, June 8-14, 2018

Posted on June 14, 2018July 26, 2018 by Emilie Openchowski