JOLTS Day Graphs: April 2018 Report Edition

Posted on by David Evans

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 April 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.

The quits rate stayed steady at 2.3 percent in April, an indication that quitting has seemingly increased and may continue to do so.

The ratio of unemployment-to-job openings was 0.95 in April, breaking the significant barrier of 1.0. A ratio this low means there were more vacant jobs than officially unemployed workers in April.

The vacancy yield, or the job-filling rate, slightly increased. But the number of hires per job openings is historically low and the current trend is slightly downward.

The Beveridge Curve, which is supposed to indicate the unemployment rate for a given amount of job openings, has returned to its pre-recession relationship.

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New data on contingent workers in the United States

Posted on by Emilie Openchowski
The U.S. Bureau of Labor Statistics will soon release data on its Contingent Worker Supplement survey, shedding light on how different sectors of contingent and nonstandard work, including those in the gig economy and platform-based employment such as Uber, have changed in the past decade.

On Thursday, June 7, the U.S. Bureau of Labor Statistics will release data from its freshly collected Contingent Worker Supplement. It’s important for policymakers and economists alike to know what to look for ahead of Thursday’s data release.

The BLS had collected this data from 1995 until 2005, when it stopped fielding the survey as part of its Current Population Survey due to funding constraints. But the increasing visibility of gig work with the onset of platform-based employment has emphasized the need to understand contingent work, which is defined by the agency as wage and salary workers who do not expect their job to last, self-employed workers, and independent contractors.

The revived Contingent Worker Supplement will reveal how different sectors of contingent and more broadly nonstandard work—of which contingent work is one type—have changed throughout the past decade. In the meantime, since 2005, mixed evidence has demonstrated the need for continual collection of data on this workforce. Economists Lawrence Katz at Harvard University and Alan Krueger at Princeton University replicated the Contingent Worker Supplement for the years 2005 to 2015 with the RAND American Life Panel. Overall, they estimate that contingent workers increased from 10.7 percent of workers in 2005 to 15.8 percent in 2015, with the largest increase being workers hired out through contract companies.

This finding supports the analysis done by the U.S. Department of Labor’s former Administrator of the Wage and Hour Division David Weil, now the dean of the Heller School for Social Policy and Management at Brandeis University, who found that the workplace is increasingly fissured, with subcontracting through a network of companies with “core competencies.” This fissuring leaves workers at the lower rungs with little room for growth. It will be important to see how much this sector of contingent work has grown since then when the BLS releases the new data on Thursday.

Then there is the data within the data on platform-based employment such as drivers for Uber Technologies Inc. and Lyft Inc.—workers who loom large in the public perception even though there is mixed evidence on the exact level of employment through online application-driven gig employment. A recently published survey by the Federal Reserve Board found that 16 percent of respondents report earning money through online activities, which they note includes driving through a ride-sharing app such as Uber or selling things online through a platform such as eBay Inc. Yet having earned money online at some point does not necessarily reflect one’s typical experience in the economy.

The Katz and Krueger study replicating the Contingent Worker Survey, for example, found that only 0.5 percent of all workers were providing services through an online intermediary such as Uber. A JPMorgan Chase Institute study found that regular monthly participation in what it calls the “Online Platform Economy” grew from 0.1 percent to 1 percent of their sample from 2012 to 2015—a huge increase, but still a small proportion of the overall economy. The JPM Chase Institute research on the platform economy indicates that employment in the online gig economy is starting to plateau, with a slowdown in growth in both monthly participation and year-over-year growth in earnings. The new BLS data will help refine estimates of the size and the earnings of this small but popular sector of the workforce.

Another important sector of contingent work includes self-employed workers and independent contractors, who are asked about their employment status in the Current Population Survey, as well as in other economic surveys, but generally do not have much additional detail. These workers range from high-income entrepreneurs to gig workers hustling to patch together volatile earnings. In 2016, 6.2 percent of the workforce, or 10 million workers, reported being independent contractors as their primary job, according to calculations with the CPS Annual Social and Economic Supplement. The ASEC is the only U.S. Census Bureau-fielded survey that asks detailed earnings questions for self-employed workers, but even then, self-reported earnings for independent contractors are often regarded as inaccurate due in part to the difficulty in measuring total earnings when patching different sources of income.

