Latino workers are often segregated into bad jobs, but a strong U.S. labor movement can boost job quality and U.S. economic growth

Posted on by Emilie Openchowski
""

Latino workers represent a large and growing share of the U.S. workforce. But even with the highest employment rates in the United States, Latinos face a number of barriers to accessing good jobs and economic security. Their median earnings are lower than those of their Black, White, and Asian American counterparts. And along with Black workers, Latino workers tend to be especially vulnerable to losing their jobs amid economic contractions.

What’s more, insufficient bargaining power, gaps in legal protections, discrimination, and social norms all can cluster Latino workers into jobs that pay low wages, offer little in terms of employer-sponsored benefits, and rank high in labor law violations. Unions and labor organizers, however, have long pushed back against these obstacles, delivering important gains for both Latino and non-Latino workers.

In the mid-20th century, for example, the late union activist Emma Tenayuca fought for fair wages, advocated for workers’ right to unionize, and led what continues to be one of the largest strikes in U.S. history. In the early 1960s, civil rights activists and organizers Dolores Huerta and Cesar Chavez co-founded what is now the United Farm Workers. As one of the first and longest-lasting farmworkers unions in the country, the UFW played an important role in securing better working conditions in the agricultural sector—in which Latinos disproportionately are employed—including regulations that protect workers against the harms of heat and pesticides.

Then, between the late 1980s and early 2000s, the Justice for Janitors movement achieved better pay, greater access to benefits, and union contracts for many of these workers at a time when domestic outsourcing began to greatly deteriorate job quality in janitorial services. Janitorial services is an occupation in which Latinos represent almost a third of the overall workforce.

More recently, through both worker organizing and policymaking efforts, Chief Officer of the California Labor Federation Lorena Gonzalez Fletcher helped secure overtime protections for farmworkers and improve labor standards for fast-food workers in California. And in the past few years, unions maintained wages and protected workers against job loss as the COVID-19 crisis launched the economy U.S. economy into a recession.

Indeed, a report by the Latino Policy and Politics Institute at the University of California, Los Angeles finds that workers covered by unions were less likely to experience unemployment during the height of the pandemic. This protective effect, the report finds, was particularly strong for unionized Latinos.

This column examines some of the employment characteristics that determine whether a job is high or low quality, how occupational segregation can sort Latino men and Latina women into jobs with poor working conditions, and how greater worker bargaining power and effective public policy can boost job quality for all workers. While there are many components that go into determining whether a job is good, the focus of this column is on predictable schedules, workplace safety, and minimum wage standards—job characteristics that are not as frequently discussed as pay and access to employer-sponsored benefits but that affect working conditions in many occupations, including those in which Latino workers represent a disproportionately high share of the workforce. Addressing these disparities through greater worker power would go a long way toward narrowing economic inequality in the United States and boosting overall U.S. economic growth.

Right now, Latino workers face several barriers to accessing good jobs

Latino men and Latina women are more occupationally segregated than men and women of any other major ethnic group. In other words, Asian American, Black, and White men are all more likely to work in the same occupation as the women workers of their same racial or ethnic group than Latino men are to work in the same occupation as Latina women.

Specifically, occupational segregation results in an overrepresentation of Latino men in natural resources, construction, and maintenance jobs. In contrast, Latina women are overrepresented in service occupations. And both Latino men and Latina women are underrepresented in the highest-paying jobs in management and professional occupations. (See Figures 1, 2 and 3.)

Figure 1

Percent distribution of Latino workers and all U.S. workers, by major U.S. occupational group, 2021

Figure 2

Percent distribution of Latino men workers and all U.S. men workers, by major U.S. occupational group, 2021

Figure 3

Percent distribution of Latina women workers and all U.S. women workers, by major U.S. occupational group, 2021

But even though Latino men and Latina women are overrepresented in different types of jobs, occupational sorting hurts them in the U.S. labor market. In general, structural and interpersonal discrimination, unequal access to education and training opportunities, cultural norms and expectations, social networks, and hostile working environments all can make some jobs more or less accessible to different groups of workers, resulting in an uneven occupational distribution that exacerbates economic disparities and holds back U.S. economic growth.

For instance, occupational sorting by gender, race, and ethnicity can result in a misallocation of talent by keeping workers from holding jobs that are a good fit for their interests and skills. A team of researchers finds, for example, that as women and Black workers faced fewer barriers to accessing higher-paying jobs after the 1960s, more workers could pursue their competitive advantage, thus boosting aggregate U.S. productivity. They estimate that greater occupational integration thus accounts for about two-fifths of the growth in the country’s Gross Domestic Product per person between 1960 and 2010.

Similarly, there is evidence that women workers’ underrepresentation in engineering, development, and design positions creates a gender innovation gap that, if narrowed, would likely boost U.S. economic growth.

For marginalized groups, occupational segregation does not only mean that already-vulnerable workers are more likely to be clustered into lower-paying jobs. Occupational stratification also leaves some workers especially exposed to economic contractions, explains an important chunk of the stubbornly persistent gender, racial, and ethnic wage divides that exist in the U.S. economy, and entrenches wealth inequality. Occupational segregation also means that some workers are more likely to be exposed to low-quality job traits, such as poor scheduling practices, unsafe working conditions, and labor law violations.

Fair scheduling

Take poor scheduling practices first. When U.S. employers do not provide information about schedules ahead of time, workers have little or no say about when and how long they work, and work hours vary substantially from week to week, making it much more difficult for workers to organize their lives and achieve economic security. Research finds that people working precarious schedules are more likely to experience hunger, struggle to find child care, and experience material hardship. Because low-wage workers, particularly low-wage workers of color, are more likely to experience last-minute shift changes and other bad scheduling practices, low-quality schedules also perpetuate existing economic disparities.

Many Latino workers are exposed to bad schedules. According to data collected between 2017 and 2018 by the U.S. Bureau of Labor Statistics, Latino workers are much less likely than their non-Latino counterparts to be able to shift their schedules according to their preferences. Further, the same data show that a relatively small share of Latino workers receives information about their schedules ahead of time. The data show that 57 percent of non-Hispanic workers know their work schedules at least 4 weeks in advance, but for Latino workers, that number shrinks to 49 percent. Indeed, almost a quarter of all Latino workers have less than 1 week’s notice about their schedules. (See Figure 4.)  

Figure 4

Percent distribution of Latino and non-Latino workers in the U.S. labor market, by how far in advance they know their work schedules, 2017-2018

An important reason why Latino workers are less likely to have good schedules than their non-Latino counterparts is that they are overrepresented in jobs and industries in which problematic scheduling practices are more prevalent. Latinos represent about 18 percent of all workers in the United States. In construction and extraction occupations—jobs in which Latinos represent 39 percent of the overall workforce—almost 40 percent of workers know their schedules with less than 1 week’s notice.

