Workers often need paid time away from their jobs, whether they are experiencing a short-term flu, undergoing a surgery and recovery that will last a few weeks, caring for an ill family member, or welcoming a new child to their family. In the United States, two distinct types of paid time off can be used to address family and health needs—paid sick time and family and medical leave—though there is no federal guarantee for either one, meaning some workers do not have access to them.
Paid sick time allows workers to address short-term needs, such as going to a doctor’s appointment or recovering from the flu. Paid family and medical leave allows workers to address longer-term needs, from caring for a new child or a sick family member to addressing one’s own serious medical need, such as cancer. This issue brief describes both types of paid time off and their impacts on the broader U.S. economy. It then provides information about which workers can access paid sick time and paid family leave through their employers as well as the federal legislation that has been proposed to broaden access.
What is paid sick time, and how does it affect economic growth?
Paid sick time, also commonly referred to as paid sick days or paid sick leave, typically lasts for days or weeks, and can even be taken by the hour. (See Table 1.)
Table 1
Paid sick time is typically used when a worker experiences an illness or injury that lasts a short time or when a worker needs to address a short-term care need of a loved one. It may also be used during preventative medical care appointments. Some employers voluntarily offer paid sick time to their workers, and currently 36 states and localities require that employers provide paid sick time, though workers have no federal right to paid sick time.
When employers choose to offer paid sick time, or are required to, their workers usually accrue that time as they work. For instance, an employer may offer 1 hour of paid sick time for every 30 hours that an employee works. When an employee has worked for 240 hours, they will have accrued 8 hours of paid time off to use when a health need arises. Additionally, some state and local paid sick time laws have a feature called “job protection,” which means that it is illegal for an employer to terminate an employee for using their paid sick time.
While the primary purpose of paid sick time is to allow workers to address short-term medical needs without suffering economic hardship, it also leads to broad economic and public health benefits because paid sick time is associated with decreases in the spread of communicable diseases. Local paid sick time laws, for example, have been found to reduce influenza-like infections by 30 percent to 40 percent. Similarly, when the federal government enacted a temporary, coronavirus-specific paid sick time policy in 2020 through the Families First Coronavirus Response Act, states where workers gained new access to the emergency paid sick leave program saw COVID-19 cases drop by 56 percent. (See Figure 1.)
Figure 1
As we have seen during the coronavirus pandemic, controlling communicable disease is essential to ensuring that workers are able to produce goods and services and that consumers will purchase those goods and services—in other words, to ensuring that large parts of the economy can function normally. The onset of the coronavirus pandemic was accompanied by an unprecedented drop in Gross Domestic Product precisely because the spread of infection hindered workers’ ability to work and consumers’ ability to consume.
Paid sick time policies also have been shown to reduce rates of worker turnover, which leads to productivity gains for businesses. When paid sick time policies are implemented, research shows that businesses do not cut other employer-provided benefits and are thus likely to be able to absorb the average cost of providing the benefits—2.7 cents per worker per hour, according to one study—with relatively little trouble.
What is paid family and medical leave, and how does it affect economic growth?
Paid sick time is important, but it is not well-suited to cover longer absences. When workers need weeks or months away from work to care for a new child or address a serious medical condition that they or a family member face, they turn to paid family and medical leave.
As seen above, in Table 1, there are three major components to paid family and medical leave:
Paid medical leave to address one’s own serious medical condition, also known as temporary disability insurance
Paid caregiving leave to care for a loved one with a serious medical condition
Paid parental leave to care for and bond with a new child who has joined a family through birth, adoption, or foster care placement
Employers may choose to offer just one or two types of paid leave, but most of the states with paid leave programs offer comprehensive paid family and medical leave: all three types.
Pay for family and medical leave can be offered voluntarily by employers, who provide benefits directly or through third parties, such as private temporary disability insurance providers. Additionally, in 9 states and the District of Columbia, workers can access state paid leave programs, which offer workers partial wage replacement during their time away from work. Some state programs also offer job protection, so that workers can be confident that they can return to their jobs following their time off.