The Contingent Worker Supplement is one of the broadest definitions of nonstandard work, but it is just one type of nonstandard work arrangement. Others include part-time workers and on-call workers. The Government Accountability Office reported on all workers in alternative work arrangements and found that this type of employment has grown from 35 percent of the workforce in 2006 to 40 percent in 2010. Many of these arrangements have existed for a long time, but the pressure to understand them comes from the changing structure of the U.S. economy and open questions about the future of work.

The crux of the contingent-work issue is that these various types of work arrangements may be associated with economic insecurity since by definition contingent work is that which you do not expect to last. Rising economic inequality and the fissured workplace have drawn attention to the need for policies that ensure all types of workers and jobs have opportunity and security at the same time. But without reliable data on the size of this workforce and how those engaged in contingent work are faring, policymakers can neither make the case that policies are needed to cater to the unique needs of workers in alternative arrangements nor examine what types of policies may be effective for them. Thursday’s release of the topline figures from the new Contingent Worker Supplement and the subsequent microdata release will give researchers an opportunity to understand who these workers are and what conditions they face, which in turn will help shape policies that affect this segment of the labor market as it may become increasingly important in the future of work.

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Weekend reading: “barriers to economic equality” edition

Posted on 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

Equitable Growth policy analyst Bridget Ansel gathered some of Equitable Growth’s past work analyzing the cause of the motherhood pay gap to mark the day in the year (May 30) that mothers would have to work in the United States in order to earn what fathers did in 2017.

What exactly is going on in the U.S. labor market and why is the prime employment rate not fully stationary? Is the labor market not as tight as we are made to believe? Equitable Growth analyst Nick Bunker’s column looks at the state of U.S. wage growth, why the unemployment rate is below where it was before the Great Recession, and why nominal wage growth hasn’t picked up.

Equitable Growth released its monthly Jobs Day Graphs. The graphs display data including newly employed workers who were more likely to be previously unemployed and the employment rate of prime-age workers, who still trail their pre-recession peak.

Can union organization be pivotal in the attempts to tackle economic inequality? Equitable Growth policy analyst Kate Bahn’s piece in Slate argues the power of unionization in its effects to boost wage growth.

Links from around the web

It remains unclear whether the Tax Cuts and Jobs Act of 2017 will benefit employment, but what is clear is where the tax benefits are going. Reed College economist Kimberly Clausing finds that the bottom 99 percent of income earners will see an average tax cut of around 1 percent and  their taxes will ultimately rise after the benefits expire in 8 years, while the top 1 percent will continue to experience a tax cut after benefits are set to expire. (econofact)

Do economist have a responsibility to address inequality? In an interview with Samantha Eyler-Driscoll, University of California, Berkeley economist Gabriel Zucman discusses the issues with excessive economic power and the issues of economists dismissing distributional economic policies. (promarket)

Do questions about previous salary history on job applications impede progress on closing the gender wage gap? Alexia Fernández Campbell lays out the argument for why this question prevents women from earning an income equal to their male counterparts and considers the recent success of states and cities that have barred the question from being asked. (vox)

Pregnancy often creates hurdles for women in the job market, in some cases even driving them out of a job. These negative implications to starting a family could be a reason why women are waiting to start families later in life or even consider putting off having a family altogether. Emily Peck discusses how starting a family can lead to punishment for women in the workplace.  (huffingtonpost)

Could America’s own exceptionalism be the reason why the rich keep getting richer? Might it be that our national disinterest in bettering the U.S. economy be why Blacks and Hispanics are being disproportionately left behind? Eduardo Porter questions why the United States lags behind its industrialized counterparts in his final column. (NYT)

Friday figure

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

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

Posted on by David Evans

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

While the unemployment rate declined in May, the share of prime-age workers with a job was unchanged at 79.2 percent.

Average wage growth ticked up to 2.7 percent, but this measure of wage growth has yet to accelerate like the Employment Cost Index.

While still high compared to previous cycles, the share of newly employed workers coming from outside the labor force has declined in recent months.

As the labor market continues to strengthen, the share of unemployment that is longer- term (more than 15 weeks) continues to decline.

The share of workers who are unemployed because they left a job has risen sharply over the past three months.

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Examining the links between rising wage inequality and the decline of unions

Posted on by David Evans

The correlation between unions and economic inequality is well-documented, but has the decline of unions led to increasing inequality, or can this be explained by skill-biased technical change? As Equitable Growth Economist Kate Bahn writes in a new column for Slate, new research published via the National Bureau of Economic Research finds that “while education and skills training matter to worker productivity, they’re not sufficient to ensure economic security without workers’ power to bargain for better wages too.”