Latino workers also make up a disproportionately high share of workers in some of the occupations that have the most rigid schedules. For instance, Latino workers represent almost 25 percent of all workers in production occupations—jobs in which 65 percent of workers are not able to vary the times they begin or end their workday. (See Figure 5.)

Figure 5

Share of U.S. workers who can rarely vary their schedules, who know their schedules less than 1 week in advance, and who are Latino, by occupation

But research by Adam Storer at the University of California, Berkeley, Daniel Schneider at Harvard University, and Kristen Harknett at the University of California, San Francisco also shows that occupational segregation alone cannot fully explain why Latino workers are more likely to have precarious schedules. In other words, even when employed in the same type of job, Latinos seem to have worse schedules than their White counterparts.

Indeed, using survey data from workers employed in the largest retail or food-service firms in the United States, the team of researchers finds that having a manager of a different race or ethnicity, overrepresentation in firms with poorer scheduling practices, and discrimination also help explain why both Black and Latino workers are especially likely to work unstable and unpredictable hours.

Workplace safety

Workplace safety is one of the most basic components of a good job, yet many workers in the U.S. are exposed to dangerous working conditions. Even before the onset of the COVID-19 crisis in 2020, private-sector employers in 2019 reported 2.8 million injuries and illnesses at work. That same year, there were more than 5,000 fatal work injuries. In 2020, illnesses at work skyrocketed at the same time that injuries dropped, leading to a total of 2.7 million employer-reported nonfatal injuries and illnesses that year.

The total number of fatal work injuries did decline during the first year of the pandemic, but for Latinos, the occupational fatality rate actually climbed from 4.2 per 100,000 workers in 2019 to 4.5 per 100,000 workers in 2020. Latino workers thus face the greatest rates of fatal injuries at work, followed by Black workers, White workers, and Asian American workers. (See Figure 6.)

Figure 6

Fatal workplace injuries per 100,000 full-time equivalent workers, by race and ethnicity, 2011-2020

As with poor-quality schedules, overrepresentation in certain types of jobs is an important reason why Latino workers are disproportionately likely to experience dangerous working conditions. Indeed, Latinos make up a large share of workers in some of the occupations in which incidences of both fatal injuries and nonfatal injuries and illnesses in 2019 were highest, representing about 21 percent of all truck drivers, 23 percent of all freight, stock, and material movers, and 47 percent of all construction laborers.

Overall, evidence suggests that even when accounting for level of formal education, Latino men who are not U.S. citizens are more likely to work in risky occupations than any other group of workers. (See Figure 7.)

Figure 7

Incidence rate of nonfatal injuries and illnesses requiring days away from work per 10,000 full-time equivalent U.S. workers and share of workers who are Latino, by selected occupations, 2019

In 2020, the COVD-19 pandemic triggered an explosion of work-related illnesses. The onset of the health crisis shifted the brunt of risky conditions at work toward nursing jobs—positions in which women in general, and Black women in particular, are greatly overrepresented.

For Latino workers, available evidence shows that overrepresentation in essential occupations and industries, such as agriculture (where crop and farmworkers often live in crowded housing), food processing and meatpacking plants (the sites of some of the worst COVID-19 outbreaks), food preparation and serving (where in-person interactions expose workers to infections), and construction (an industry in which very few workers have access to paid leave) play a large role explaining their higher-than-average COVID-19 infection rates.

Overall, Latino workers’ overrepresentation in dangerous jobs is compounded by language barriers that can keep many of these workers from receiving adequate safety trainings, create obstacles to access health insurance, foster greater dependence on labor income, and instill a fear of retaliation that can prevent workers from reporting unsafe working conditions. Fear of deportation also creates a chilling effect that keeps many Latino workers from raising concerns about hazards at work. This chilling effect extends to workers who are U.S. citizens or documented immigrants because Latinos are especially likely to live with or know someone who is undocumented.

Minimum wage standards

Gaps in legal protections leave millions of workers in the United States exposed to abuses and poor working conditions. For instance, many farmworkers and domestic workers are excluded from important provisions in the Fair Labor Standards Act, which establishes a federal minimum wage floor, child labor laws, and the right to overtime pay. Similarly, agricultural workers, domestic workers, and independent contractors are not covered by the National Labor Relations Act, which guarantees workers’ right to organize, form and join unions, and bargain collectively. And workers in private households are also excluded from standards and retaliation protections included in the Occupational Safety and Health Act.  

Latino workers are not only disproportionately likely to work in the domestic and agricultural jobs that are not covered by some of the country’s key labor protections, but also are overrepresented in occupations and industries in which outright violations to labor law are high. Research by Janice Fine, Jenn Round, and Hana Shepherd of Rutgers University and Daniel Galvin of Northwestern University shows, for example, that as wage theft rose in tandem with the unemployment rate during the Great Recession of 2007–2009, minimum wage violation rates were highest for workers in private households, membership associations, real estate, food services, and agriculture. (See Figure 8.)

Figure 8

Minimum wage violation rates during the height of the Great Recession (2008-2010) and share of U.S. workers who are Latino, by industry, 2009

Overall, violations of labor standards, such as wage theft, are regressive and exacerbate disparities in working conditions since they are much more likely to affect low-wage workers, particularly low-wage workers of color, and workers who are not U.S. citizens. For both Latino and non-Latino workers, then, shortcomings in the enforcement of minimum wage protections represent important threats to job quality and economic security. The same study by Fine, Galvin, Round, and Shepherd finds that the average amount workers lost to minimum wage violations during the Great Recession represented 20 percent of their hourly wage.

Labor unions and worker power help increase job quality

While many U.S. workers are exposed to poor scheduling practices, unsafe working conditions, and labor law violations, research finds that unions can push back against these bad-job traits in a number of ways. For instance, research shows that greater union coverage is associated with a decline in violations to labor regulations, including those enforced by the U.S. Occupational Safety and Health Administration, the U.S. Department of Labor’s Wage and Hour Division, and the National Labor Relations Board.

Research also shows that unions boost support for measures that protect workers against illegal employment practices, with one study finding that states with higher union density are more likely to pass anti-wage-theft legislation. And because unions help workplaces meet U.S. labor laws and regulations, both academics and advocates have called for “co-enforcement,” in which government agencies partner with labor and community-based organizations to encourage, help, and generate support for workers filing complaints of violations by their employers.

In addition, there is strong evidence that unions help make workplaces safer. Research on the manufacturing sector by David Weil at Brandeis University finds, for instance, that union establishments are substantially more likely to enforce health and safety regulations than nonunion establishments. Similarly, in a recent study, Adam Dean at George Washington University, Jamie McCallum at Middlebury College, Simeon Kimmel at Boston University, and Atheendar Venkataramani at the University of Pennsylvania find that the presence of a labor union in nursing homes is associated with lower COVID-19 infection rates. Indeed, the team of researchers shows that in unionized nursing homes, resident COVID-19 mortality rates and staff COVID-19 infection rates were 11 percent and 7 percent lower, respectively, than in nonunion nursing homes.