There is no federal program that provides paid family and medical leave to workers across the United States, though unpaid leave is available to some workers through the Family and Medical Leave Act of 1993 and the Americans with Disabilities Act. Eligible workers can access job protection through these laws at the same time that they access pay from their employer or state paid leave program, where available.
By allowing workers paid time off to address their family and medical needs, paid family and medical leave programs can contribute to macroeconomic growth. Paid leave programs, for example, can increase labor force participation, particularly among women, which is a key driver of economic growth. Evidence from California indicates that under the state’s paid leave law, new mothers are 18 percentage points more likely to be working a year after the birth of their child. (See Figure 2.)
Figure 2
Other research finds that the availability of paid caregiving leave also affects work effort, either by increasing labor force participation or by increasing the number of hours worked among employed caregivers. Given these benefits, perhaps it comes as no surprise that research repeatedly shows that small businesses appreciate government paid family and medical leave programs.
Paid family and medical leave programs also strengthen the human capital of the next generation through improvements in child well-being, such as decreases in rates of attention deficit/hyperactivity disorder, obesity, and ear infections and the hearing problems they cause, along with increases in parents’ time helping children with reading and homework.
Who can access these types of leave, and what legislation might broaden access?
Despite the health and economic benefits of paid sick time and paid family and medical leave, many workers cannot access these types of paid time off.
Access to paid sick time is broad—but not universal—among the civilian workforce as a whole: Seventy-eight percent of workers can access paid sick time through their employer. But paid sick time is out of reach for the typical low-income worker. Only 4 in 10 workers in the lowest-paid jobs, who are disproportionately workers of color, have access to paid sick time.
Access to paid family and medical leave is even less common. Only 1 in 5 workers have access to paid family leave through their employers, and the figure drops to around 1 in 20 for the lowest-paid workers.
Federal legislation has been proposed to address these gaps in access. The Build Back Better Act, which was passed by the U.S. House of Representatives last year but remains stalled in the U.S. Senate, includes a proposal to establish a paid family and medical leave program, but does not include a paid sick time policy. Coronavirus-specific paid sick time was available until the end of 2020 through the Families First Coronavirus Response Act, and the Healthy Families Act would extend a broader guarantee of paid sick time.
Because legislation that guarantees paid sick time and legislation that guarantees paid family and medical leave both allow workers to take needed time away from work without financial hardship, these policies are often conflated. Understanding the distinction between them, however, is important to conducting rigorous research and policy analysis—and ultimately to ensuring that policies are passed that ensure that workers can access leave to address whatever health issue they or a loved one faces, thus encouraging long-run economic growth and benefitting the overall U.S. economy.
The Washington Center for Equitable Growth is increasing its efforts and resources to help tackle the enduring challenges to diversify the economics profession, as well as expanding and strengthening the diversity of lived experiences represented by the scholars with whom we engage.
Equitable Growth mainly provides financial support and professional resources to academics through our grantmaking and Dissertation Scholars program. To expand these resources, we recently developed new programming to support and further the careers of scholars from historically underrepresented and disadvantaged groups in the economics profession, as well as early career researchers.
We are now a host institution for the American Economic Association Summer Economics Fellowship program, which is a partnership of the AEA Committee on the Status of Women in Economics Profession, the Committee on the Status of Minority Groups in the Economics Profession, and host institutions. The program aims to support early career scholars from historically excluded groups in economics. As a host institution, we provide a stipend for a fellow to spend 12 weeks in the summer to conduct research and engage in career and professional development activities.
Our inaugural fellow, Rachel M. B. Atkins, a Provost’s Postdoctoral fellow at the Stern School of Business at New York University, described the experience as “extremely helpful for my career goals both because of [Equitable Growth’s] vast network and also by expanding my horizons regarding the types of available career opportunities for someone with my skillset.”
In addition, Equitable Growth hosted two “brown bag” research presentations: one that featured the two finalists of the AEA Summer Fellowship and the second featuring Atkins. Both brown bags provided these early career scholars an opportunity to receive feedback on their ongoing research from a select group of experts as discussants and audience members, including from our Steering Committee.
Equitable Growth is now participating in the AEA Summer Training program as well, specifically as an “experiential learning” host of two undergraduate students to expose them to professional work outside of academia for Ph.D. economists. The program, currently hosted at Howard University, prepares students for doctoral programs in economics and related disciplines through intensive coursework in microeconomics, math, econometrics, and research methods.