Princeton University economists Henry Farber, Daniel Herbst, and Ilyana Kuziemko, and Columbia University economist and Equitable Growth grantee Suresh Naidu used survey data compiled from a variety of historical sources to explore rising and declining union density throughout the 20th century. What they found was that increasing returns to education do not adequately explain inequality, but the decline of union density does.

Says Bahn in her column in Slate: “Promoting education as the tool to overcoming economic inequality is convenient because it puts the onus on individuals to pull themselves up by their bootstraps and doesn’t call into question structures and barriers that limit economic opportunity.” She adds that “providing opportunity to American families will require a robust labor movement that balances corporate power and pushes back against the wage stagnation affecting most workers.”

Read the full column on Slate: “Education Won’t Solve Inequality.”

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Brad DeLong: Worthy reads on equitable growth, May 25-31, 2018

Posted on by Emilie Openchowski

Worthy reads on Equitable Growth:

  1. Nick Bunker gathers scattered threads and sets out the issues on wage growth and unemployment in “Puzzling over U.S. wage growth.”
  2. As I say in a Value Added blog post, exactly the kind of debate we should be hosting and encouraging is by Jesse Rothstein: “Inequality of Educational Opportunity? Schools as Mediators of the Intergenerational Transmission of Income.” In the paper, he writes that “Chetty et al. (2014b) show that children from low-income families achieve higher adult incomes … in some commuting zones (CZs) than in others.”
  3. Michael Kades, in “Unlocking Antitrust Enforcement: New Yale symposium examines proposals to make antitrust enforcement more effective,” highlights the papers from our co-hosted antitrust symposium in October 2017.
  4. From two years ago, here is a minimum wage meta-analysis well worth re-reading: Arindrajit Dube and Ben Zipperer: “Pooling multiple case studies using synthetic controls: An application to minimum wage policies.”
  5. Also worth reading from this past October is Darrick Hamilton’s “Post-racial rhetoric, racial health disparities, and health disparity consequences of stigma, stress, and racism.”

Worthy reads not on Equitable Growth:

  1. I am confused here: Do we have an “eastern heartland” problem? Or do we have a “prime-age male joblessness” problem? Those two problems would seem to me to call for different kinds of responses. Read the column by Edward L. Glaeser, Lawrence H. Summers, and Ben Austin, “A Rescue Plan for a Jobs Crisis in the Heartland.” They write: “The Eastern Heartland[‘s] … relative G.D.P. would have been more than 50 percent higher had it grown at the rate of America’s Coastal states. The earned-income tax credit has been effectively promoting employment for over 40 years, but its design makes it poorly suited to fighting the ocean of male joblessness.”
  2. Arithmetically, the big increases in price inflation in the 1970s came from the oil shocks of 1973 and 1979, and the productivity growth slowdown. Milton Friedman tried to claim that those were both the result of too-rapid money growth permitted by the Fed, but was never convincing. Yet the folk memory of the 1970s is that the big increases in price inflation in the 1970s came from too-rapid money growth permitted by the Fed that pushed the unemployment rate well below the NAIRU. Simply not true. Read “Noah Smith: Don’t Raise Rates Just to Keep Wages in Check.” He writes: “Policy makers and macroeconomic analysts should rethink the basic mental model that they use to evaluate the state of the economy. … Rising wages don’t seem to trigger a wage-price spiral … not at moderate levels of wage growth. … If those experts keep relying on the conventional wisdom imparted from the 1970s and 1980s, big mistakes could result.”
  3. In “The Stickiness of the Medicaid Expansion,” Scott Lemieux writes that “Good Democratic policy that provides important benefits to people may not benefit the Democratic Party, and in Arkansas it hasn’t at either the state or federal level. But the policies themselves tend to be sticky, and that’s important in itself! And while universal programs in some cases are more desirable on policy grounds, it’s simply not true that programs that predominantly help the non-affluent are never popular or robust.”
  4. In “How Neoliberalism Changed the World,” Patrick Iber writes that “Neoliberalism often connotes a form of liberal politics that has embraced market-based solutions to social problems. … The [interwar Austrian] neoliberals sought, Slobodian writes, to ‘encase’ markets … a global system that sufficiently ordered the world so that capitalism would be safe from certain forms of political interference. … The things that neoliberalism has trouble seeing are, at the present, far more consequential: deep inequalities, accompanied by a sense of powerlessness, of being left behind by a global system that operates with no regard for the interests or voice of the majority.”
  5. Ernie Tedeschi, in “Will Employment Keep Growing? Disabled Workers Offer a Clue,” says that “A seemingly inexorable economic trend has changed direction in the past few years, as people who cited health reasons for not working are returning to the labor force.”
  6. Karl Walentin and Andreas Westermark note in “Stabilising the real economy increases average output,” that “DeLong and Summers (1989) … argue that (demand) stabilisation policies can affect the mean level of output and unemployment.”
  7. Noah Smith says in “The Rich Get the Most Out of College” 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.”
  8. 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 now a generation and a half past. Neel Kashkari, in “The Fed should not move too quickly to raise rates,” says that “The US recovery took place after the Federal Reserve undertook extraordinary monetary policies.”
  9. Adam Tooze asks: “Do you think Italian bond markets maybe had been dozing a bit?” He says “It’s politics sure, but sovereign debt markets ARE political.”
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A look at the motherhood wage gap on Mother’s Equal Pay Day