There many other ways in which unions improve job quality. Union workers are much more likely to successfully apply for Unemployment Insurance benefits after involuntarily losing a job, and union members are more likely to have access to employer-sponsored benefits, such as health insurance, paid sick leave, and retirement plans, than their nonunion counterparts.

Workers belonging to unions also have what researchers call a union wage premium—earnings that are higher than for otherwise-similar nonunion workers. While union members in general benefit, the boost in pay that Black and Latino workers get by belonging to a union is especially large. For Latino workers and workers in the United States overall, labor unions and the ability to bargain collectively offer recourses against employer retaliation, mechanisms to better enforce labor laws and regulations, greater equity in pay, and job security.

Conclusion

A good job is one of the most important paths to economic security. That’s why addressing occupational segregation, enacting Fair Workweek laws, ensuring workplace safety, enforcing labor standards, and making it easier for workers to join or form a union are all essential for Latino workers—and U.S. workers overall—to access high-quality employment opportunities and for the U.S. economy to deliver broad-based, and thus more sustainable, growth.

Indeed, measures such as extending collective bargaining protections under the National Labor Relations Act to independent contractors, domestic workers, and agricultural workers would be an important step toward creating higher-quality jobs in sectors of the U.S. economy that too often have poor working conditions.

Posted in Uncategorized

Equitable Growth’s Jobs Day Graphs: September 2022 Report Edition

Posted on by Carmen Sanchezcumming

On October 7, the U.S. Bureau of Labor Statistics released new data on the U.S. labor market during the month of September. Below are five graphs compiled by Equitable Growth staff highlighting important trends in the data.

The employment rate for prime-age workers declined to 80.2 percent in September 2022 from 80.3 percent in August, with total nonfarm employment rising by 263,000.

Share of 25- to 54-year-olds who are employed, 2007–2022. Recessions are shaded.

The unemployment rate decreased to 3.5 percent in September and remains higher for Black workers (5.8 percent) and Latino workers (3.8 percent), compared to White workers (3.1 percent) and Asian American workers (2.5 percent).

U.S. unemployment rate by race, 2019–2022. Recessions are shaded.

Private-sector employment continued to rise in September, while public-sector employment declined slightly and remains below pre-pandemic levels.

U.S. public- and private-sector employment indexed to average employment in 2007

Nominal wage growth (not accounting for inflation) cooled in September, with average hourly earnings growth at 5 percent over the past 12 months.

Percent change in U.S. wages from previous year, as measured by two surveys. Recessions are shaded.

The number of unemployed workers decreased in September. The share who are unemployed due to job loss fell to 30.5 percent, and 13.3 percent have been temporarily laid off; 15.9 percent left their jobs, 32.4 percent are re-entering the labor force, and 7.9 percent are new entrants.

Percent of all unemployed workers in the United States by reason for unemployment, 2019–2022

Equitable Growth announces two Dissertation Scholars for 2022–23 academic year

Posted on by Maria Monroe
""

The Washington Center for Equitable Growth each year offers funding and mentorship opportunities to two pre-doctoral students through our Dissertation Scholars program. This program, whose application coincides with Equitable Growth’s annual Request for Proposals, offers students in the social sciences opportunities for professional development, trainings, and exposure to how we bridge the academic and policymaking communities.

Equitable Growth is excited to announce that the Dissertation Scholars for the 2022–23 academic year are Sheridan Fuller of Northwestern University and Gonçalo Pessa Costa of the CUNY Graduate Center.

Fuller, a Ph.D. candidate in human development and social policy, is returning to Equitable Growth as a Dissertation Scholar for a second year. His research examines the long-term impact of families’ access to economic resources provided through traditional U.S. income support programs, such as Aid to Families with Dependent Children (now Temporary Assistance for Needy Families, or TANF), as well as racial disparities in access to these resources.

Specifically, Fuller studies how these programs—and in particular, so-called Man in the House, or MITH, rules, which, from 1948–1964, limited aid for parents who were not married and disproportionately affected Black families—can impact children’s well-being and future health, educational, and economic outcomes.

In his first year in the Dissertation Scholars program, Fuller refined his methodology and continued his evaluation of the effects and consequences of MITH rules. His study thus far has largely focused on children’s educational attainment because it “offers preliminary insight into potential changes in other measures of well-being that are often correlated,” he explains. As a second-year Dissertation Scholar, Fuller hopes to extend his primary analysis of the implementation and nullification of MITH rules in income support programs to examine children’s health and economic well-being.

He also plans to continue his professional development, working and learning from Equitable Growth’s network of policy and research experts. “The opportunity to observe, learn, and participate in these research and policy conversations has been invaluable as I prepare the launch the next phase of my career,” Fuller explains. “The conversations have exposed me to interdisciplinary and interindustry crosstalk that is helping me develop exciting new questions and identify questions and topics with which policymakers are currently grappling.”

Costa, who is a Ph.D. student in economics and will begin his stint with Equitable Growth in December, likewise is excited about the various professional development opportunities the Dissertation Scholars program provides. “Knowledge is collectively created, and penicillin and radioactivity were serendipitous discoveries,” he observes. “Thus, being around highly creative researchers can have unpredictable positive effects on my career, the knowledge we commonly produce, and the people whose lives may change with our discoveries.”

Costa’s research examines housing rental markets and policy effects in the United States. He aims to measure landlords’ market power and what drives it, as well as how that power is wielded differently over different tenant demographic groups and in different metropolitan areas to create inequalities along racial, gender, and intersectional lines. Costa’s research develops an innovative model to measure various aspects of competition in rental markets using survey data and a quasi-natural experiment in a New York City housing community. He also evaluates policies that can counteract landlords’ market power, such as rent control and housing subsidies.

Homelessness is an urgent issue, particularly amid the COVID-19 pandemic. Affordable and adequate housing is lacking in many cities and countries worldwide. Costa hopes his research will make a difference in people’s lives and spur equitable economic growth by “fight[ing] inequalities, along with structural and interpersonal discrimination, and promot[ing] individual development, access to education, and macroeconomic stability.”

While much of their time in the program is focused on developing their own research into the relationship between inequality and economic growth, Dissertation Scholars are also required to assist with Equitable Growth’s annual grant review process. Each student will receive a $50,000 stipend and professional support, such as access to Equitable Growth’s network of academics, who may serve as mentors or collaborators on future projects.

“Spending time with Equitable Growth in my last Ph.D. year will allow me to conduct research that is inviable without funding, receive feedback on my work from peers there, engage in the discussion of the Center’s research, and be supported in disseminating my research and making it accessible to scholars and policymakers,” Costa says. “I view Equitable Growth as a center of leading academic debates and cutting-edge research aligned with my academic mission.

”In addition to funding the Dissertation Scholars program, Equitable Growth awards research grants each year to scholars studying the channels through which rising economic inequality affects economic growth and stability in the United States. In August, we announced our 2022 cohort of grantees: 42 faculty and staff, as well as doctoral students, at U.S. universities. In November, we will release our 2023 Request for Proposals. You can learn more about our grants program and click here to review the 2022 Request for Proposals.

Posted in Uncategorized

Equitable Growth provides comments to the U.S. Bureau of Economic Analysis on its new distributing personal income report

Posted on by Maria Monroe
""

In December 2021, the U.S. Bureau of Economic Analysis released a report that studied the feasibility of releasing its distributing personal income product on a quarterly basis. This feasibility study is an important first step toward providing more timely data on the distribution of income growth in the U.S. economy, but the BEA report concluded that existing data sources are insufficient to create quarterly metrics that are valid, informative, and transparent.

Equitable Growth previously argued that the BEA report demonstrated the importance of providing more resources to the agency to meet the needs of policymakers and the public. Current appropriations bills now before the U.S. Congress provide funding specifically to enhance this key prototype data series, which is an important addition to federal statistics.

This Distribution of Personal Income product is unique among all data published by federal statistical agencies in tracking income inequality. This BEA data series provides valuable intelligence for many economic actors, including households, businesses, academic researchers, and economic policymakers, on how economic inequality affects economic growth and stability in the United States. That is precisely why it needs to be published on a quarterly basis.

In this comment, Equitable Growth’s Director of Economic Measurement Policy Austin Clemens argues that the U.S. Bureau of Economic Analysis should investigate whether methods used by other research teams creating distributional national accounts subannually could yield useful early and quarterly estimates of income-based disparities in economic growth.

There is no other data series produced by a federal statistical agency that provides such a comprehensive look at how the U.S. economy is working for all Americans up and down the income ladder. A more timely release schedule will ensure that this valuable resource can be used to inform business decisions, make responsive policy, and plan for the future.

Posted in Uncategorized

JOLTS Day Graphs: August 2022 Edition

Posted on by Carmen Sanchezcumming

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 August 2022. 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 remained steady at 2.7 percent as 4.2 million workers quit their jobs in August.

Quits as a percent of total U.S. employment, 2001–2022. Recessions are shaded.

The vacancy yield increased to 0.62 in August from 0.56 in July, a notable rise, as the number of reported job openings declined and hires remained relatively constant.

The ratio of unemployed workers to job openings increased in August to almost 0.60 from just under 0.51 in July.

U.S. unemployed workers per total nonfarm job opening, 2001–2022. Recessions are shaded.

The Beveridge Curve moved sharply downwards in August as reported job openings fell and the unemployment rate ticked up.

The relationship between the U.S. unemployment rate and the job openings rate, 2001–2022.

The overall number of reported job openings decreased by 1.1 million in August (6.2 percent) to 10.1 million, with openings falling in industries such as education & health services, leisure & hospitality, and manufacturing.

Job openings by selected major U.S. industries, indexed to job openings in February 2020
Posted in Uncategorized

Budget analyses of U.S. income support programs must incorporate long-term benefits for children

Posted on by Emilie Openchowski
""

When any piece of legislation is considered by the U.S. Congress, it typically goes through a budget analysis to establish its impact on the federal government’s bottom line. These analyses, performed by the nonpartisan Congressional Budget Office, look at the changes in government spending and revenue that may arise over the next 10 years as a result of the proposed bill being enacted, accounting for predicted responses to the law by individuals, firms, and local governments.

The results of these analyses are expressed as budget “scores”—a single dollar amount reflecting the total cost to the government of enacting the legislation—and they are hugely influential in the legislative debate. In fact, bills that are deemed to cost more than they bring in over the 10-year budget window often face very long odds of being enacted, for both rhetorical reasons (claims of fiscal irresponsibility, for example) and procedural ones (such as so-called Pay as You Go rules in the House and Senate, which can require super-majority vote thresholds to waive).

While these budget analyses are useful tools to allow policymakers to evaluate potential future effects on the federal budget, they are not foolproof. Indeed, our recent paper shows that CBO scores for income support programs that provide assistance to low-income families with children in particular miss the mark.

Income support programs are part of a broader network of social infrastructure that provides essential assistance to families. Social infrastructure that specifically targets families with children can take the form of direct cash or near cash transfers to children, investments in child care, early education, paid family leave, and family services, and financial support through the tax system.

Studies show that countries that provide less of this kind of support to families with children have higher rates of child poverty. According to data from 37 countries in the Organisation for Economic Co-operation and Development, for example, the United States spends less on social infrastructure programs as a share of Gross Domestic Product than most other high-income countries. At the same time, in the same group of 37 countries, only Turkey and Costa Rica have higher rates of child poverty than the United States.

The fact that the United States spends so little, compared to peer countries, on social infrastructure can be explained in part by a previous emphasis on the immediate behavioral effects of these programs on parents (such as impacts on labor supply decisions), rather than a focus on the vast returns these investments in children and their human capital yield down the road. In other words, economists and policymakers alike have paid too much attention to costs in the short term and not enough to the benefits over the long run.

This focus led to a bias toward austerity and away from public spending on important programs that support children and boost their outcomes in adulthood. As a result, U.S. income support programs in particular have largely shifted from unconditional cash transfer programs to conditional transfers based on parental work requirements. This change in policy has been driven by policymakers seeking to avoid certain behavioral effects—for instance, parents staying out of the labor market or delaying marriage in order to remain eligible for certain targeted programs—that could arise from various design elements of income support programs, such as who the aid targets, how it is delivered, and whether there are any conditions for eligibility.

The evidence is mixed on whether this policymaking strategy has succeeded in affecting these behaviors. But what is clear is that it means families have more difficulty accessing the programs they need, and these programs are not working at their full capacity to keep U.S. children out of poverty. Likewise, this short-sighted policy approach ignores the many long-term benefits to children—and to society and the broader economy—of income support programs.

To be fair, economic research also largely tended to focus on the short-run costs of income support programs. Our recent paper finds that of 239 articles examining such programs since 1968, only 40 percent looked into the benefits of programs such as the Earned Income Tax Credit, Medicaid and the Children’s Health Insurance Program, Temporary Assistance for Needy Families and its predecessor, Aid for Families with Dependent Children, or the Supplemental Nutrition Assistance Program. Prior to 2010, that number was less than 27 percent.

Often, when researchers did examine benefits, they were in the short term, such as the impact of Medicaid on infant mortality or the link between access to SNAP during pregnancy and the birth weights of newborns. It wasn’t until research began to examine the long-run outcomes for children attending high-quality preschools—such as the Perry Preschool or Abecedarian programs and, later, Head Start—that economists broadened both their time horizons and how they define human capital benefits.