Posted on by David Evans

Today is Mother’s Equal Pay Day, which marks how far into the year mothers in the United States have to work to earn what fathers earned in 2017. Equitable Growth writes a lot about this topic, and today we take a look back at some of our work analyzing the cause of the motherhood pay gap in the United States and abroad and the research on solutions that help mothers and families balance caregiving responsibilities with paid employment.

“Mothers in the United States earn less despite education and experience.” New research finds that the motherhood wage gap has remained the same over the past 30 years, and has actually gotten worse for some mothers.

“Gender wage inequality: What we know and how we can fix it.” Equitable Growth’s recent report details the drivers of U.S. wage inequality for mothers and childless women alike and lays out steps that can be taken at the state and federal level to address it.

“After 25 years, it’s time for paid leave.” Twenty-five years ago, President Bill Clinton signed the Family and Medical Leave Act, providing most workers the job-protected right to take unpaid time off from work to care for a new child. This column looks at why it’s time to update the law to include paid leave.

“Can women’s “sagging middle” help explain the fall in U.S. labor force participation rates?” Labor force participation rates have been falling since 2000, and women dropping out of the workforce is playing a role. Research shows that, following the birth of a child, women’s labor force participation is lower today than in the past.

“Has the momentum around paid leave reached a tipping point in the United States?” Existing state policies show that paid family leave based on a social insurance model can provide a critical benefit for everyone in the U.S. workforce.

“Across developed countries, family policies help women.” Research examining whether there is a cause-and-effect relationship between family policies and women’s employment outcomes in western countries finds that spending on childcare and early child learning results in higher rates of women’s employment and a reduction in the gender wage gap.

“Is the cost of childcare driving women out of the U.S. workforce?” Research finds that rising childcare expenditures in the United States results in an estimated five percent decline in total employment of women and a 13 percent decline in the employment of working mothers with children under the age of 5.

“All work and no pay for women around the globe.” A young women entering the job market today can expect to work on average four more years than their male counterpart due to women’s disproportionate share of unpaid and domestic duties.

“Working mothers with infants and toddlers and the importance of family economic security.” Mothers with young children have played a crucial role in keeping their families afloat financially in the United States, elevating the need for policies that address work-family conflict.

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Puzzling over U.S. wage growth

Posted on by David Evans
The unemployment rate is below its Great Recession levels, but wage growth hasn’t picked up in recent years. The prime employment rate may be a better predictor of wage growth than unemployment rates.

The state of U.S. wage growth these days is puzzling. The unemployment rate is below where it was before the Great Recession back in 2007, but nominal wage growth is below its level that year and hasn’t picked up in recent years (according to some data series). For economists and analysts who believe that a tighter labor market should lead to higher wages, this disconnect is confusing.

But some analysts, myself included, suggest that the seemingly very tight labor market might not be that tight. The unemployment rate may be low (3.9 percent in April), but the share of workers in their prime years (ages 25 to 54) with a job (79.2 percent) is still below its 2007 level. The prime employment rate can predict wage and compensation growth quite well. Such a continued strong relationship between these variables would suggest that slack remains in the labor market. Stronger wage growth will show up, according to this line of thinking, if the prime employment rate further increases.