These studies changed how researchers evaluated income support programs, from the timeframe and types of outcomes studied to the incorporation of noncognitive benefits. This, combined with studies examining declining economic mobility in the United States, spurred researchers to look more closely at how economic conditions in childhood shape future outcomes in adulthood.

Newer studies are better able to examine the long-term benefits of income support programs on children, and many find that the most effective interventions are those that children receive between birth and age 5. These research projects look at such impacts as college admission and completion rates, future neighborhood quality and homeownership rates, reliance on income support programs and poverty levels as adults, income and earnings in adulthood, connection to criminal justice system, and even physical and mental health outcomes. Studies also now find that programs that target children deliver very large returns on investment for the government, and even pay for themselves in the long run, compared to programs that target adults.

This research boom over the past decade—in which 2.5 articles examining benefits have been written for every article on disincentives—should signal to policymakers that their fixation on the short-term costs rather than long-term benefits isn’t giving them the full picture they need to properly evaluate the impact of social infrastructure policy. The Congressional Budget Office limit its budget analyses to 10-year periods—a timeframe that clearly does not capture the adulthood outcomes of a program delivered to a child before age 5 but does capture the short-term costs to the government of implementing such programs. And that 10-year window is an extremely narrow view of what outcomes constitute human capital gains.

While this focus on the short-run costs is explainable—it is indeed easier to understand the effects of a policy using data available in the moment than it is to estimate benefits that won’t be fully known for two or three decades—it ignores the fact that these programs are more than income supports that bolster consumption in the current moment. These programs represent investments in our children’s human capital—and the returns on these investments should be measured well into the future and using a variety of metrics.

post

Factsheet: What the research says about the economics of income support programs

By Equitable Growth,

September 16, 2021

post

The child allowance will pay dividends for the entire U.S. economy far into the future

By Liz Hipple,

March 24, 2021

post

Income support programs boost earnings for low-wage workers by reducing household poverty in the United States

By Michael A. Schultz,

August 26, 2021

Our paper shows that researchers have already begun to widen their lens when it comes to examining the benefits of income support programs. We suggest ways they can offer further support, including by improving our understanding of why the estimated impacts of various programs on children differ across populations and environments, and whether it’s possible to use evidence on short-term impacts to predict long-term outcomes.

The COVID-19 pandemic led to a temporary shift away from austerity in income support programs. But the policies providing extra assistance to U.S. families over the past 2.5 years have largely expired, erasing many of the gains that were achieved in that period, such as the drastic cut in child poverty from the expanded Child Tax Credit. Research shows these measurable short-term gains for children, if sustained, would have long-term benefits.

Policymakers, alas, have yet to make adjustments to their budget scoring practices. Congress would do well to act, adopting longer timeframes when performing budget analyses on programs that affect children or finding another way to consider the long-run benefits of these programs. Without a shift, these vital investments in our future workforce will continue to be pushed to the back burner because an incomplete picture of their effects on society and the broader U.S. economy minimizes what our nation truly has to gain from these programs.

Posted in Uncategorized

Policymakers can still use American Rescue Plan funds to bolster the U.S. child care system and ensure it has a strong future

Posted on by Maria Monroe
""

In January, the 118th Congress will draw to a close following a productive session that saw legislative action on pandemic relief, infrastructure investments, manufacturing and research incentives, and critical investments in climate, health, and tax policy as part of the Inflation Reduction Act. All of these achievements will contribute in various ways to broad-based U.S. economic growth in the future.

Yet despite this impressive string of legislative accomplishments, this congressional session is set to close without progress on much-needed investments in the child care industry and the broader care economy of the United States—both of which remain diminished following the COVID-19 recession.

Policymakers who wish to build a more stable, equitable, and affordable child care system, however, still have tools at their disposal to do so. The American Rescue Plan Act of 2021 included tens of billions of dollars in funding to help stabilize the child care industry, and unspent flexible funds from other components of the law—including the Coronavirus State and Local Fiscal Recovery Funds program—could allow policymakers to direct even more aid to the struggling sector.

Such aid cannot replace robust, committed public investments in child care—which research suggests would lower costs for most families, increase parental employment, and improve compensation for the child care workforce, all of which would ultimately lead to short- and long-term economic growth. But by using the American Rescue Plan’s resources to their fullest—before they expire—policymakers can construct a stable foundation on which future child care investments can someday stand.

The American Rescue Plan’s dedicated child care funds provide states with flexibility to address their child care needs

In response to the lingering fallout from the COVID-19 pandemic, the U.S. Congress passed the American Rescue Plan in March 2021. Building upon smaller packages bolstering the child care industry that were included in the CARES Act and the Consolidated Appropriations Act of 2021, the American Rescue Plan provided a long-awaited and much-needed infusion of resources: $39 billion to stabilize the industry and implement new programs that reduce families’ costs, support care workers’ wages, and expand the supply of care in communities across the country.

This funding, designed to be flexible, can be spent in numerous ways. With their ARP Implementation Tracker, Child Care Aware of America—a nonprofit organization for many child care resource and referral agencies—provides a detailed accounting of how states and territories alike have allocated and distributed these funds, including:

  • Some states, such as Alaska and Pennsylvania, have used this money to waive or reduce subsidized parents’ co-payments for child care.
  • Rhode Island decided to cap parents’ co-payments at no more than 7 percent of household income, mirroring proposals in the Biden administration’s original Build Back Better framework.
  • Colorado, Minnesota, and others set up programs to help unlicensed and prospective providers meet licensing standards and thus increase the supply of subsidy-eligible care.
  • Several jurisdictions, including New Jersey and Iowa, are providing bonus payments and financial incentives directly to child care workers—a move that a 2019 pilot program in Virginia found to halve costly staff turnover at child care centers.

The examples above hardly scratch the surface of the various ways in which states and territories have used the American Rescue Plan’s dedicated child care dollars. And there is early evidence that the law achieved its desired effects: An analysis by Julie Kashen and Rasheed Malik for the Century Foundation, for example, finds that millions of child care slots may have been saved thanks to the American Rescue Plan’s stabilization grants that prevented child care providers from shutting their doors.

Yet all of these various initiatives also have one thing in common: They will soon end. The law requires states and territories to liquidate the American Rescue Plan’s child care funding by September 2024 at the latest.

Remaining American Rescue Plan funds can further support states’ child care systems

Fortunately, other American Rescue Plan programs provide state and local policymakers with additional resources, flexibility, and time to support their child care industries. The law includes both targeted and flexible payment programs to assist states and localities in responding to the COVID-19 pandemic and recession. One of the more flexible programs is the Coronavirus State and Local Fiscal Recovery Funds program, which provides $350 billion to state, local, and Tribal governments to, among other purposes, assist workers, households, small businesses, and nonprofits that have been negatively impacted by the pandemic.

While most of that money has already been distributed and allocated, 30 states recently received the second half of their recovery funds—nearly $40 billion in total. Metro cities, counties, and qualifying local governments also received the second half of their payments at the same time. The remaining states and all territories received their full funding previously in a single payment. States received either half or full payments depending on their unemployment rate relative to pre-pandemic periods. (See Figure 1.) 

Figure 1

Disbursement of State and Local Fiscal Recovery Funds, by states that received one lump sum payment or two half payments

Somestates and localities have fully allocated these funds in their budgets already, but others are still deciding how best to utilize them. While not specifically for child care, the final rule regulating these funds allows them to be used for specific payments and programs that complement those included in the American Rescue Plan’s child care provisions. And unlike the law’s child care-specific funds, the Coronavirus State and Local Fiscal Recovery Funds are available until December 31, 2026. 

As such, these funds can be used to enhance and expand the American Rescue Plan’s child care aid as it expires over the next 2 years. According to the U.S. Department of the Treasury, the fiscal recovery funds can be used for child care support in a few different ways: ensuring “premium pay” for child care staff—up to an additional $13 per hour—similar to policies implemented in Kansas, Washington, DC, Utah, and elsewhere; providing loans or grants to repair child care facilities or help providers reopen or start a new facility; establishing technical assistance or programmatic support for smaller, home-based providers that need access to the subsidy system, expanding the supply and quality of care in the process; and offering expanded child care options for parents looking for work.

Since these funds arrive and expire later than the child care-specific funding, state and local policymakers can identify where need still exists in their child care markets and are afforded more breathing room for the child care sector to recover before the funds run out. For an industry still struggling to recover from the COVID-19 recession, these resources can meaningfully improve child care’s ongoing supply crisis in the short run and help protect the industry from a future economic downturn or recession.

The American Rescue Plan can still support child care today while building evidence for tomorrow’s investment

In many ways, the American Rescue Plan has served as an important test run for future public investments in child care. While not as sweeping or robust as President Joe Biden’s Build Back Better framework, this money has nevertheless allowed states and localities to pilot many of the components in the broader reform plan, developing some of the baseline infrastructure necessary for these kinds of public investment and a roadmap for the child care sector moving forward.

The flexibility of the American Rescue Plan’s aid also provides important policy variation for researchers and academics to evaluate programs and compare outcomes, building useful evidence that Congress can take into account when tackling additional reform in the future. 

While this test run has been important, it is also imperfect. States may be hesitant to use this one-time infusion of cash to expand child care slots or raise workers’ wages only to have to roll them back once the funds expire. After all, the American Rescue Plan was not intended to replace robust and permanent public investment in the U.S. child care system.

post

Policymakers tackling inflation can’t overlook the impact of higher interest rates on the U.S. child care market

By Sam Abbott,

August 11, 2022

post

Factsheet: What the research says about the economics of early care and education

By Equitable Growth,

September 15, 2021

post

The economic evidence behind the Inflation Reduction Act and why it will boost strong, broad-based economic growth

By David S. Mitchell,

August 5, 2022

The aid certainly has helped some state and local policymakers avoid, or at least delay, an even greater child care crisis, but it is not a long-term solution. Expanding and extending the policies in the American Rescue Plan will ultimately be necessary for creating the equitable, accessible, and affordable child care system needed to generate broad-based and sustainable economic growth in the United States.

Until then, policymakers must use all the tools at their disposal, including the American Rescue Plan, to help ensure a functioning child care system in the United States for providers, workers, and families.

Posted in Uncategorized

Better data collection can help lift the LGBTQ+ community out of economic hardship in the United States

Posted on by Maria Monroe

Over the past 2-plus years amid the COVID-19 pandemic, widespread evidence has underscored the reality that various communities and demographic groups in the United States experience socioeconomic hardships differently. Numerous studies have explained how communities of color have experienced greater rates of job loss, financial instability, and negative health outcomes than their White counterparts.

This information is known largely because of disaggregated data collection that asks respondents specific questions about their race and ethnicity. Federal surveys, for instance, that ask such questions provide insight into the economic well-being of different demographic groups and how they are treated by society with respect to their identities.

Yet one group is often overlooked in federal data collection: the LGBTQ+ community. Currently, only the Census Bureau’s Household Pulse Survey—just one of the dozens of federal economic surveys—asks demographic questions explicitly related to the respondents’ sexual orientation or gender identity, or SOGI. (While the Census Bureau’s American Community Survey does not ask people to self-report their sexual orientation or gender identity, some research has nonetheless leveraged this survey using self-reported data on partners of the same sex who live in the same household, but this represents a small fraction of all LGBTQ+ households.) This lack of data limits our understanding of the LGBTQ+ community’s economic experiences, which, in turn, limits policymaking that could provide essential support targeting the specific needs of LGBTQ+ workers and families in the United States.

The need for more federally collected data on the LGBTQ+ community was the focus of an event that the Washington Center for Equitable Growth hosted on July 12. This latest installment of Equitable Growth Presents, titled “LGBTQ+ Economic Data and Disparities: What We Still Need to Know,” was a virtual convening featuring Lee Badgett, professor of economics at the University of Massachusetts, Amherst, and Sharita Gruberg, vice president of economic justice at the National Partnership for Women and Families, and was moderated by Equitable Growth’s Director of Economic Measurement Policy Austin Clemens.

Badgett kicked off the event, summarizing her research on the economic experiences of the LGBTQ+ community, which focuses on how sexual orientation and gender identity shape economic outcomes. While labor economists often discuss gender or racial wage divides, Badgett’s research looks at the wage disparities between gay and lesbian or bisexual men and women and their heterosexual peers—for example, emerging literature finds that gay and bisexual men earn 7 percent to 11 percent less than their heterosexual counterparts. There is suggestive evidence that this pay divide is the result of discrimination, as it tends to widen in regions where there are fewer legal protections against discrimination on the basis of sexual orientation and gender identity and shrinks where more protections are in place.

Badgett explained her findings that lesbian women earn 7 percent to 9 percent more than heterosexual women, while bisexual women earn 10 percent less than heterosexual women. She attributes this inverted gap to the labor experiences of lesbian workers in the United States. Data show, for example, that lesbian women work more hours and weeks in a year, compared to heterosexual women. At the same time, Badgett reiterated that all women, regardless of sexual orientation, earn less than gay, bisexual, and heterosexual men.

Badgett also discussed her work examining how earnings vary before and after an individual’s gender transition. She finds that trans women face an earnings drop, while trans men face little to no changes in earnings post-transition. These findings indicate that both stigma against transgender individuals and wage gaps between cisgender males and females play a role in how an individual is compensated after their gender transition.

At a time when transgender and gay rights are threatened in states across the country, understanding the socioeconomic challenges faced by this community is vital. Badgett’s research finds, for example, that LGBTQ+ people face higher rates of poverty than cisgender and heterosexual people. (See Figure 1.)