Jason Furman, the former chair of the Council of Economic Advisers, isn’t sold on this narrative. Furman (now at Harvard University and a senior fellow at the Peterson Institute of International Economics and a member of Equitable Growth’s Steering Committee) lays out his concerns in a series of tweets to which Evercore ISI economist Ernie Tedeschi and I have responded. While this might be a quick way to engage on this topic, Paul Krugman has a point that the arguments can be hard to follow. So, let’s lay out some of Furman’s concerns here, as well as some of Krugman’s substantive thoughts, and then turn to a “statement of principles” about this question.

Furman’s critiques of the prime employment rate’s “answer” to the wage growth puzzle can be separated into two parts. The first has to do with the measures of wage growth. Furman notes the differences among the main metrics of wage growth. The commonly cited average hourly earnings, or AHE, data series shows that wage growth is stuck at around 2.5 percent. It hasn’t accelerated much, as the unemployment rate has dropped and the prime employment rate has increased. In contrast, the growth in wages and salaries according to the Employment Cost Index, or ECI, is moving slowly but steadily upward. (See Figure 1.)

Figure 1

The question here is, which wage growth measure do you trust more? The average hourly earnings data are monthly and have a large sample size. But they do not account for the changing composition of workers, which might be biasing measured wage growth downward. The ECI data do adjust for the composition of jobs, but they are only released quarterly and have a smaller sample size. Complicating the picture is the Wage Growth Tracker, a measure of wage growth for consistently employed workers, which was increasing through 2016 but has flat lined in recent years.

Krugman notes in his blog post that increased monopsony power might be responsible for the lack of wage growth. He lays out an argument where firms with market power and which are “scarred” by the memory of the Great Recession are less willing to raise wages. This structural trend could explain why a tight labor market hasn’t led to faster wage growth.

The second part of Furman’s point is that the prime employment rate doesn’t appear to be “stationary.” A stationary variable is a metric that will eventually revert to its trend after a shock. The unemployment rate is a traditionally good example of a stationary variable. It’s at some level prior to a shock (a recession, for example) and then will eventually return to its pre-shock level. Furman’s issue with the prime employment rate is that it might not be stationary. The labor force participation rate of prime-age men has been declining since the late 1960s and women’s participation seems to be on a downward trend as well. This could mean that the level of the prime employment rate is telling economists and policymakers about both cyclical trends (how much slack is left) and secular trends (long-term changes to labor supply or demand in the economy). If the prime employment rate is nonstationary, then it won’t be a good metric for predicting wage growth in the future.

With these critiques in mind, here are some thoughts about what’s holding back wage growth in the United States at the moment. These thoughts are based on two briefs published in recent months looking at the tightness of the labor market and the declining rate at which firms are filling open jobs.

Hiring has not been particularly strong during this recovery in the U.S. labor market, particularly when measured against the number of vacant jobs. Part of the decline in hires per job vacancy—a metric known as the vacancy yield or the job-fill rate—is due to the tightening of the labor market, but even accounting for the low unemployment-to-vacancy ratio hiring is down. (See Figure 2.)

Figure 2

But only certain kinds of hiring are down. Hiring of workers who were previously unemployed or out of the labor market is in-line with the previous labor market recovery. The hiring that is down is the hiring of already-employed workers.

These two trends could affect wage growth in two ways. One is that the hiring of unemployed and not-in-the-labor-force workers could be affecting the composition of wages and pushing down measured wage growth. These newly hired workers are likely to be earning lower wages, therefore adding them to the pool of employed workers will reduce the average wage overall. Such a trend could explain why the average hourly earnings wage series is still showing muted wage growth.

The Atlanta Fed Wage Growth Tracker tries to account for this issue by only looking at the wage gains of already-employed workers. But again, this measure has been quite weak recently as well. Perhaps the lack of job-switching or hiring of already-employed workers is behind this trend. Wage growth would be stronger according to this metric, perhaps, if more workers were switching jobs. Whether this is a structural or cyclical issue is up for debate. If the issue is cyclical, then the rate of job turnover could increase and push this measure of wage growth up. Or a structural increase in employer market power such as monopsony could be at work, meaning that workers’ movement between firms won’t increase much, and wage growth for already-employed workers won’t increase much, either.