Figure 1

Poverty by gender identity and sexual orientation, 2014-2017

The main contributor to these high poverty rates is discrimination. Experimental studies on hiring processes, for example, find that resumes with LGBTQ+-coded language—such as including gender non conforming pronouns—were 35 percent less likely to get called for an interview than resumes without such language. In an economy where most people rely on employment to receive health insurance, discrimination that makes it difficult to obtain or keep employment can create healthcare access inequities. This system can further trap an already-vulnerable population into greater poverty.

After Badgett presented her research, NPWF’s Gruberg explained that the first step to tackling this issue is to collect more data on the economic and lived experiences of LGBTQ+ Americans. Gruberg praised the Census Household Pulse Survey, which began asking SOGI questions in 2021, as a tool allowing researchers to better understand the disparities LGBTQ+ people have faced during the COVID-19 pandemic.

Yet as valuable as the Household Pulse Survey is in breaking down the effects of the pandemic, Badgett and Gruberg pointed out that it is still very limited in what it tells us.

Gruberg also highlighted two major successes in the campaign to collect more disaggregated data for the LGBTQ+ population: the LGBTQI+ Data Inclusion Act and the Biden administration’s executive order on Advancing Equality for Lesbian, Gay, Bisexual, Transgender, Queer, and Intersex Individuals.

The LGBTQI+ Data Inclusion Act, which passed in the House and has been introduced in the Senate, would require federal agencies that administer surveys to individuals to ask for voluntary self-identification of sexual orientation and gender identity on those surveys. As mentioned above, this data collection is essentially limited to the Household Pulse Survey, which is the first—and currently only—economic survey to explicitly feature such questions. Private institutions have tried to fill the gaps in the data by conducting their own surveys of the LGBTQ+ community. But to capture accurate and nationally representative statistics, the federal government needs to take on the responsibility of collecting thorough data on LGBTQ+ Americans.

post

The importance of anti-discrimination enforcement for a fair and equitable U.S. labor market and broadly shared economic growth

By Carmen Sanchez Cumming,

December 21, 2021

post

Measuring economic outcomes for all U.S. workers and their families will hold policymakers accountable to creating broad-based growth

By Austin Clemens,

October 7, 2021

post

Stratification economics: What it is and how it advances our understanding of inequality

By Kate Bahn, Carmen Sanchez Cumming,

February 28, 2022

Meanwhile, President Joe Biden’s executive order addresses the discriminations LGBTQ+ people face in schools, housing, healthcare, the judicial system, and employment, as well as in accessing federal programs. It also “establishes a new federal coordinating committee on SOGI data, which will lead efforts across agencies to identify opportunities to strengthen SOGI data collection.”

The combined efforts of the executive order and the LGBTQI+ Data Inclusion Act indicate that a “whole of government” approach to collecting meaningful data on the LGBTQ+ population, while also protecting their privacy, can provide clarity on the unique economic metrics and outcomes of LGBTQ+ individuals. These actions will greatly expand our understanding of the economic and lived experiences of LGBTQ+ people in the United States and thus guide policymakers in crafting legislation that responds to the specific economic hardships of—and that builds equity for—this often-overlooked community.

Posted in Uncategorized

New research shows that 1 in 4 adults in the United States suffers from transportation insecurity

Posted on by Emilie Openchowski
""

Access to transportation is crucial to ensuring that people can meet their basic needs and participate in society and the economy. It goes without saying that if people can’t get where they need to go, they will struggle to work and learn, to buy food, to see friends and family, and to receive medical care.

When a person can’t regularly move from place to place in a safe or timely manner because they lack the resources necessary for transportation, that person is experiencing transportation insecurity. Until recently, the number of people experiencing transportation insecurity in the United States had been a mystery, largely because researchers have lacked the tools to measure transportation insecurity.

Thankfully, this is no longer the case. Yesterday, my colleagues Alexandra Murphy, Jamie Griffin, Karina McDonald-Lopez, Natasha Pilkauskas (all of the University of Michigan), and I published new findings that use a novel measurement tool—the Transportation Security Index—to quantify the prevalence of transportation insecurity in the United States.

Modeled after the Food Security Index, the Transportation Security Index identifies those experiencing transportation insecurity by looking at their symptoms, such as feeling stuck at home because of a lack of access to transportation or arriving early or late somewhere due to transportation scheduling issues. Researchers can administer a questionnaire, score responses to each question, and add up the scores to come to a quantitative measure of a person’s overall level of transportation insecurity. (See Table 1.)

Table 1

The Transportation Security Index questionnaire and how the scoring works

When my co-authors and I administered the Transportation Security Index questionnaire to a nationally representative sample of 1,999 adults aged 25 and older in the United States, the results were striking. In 2018, the year of the data collection, about 1 in 4 adults experienced transportation insecurity, with nearly 1 in 10 experiencing moderate or high levels of insecurity. (See Figure 1.)

Figure 1

Proportion of adults ages 25 and older experiencing marginal, low, moderate, high, and no transportation insecurity in 2018

As one might expect, my co-authors and I find that transportation insecurity and poverty are highly correlated. Indeed, we find that more than half of adults who experience poverty are also experiencing transportation insecurity—a relationship that remains strong even when controlling for factors such as car ownership, race, education level, and urbanicity. (See Figure 2.)

Figure 2

Proportion of U.S. adults ages 25 and older experiencing marginal, low, moderate, high, and no transportation insecurity in 2018, by income level

Perhaps less intuitively, though, our results suggest that car ownership and transportation insecurity are not as correlated as one might expect. While car owners are much less likely to experience transportation insecurity than people who do not own cars, car owners are not immune from transportation insecurity—perhaps because cars, while helpful for getting around, are not effective tools if their owners cannot afford gas, insurance, or repairs, or if they must share the car with many other family members. (See Figure 3.)

Figure 3

Proportion of U.S. adults ages 25 and older experiencing marginal, low, moderate, high, and no transportation insecurity in 2018, by car ownership

As is the case with other forms of material hardship, my co-authors and I find that transportation insecurity rates in the United States are highest among the racial and ethnic groups that also often experience racism and discrimination: Black and Hispanic adults. (See Figure 4.)

Figure 4

Proportion of U.S. adults ages 25 and older experiencing marginal, low, moderate, high, and no transportation insecurity in 2018, by race/ethnicity

This creates a vicious cycle, in which experiences of discrimination in institutions, such as the labor market, education system, and financial system, as well as in city planning, lead Black and Hispanic adults in the United States to have fewer resources to access adequate transportation. Transportation insecurity, in turn, prevents them from accessing more and better economic opportunities and even from meeting their basic needs.

In sum, our research demonstrates that transportation insecurity can be measured—and shows how prevalent it is in the United States.