The potential of more workers entering the labor force is at the heart of the debate over the utility of the prime employment rate as a measure of slack. If there’s a significant number of workers who don’t have a job but would like one if they thought one were available, then we would see an increase in the labor force participation rate, all things being equal. In recent months, the labor force participation rate has been fairly constant in the face of an aging population. The participation rate for prime-age workers has been steadily increasing. This shift could explain why the relationship between the unemployment rate and wage growth, as measured by average hourly earnings, isn’t holding up. The workers who are getting hired from this “shadow slack” may have lower wages and therefore be pushing down measured wage growth.

Given the shifting composition of workers in the labor market, looking at a measure of wage growth that accounts for compositional changes makes sense. But we also want a measure of wage growth that captures all employed workers, not just those who’ve been employed for some time. The Employment Cost Index may have flaws, but it’s the best metric of the currently available data for this question. Change in measures such as the Wage Growth Tracker may indicate, for example, that the U.S. labor market has tightened enough to boost job-switching and employers’ poaching of workers.

But what’s happening in the labor market as a whole? It’s not clear that the prime employment rate is fully stationary. There’s some suggestive evidence that this may be true, but more research and thinking on this issue is needed. Analysis of the data shows a weak relationship between the unemployment rate and a good measure of wage growth. The prime employment rate has a much stronger relationship and has done a good job predicting wage growth out of the sample it draws from. The relationship is holding up in practice. Economists and analysts may just need to figure out how it works in theory.

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Unlocking Antitrust Enforcement: New Yale symposium examines proposals to make antitrust enforcement more effective

Posted on by David Evans

The Yale Law Journal today published a symposium, “Unlocking Antitrust Enforcement,” based on papers that were presented at an event the Washington Center for Equitable Growth co-hosted with the Program on Law and Government at American University Washington College of Law in October, 2017. Leading scholars and practitioners discussed nine proposals for more vigorous enforcement of existing antitrust laws. Videos of the discussions are available online.

Antitrust, in the words of Senator Amy Klobuchar (D-MN), is now cool to talk about. Last fall, the comedian commentator John Oliver devoted a segment of Last Week Tonight to corporate consolidation. This popular interest mirrors a renewed academic focus on the state of competition and monopoly power in the economy. Recent research explores the relationship between declining competition and declining business investment, declining labor share, and stagnating wages.

The Washington Center for Equitable Growth is documenting these trends through a series of papers on antitrust and competition. “Market Power in the U.S. Economy Today,” by Jonathan Baker, a professor at American University Washington College of Law, reviews the evidence about declining competition in the economy. “U.S. antitrust and competition policy amid the new merger wave,” by John Kwoka, the Neal F. Finnegan Distinguished Professor of Economics at Northeastern University, analyzes both the rise in concentration and one possible explanation: changing merger enforcement policy at the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice. “A Communications Oligopoly on Steroids,” by Gene Kimmelman the President and CEO of Public Knowledge, and Mark Cooper of the Consumer Federation of America, explains why antitrust enforcement and regulatory oversight in digital communications matter to consumers, an issue of particular relevance given major proposed mergers such as AT&T/Time-Warner, Sinclair/Tribune Media, and, most recently, Sprint/T-Mobile. Finally, Washington Equitable Junior Fellow Jacob Robbins has coauthored a paper on how rising market power in the United State may be affecting macroeconomic results and may help explain some of those macroeconomic puzzles.

A healthy, vigorous debate is occurring over the state of competition in the U.S. economy and what solutions, if any, are needed. But, at times, it has devolved into intellectual name-calling and ad hominem attacks. The Yale Law Journal’s symposium takes a very different approach. Each paper represents a serious and thoughtful proposal for a specific problem that antitrust enforcement can tackle:

  • With growing concern that some firms may be using low pricing to drive out competitors, “Bringing Reality to the Law of Predation,” by Scott Hemphill and Phillip Weiser, offers a roadmap for bringing and deciding predatory pricing cases under current legal doctrine.
  • “Multisided Platforms and Antitrust Enforcement,” by Michael Katz and Jonathan Sallet, addresses a key doctrinal issue that is before the Supreme Court.
  • In the face of an increasing wave of vertical mergers (AT&T/Time Warner, Bayer/Monsanto), “Invigorating Vertical Merger Enforcement,” by Steven Salop, provides an up-to-date analytic framework for analyzing deals in in which two companies at different stages of an industry’s supply chain merge.
  • Relatedly, “Horizontal Mergers, Market Structure, and Burdens of Proof,” by Herbert Hovenkamp and Carl Shapiro, offers suggestions for strengthening the legal standards for judging horizontal mergers when a company acquires its competitor.
  • “Mergers That Harm Sellers,” by Scott Hemphill and Nancy Rose, explains why mergers that create monopsony power are anticompetitive and should be blocked under the antitrust laws. Monopsony power exists when the buyer, rather than the seller, possesses market power. The paper also explains why buyers with monopsony power do not pass their lower costs on to consumers.
  • “Platform MFNs and Antitrust Enforcement,” by Jonathan Baker and Fiona Scott Morton, examines Most Favored Nation clauses in the online travel industry, where internet platforms such as online travel agencies require a travel service provider (for example, a hotel) to give the platform the lowest prices, barring the provider from offering a lower price directly to consumers or through different platforms. Such provisions can harm competition by keeping prices high and discouraging entry of new platform rivals.
  • “Antitrust and Deregulation,” by Howard Shelanski, argues that in deregulatory eras, such as the current one, antitrust enforcement should become more aggressive.
  • “Antitrust and Effective FRAND Commitments,” by Douglas Melamed and Carl Shapiro, addresses patent-right abuses in standard-setting organizations that can increase the prices of products such as computers and cell phones. This paper is an important counterpoint to recent remarks by Assistant Attorney General Makan Delrahim.
  • “Horizontal Shareholding and Antitrust Enforcement,” by Herbert Hovenkamp and Fiona Scott Morton, explores whether and when mutual funds’ ownership of competing firms can harm competition.

Each paper sparked a lively debate, and their publication will generate more commentary. The Yale Law Journal’s symposium is certainly not the last word on the role of antitrust enforcement in today’s economy. But the symposium moves the debate toward developing a positive agenda for antitrust enforcement.

The Washington Center for Equitable Growth is glad to have helped support the event where these papers were presented and will continue to be part of this discussion. Next month, we will launch a series of articles by academics, former antitrust enforcers, and competition practitioners on antitrust policy. Until then you can always find Equitable Growth’s growing body of research and analysis on market power and antitrust here.

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Brad DeLong: Worthy reads on equitable growth, May 18-24, 2018

Posted on by David Evans

Worthy reads at Equitable Growth:

  1. Austin Clemens and Heather Boushey: “Disaggregating growth: Measuring who prospers when the economy grows.” Equitable Growth’s computational social scientist and its executive director and chief economist write: “NIPA… were a radical advance in economic measurement when they were instituted…. The lack of data on how income is distributed is especially glaring now in the face of rapidly increasing economic inequality…. Instead of revolutionizing GDP, U.S. policymakers should evolutionize it… add an explicitly distributional component to GDP…”
  2. Hold it! Why does the spread of Microsoft Office shift workers away from “non-routine analytic” and toward “routine cognitive and routine manual” tasks? Read Enghin Atalay et al., “New technologies and the labor market,” in which the authors write that “most new technologies are associated with an increase in nonroutine analytic tasks, and a decrease in nonroutine interactive, routine cognitive, and routine manual tasks…. Through the lens of the model, the arrival of ICTs broadly shifts workers away from routine tasks, which increases the college premium. A notable exception is the Microsoft Office suite, which has the opposite set of effects…”
  3. I think that grappling with the work and legacy of John Kenneth Galbraith is a very important but rarely operated railway line within economics. So I put a signpost to it here: Brad DeLong: Galbraithian economics: Countervailing power edition.
  4. Jacob Robbins: “How the rise of market power in the United States may explain some macroeconomic puzzles,” in which the Brown University Ph.D. candidate in economics and doctoral fellow at Equitable growth writes: “Surprising… facts about… growth and rising… inequality…. 1. Financial wealth has increased… despite no real increase in… investment…. 2. The financial value of many firms now is permanently higher than the cost of their assets…. 3. These more valuable firms haven’t invested more…. 4. The average rate of return on capital has stayed steady while interest rates have dropped. 5. The share of income going to labor… has declined…. The driving force behind them is an increase in monopoly power together with a decline in interest rates…

Worthy reads not at Equitable Growth:

  1. Once again, from the University of Oregon, Mark Thoma’s Economists’ View continues to be the single best link aggregator in economic policy and theoretical economics: read him, and the things he links to.
  2. If you are in search of a very shrewd and informative take on the global tech industry, you ought to be reading—and perhaps subscribing to—the extremely sharp Ben Thompson. Read his Stratechery: “On the business, strategy, and impact of technology…”
  3. Interesting notes on how http://twitter.com has degraded the quality of the public sphere because of (1) the addictive immediacy of its call-and-response, parry-and-thrust; (2) its counterproductive extreme brevity; and (3) its failure to invest in proper twitter aggregation tools can be found as asides in Paul Krugman: ”Monopsony, Rigidity, and the Wage Puzzle.”
  4. Women’s and Children’s Liberation Front Edition: Martha Bailey: “More Power to the Pill: The Impact of Contraceptive Freedom on Women’s Labor Supply.” These effects are remarkably large, and have held up to everything statistical that has been thrown at them: “The release of Enovid in 1960, the first birth control pill, afforded U. S. women unprecedented freedom to plan childbearing and their careers. This paper uses plausibly exogenous variation in state consent laws to evaluate the causal impact of the pill on the timing of first births and extent and intensity of women’s labor-force participation. The results suggest that legal access to the pill before age 21 significantly reduced the likelihood of a first birth before age 22, increased the number of women in the paid labor force, and raised the number of annual hours worked…”
  5. Daniel Schneider, Kristen Harknett, and Matthew Stimpson: “What Explains the Decline in First Marriage in the United States? Evidence from the Panel Study of Income Dynamics, 1969 to 2013.” The co-authors write that “Us[ing] individual and contextual measures of employment and incarceration to predict transitions to first marriage in the Panel Study of Income Dynamics (1969–2013)… [we] find that men’s reduced economic prospects and increased risk of incarceration contributed… although these basic measures… cannot explain the entire decline…
  6. David Glasner: “On Equilibrium in Economic Theory.” He writes that “F. A. Hayek… first articulated the concept… three noteworthy, but very different, versions… (1) an equilibrium of plans, prices, and expectations, (2) temporary equilibrium, and (3) rational-expectations equilibrium…. Hicks’s concept of temporary equilibrium… provides an important bridge connecting the pure hypothetical equilibrium of correct expectations and perfect consistency of plans with the messy real world in which expectations are inevitably disappointed and plans… revised…. Temporary-equilibrium… provide[s] the conceptual tools with which to understand how financial crises can occur and… be propagated…. The Lucasian idea of rational expectations… simply assumes away the problem of plan expectational consistency with which Hayek, Hicks and Radner and others who developed the idea of intertemporal equilibrium were so profoundly concerned…”
  7. Paul Krugman explains why the Trump administration is wrong in thinking our trade deficit with China means we would “win” a trade war, in “Why a Trade War With China Isn’t “Easy to Win.” He writes: “It goes without saying that Trump is wrong about the economics of bilateral trade imbalances. But he’s also wrong about the political economy…. The political economy of trade is… mercantilist… driven largely by producer interests…. The genius of the postwar international trading system was that it harnessed this special-interest reality…. [But] in an era of complex international value chains… producers should care about… not how much they export but how much income they derive from exporting…”
  8. Very good people are working hard to explain Germany today. But put me down as suspecting strongly that not stressing the benefits of joining the euro at an undervalued parity leads this effort to be a Hamlet without the Prince of Denmark—Dalia Marin: “Explaining Germany’s exceptional recovery.” She writes that “Germany has transformed itself from ‘the sick man of Europe’ to an ‘economic superstar’, accounting for almost 8% of world exports. This column introduces a new VoxEU eBook that explores how Germany‘s extraordinary recovery came about. The contributors to the eBook find that changes in the labour market institutions and in firms’ business models as a result of trade liberalisation with Eastern Europe after the fall of communism explain Germany’s exceptional export performance. They also explain why Germany absorbed the ‘China shock’ more easily than other countries and why globalisation did not contribute to the rise in voting for the far right in Germany…”
  9. The person who may well be the leading candidate for the next president of the Federal Reserve Bank of San Francisco is Mary Daly. She says in “Economics is falling behind Stem on diversity” that “the discipline must stop treating women as if they were rare birds…”
  10. Mark Thoma sends us to Michael Strain telling businesses that if they want to hire more and better quality workers, they need to raise wages: “Don’t Fall for Employers’ Whining About a ‘Skills Gap.’” He points out that “wage growth is picking up, but it is lower than what many economists expect in light of overall economic conditions, and it is not soaring for specific industries. Simply put, if businesses can’t find workers… they should raise their wage offers…. So unless wage growth picks up, the warnings about labor shortages will fall flat…”
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