Future research is needed, however, to determine how rates of transportation insecurity in the United States have changed since 2018. For instance, transportation insecurity levels may have fallen as staying home and working from home became more common amid the COVID-19 pandemic—or they may have risen as the price of used cars and gas increased. Likewise, further research is needed to examine the causal links between transportation insecurity and outcomes that are crucial to the functioning of the U.S. economy, including labor force participation, access to healthcare, school attendance, and consumption patterns.

Such research would help guide policymakers as they seek solutions to address widespread transportation insecurity and its impacts on U.S. workers and their families.

Posted in Uncategorized

Consumers initially spend less than a third of their stimulus checks, on average, amid recessions

Posted on by Emilie Openchowski
""

Economists and policymakers alike generally agree on the effectiveness of sending out direct stimulus checks to individuals to help reverse an economic downturn by encouraging more consumer spending. But they vigorously debate the appropriate amount of money that should be disbursed. U.S. policymakers in the past three recessions sent out stimulus payments ranging from $600 to $1,200. Was that too much, too little, or just about right?

Stimulus payments are meant to ease the pain of the economic downturn for families, and the payments help stabilize the economy. How much of the stimulus payment is immediately spent to help the economy rebound is known in economics as the marginal propensity to consume, or MPC. How much families spend varies, of course, depending on the size of the stimulus checks, whether they are unemployed when they receive the checks, and how much savings they have squirreled away that is easily converted into cash, among many other variables.

In a new working paper, “Marginal Propensity to Consume in Recessions: A Meta-analysis,” economist Anna Sokolova at the University of Nevada, Reno provides some data-driven evidence for U.S. policymakers to ponder and for economists to research further for even more evidence of the effectiveness of stimulus payments. She examined data from 40 different studies around the globe on the spending patterns of consumers within the first 3 months of receiving their stimulus checks over the course of the past three recessions—the dot-com recession of 2001, the Great Recession of 2007–2009, and the COVID-19 recession of 2020—and including other small transitory or predictable payments over the time period spanning all three recessions.

Sokolova finds that, on average, consumers spent 29 percent of these stimulus payments purchasing goods and services in the 3 months after receiving it—or, in economic parlance, their marginal propensity to consume was 0.29 when the stimulus was $1,200, though that propensity to consume depends on the size of the stimulus payments. (See Figure 1.)

Figure 1

Estimates of quarterly marginal propensity to consume based on a meta-regression model, conditional on different stimulus payment sizes

At first glance, then, it would seem that U.S. policymakers may be overly optimistic about the direct effects of stimulus checks to help reverse recessions. After all, sending $300 billion to people, as happened with the first COVID-19 payment, but only having about $87 billion of it spent in the first 3 months would not seem to deliver the robust kick to the U.S. economy needed to spark the beginning of a quick turnaround.

But aggregate spending on average by consumers doesn’t capture the very different circumstances in which individual consumers make those spending decisions. Importantly, the new working paper finds that when unemployment rates are high—a leading indicator that a recession is severe—the marginal propensity to consume also rises within the first 3 months of receiving stimulus checks. (See Figure 2.)

Figure 2

Estimates of quarterly marginal propensity to consume based on a meta-regression model, conditional on different unemployment rates

This indicates that stimulus payments are much more effective at prompting more spending more quickly by households when recessions are more severe. This makes sense. A higher percentage of the stimulus payments will be spent because more people are out of work and need the money to buy everyday expenses such as food and paying the rent.

So, U.S. policymakers are probably correct when they send stimulus payments to U.S. households to boost their marginal propensity to consume when the economy is in more dire straits. Or, as economists would say, the countercyclical features of MPC-driven stimulus are effective. Indeed, Sokolova finds evidence suggesting that U.S. households spend more of their stimulus money, compared to households from other countries.

The new working paper also shows that U.S. policymakers can use these results to estimate how much of the stimulus payments will be spent immediately. In this way, policymakers can calculate how much money they need to spend in the form of stimulus payments by using the marginal propensity to consume to calibrate the size of the stimulus needed. Sokolova’s research finds, for example, that a higher percentage of that money will be spent directly and more quickly in an economic downturn when there is less of it landing in consumers’ mailboxes or bank accounts.

Policymakers also should consider the levels of household savings when sending out stimulus payments while also factoring in the economic benefits of distributing those payments to everyone more swiftly to spark more consumption effects, as well as the political benefits of making these payments universal to garner broad-based public support. This new working paper finds that households with high levels of liquid assets tend to have marginal propensities to consume that are lower, but by about only 9 percentage points to 10 percentage points, compared to the general population.

This new research also points economists to other ways in which the marginal propensity to consume could be further studied using data-driven evidence, alongside other qualitative measures. For instance, economists could explore further the relationship between the marginal propensity to consume from households’ one-time stimulus checks, compared to money they receive as recurring payments, such as annual tax refunds. More data-driven research on the many ways in which the marginal propensity to consume affects the U.S. economy would certainly be useful when U.S. policymakers consider future rounds of stimulus payments to combat a recession.

post

Consumption volatility across the U.S. income distribution is highest among low-income workers and their families

By Jonathan Fisher, Bradley Hardy,

February 3, 2022

working paper

Estimating the marginal propensity to consume using the distributions of income, consumption, and wealth

By Jonathan Fisher, David Johnson, Jonathan Latner, Timothy Smeeding, Jeffrey Thompson,

April 19, 2018

Coronavirus Recession

The coronavirus recession highlights the importance of automatic stabilizers

By Greg Leiserson,

June 30, 2020

Research should also go beyond estimating the marginal propensity to consume from these stimulus payments. As Equitable Growth Steering Committee member and Harvard University professor Karen Dynan recently wrote, more research is needed to understand how this type of countercyclical fiscal policy protects the most vulnerable households from harm. Research by Equitable Growth grantee and University of Chicago economist Christina Patterson finds that the disproportionate impact of recessions on low-income and young workers amplifies recessions due to their higher marginal propensities to consume, so it’s also critical to understand the spillover impacts of stimulus to households in need during recessions to forestall worsening economic outcomes.

Lastly, these types of stimulus payments are needed because the United States does not have a robust system of automatic stabilizers and social infrastructure. These one-off stimulus payments are inefficient because of the time it takes to pass new legislation and because they are often poorly targeted. Policymakers should explore how to automate programs that mitigate negative consequences for families and workers during economic downturns, as well as foster overall economic security by building up our social infrastructure.

Indeed, the inadequate state of U.S. social infrastructure and lack of automatic stabilizers may well explain why U.S. households spent more of their stimulus money than households in other countries. They needed to because they were economically more precarious when the COVID-19 recession hit. Further research on the potential built-in resiliency of U.S. workers and their families amid an economic crisis by enacting robust automatic stabilizers and social infrastructure will help policymakers design these programs for possible implementation.

Posted in Uncategorized