As many as 20 percent of doctorates awarded to students from underrepresented racial and ethnic backgrounds in economics over the past 20 years are graduates of the program. As a host organization, we provide students trainings on topics such as editing and networking, arrange meetings with high-profile economists and members of our academic network, and provide hands-on experience to build skills.
Last year’s experiential learning participants met with U.S. Department of Labor chief economist Janelle Jones and Equitable Growth’s President and CEO Michelle Holder. They also authored columns based on academic papers on intergenerational mobility and neighborhood economic disparities that were published on our website. Patrick Edwards, a student at the Rochester Institute of Technology and the author of the column on neighborhood economic disparities, said of his participation in the program:
I was able to pursue work related to my own interests and interact with staff at all levels of the organization. Despite the short stint, I was able to develop my skills in policy writing for a broad audience and learn about the numerous opportunities available to economists interested in policy work outside of academia.
Equitable Growth also increased our efforts to bring attention to the resources and support we offer to a broader array of scholars, after having worked to make it easier to access information about our grantmaking and what makes for a successful application. To reach a broader audience, for example, in 2021, we engaged more deeply at regional economic conferences, including the Western Economic Association Conference and the Southern Economic Association Conference and will engage this year at the upcoming Midwestern Economic Association Conference. Regional conferences provide valuable ways to introduce funded research and funding opportunities to scholars in various phases of their careers and from an array of backgrounds.
We also organized sessions to provide scholars with information and tips on how to write successful grant proposals. At the Southern Economic Association conference, we organized one such session with the Russell Sage Foundation. The speakers—Stephen Glauser at RSF, Ann Huff Stevens, dean of the College of Liberal Arts at the University of Texas at Austin, Andria Smythe, assistant professor of economics at Howard University, and myself—touched upon how best to foster interdisciplinary collaboration and methodological diversity, increase the number of successful applicants from members of underrepresented groups, and tackle the unique challenges posed by the ongoing pandemic and racial reckoning that have disproportionately impacted communities of color in the United States.
To help expand our network of interdisciplinary scholars, Equitable Growth organized activities at both the Labor and Employment Relations Association Conference and the American Sociological Association annual meeting. At the annual ASA convening, for example, we hosted a professional development workshop on best practices for writing successful grant proposals for research on inequality. The session, led by Equitable Growth’s Academic Programs Director Korin Davis and Mellon/ACLS public fellow Aixa Alemán-Díaz, featured a panel discussion with Elisabeth Jacobs, deputy director of WorkRise at the Urban Institute (and formerly a director at Equitable Growth) and Equitable Growth grantees and accomplished sociologists Nathan Wilmers of the Massachusetts Institute of Technology and Harvard University’s Daniel Schneider. The workshop elevated how different funding opportunities around inequality research provide a host of benefits—monetary and nonmonetary—that range from networking to writing for different audiences and other opportunities with media and policymakers.
David Mitchell, director of government and external relations, provided an overview of our funding opportunities and policy engagement support for scholars at the annual AEA Summer Mentoring Pipeline Conference in June 2021, and Academic Programs Director Davis was a panelist at a professional development session on tips for grant seeking and grant writing at CeMENT’s annual workshop, which is aimed at mentoring women and nonbinary faculty in tenure-track positions in economics.
Another way Equitable Growth is supporting and providing resources for early career scholars is through an “office hours” initiative, whereby interested grant applicants can request a meeting with staff to discuss their research and ask questions specific to their project and situation. The goal is to level the playing field, so scholars outside of our network or with little grant-seeking experience can get input and advice to put together a competitive application.
And there’s more work on the horizon. We are developing a plan to provide more regular mentorship opportunities for early career scholars at academic conferences, as well as more brown bag presentations with members of our academic and policy networks. In addition, Equitable Growth will be piloting free, hands-on grant-writing workshops for economics Ph.D. students at select minority-serving institutions to make our grantmaking and programming more accessible.
Equitable Growth will continue to hold ourselves accountable to cultivating more inclusive pathways by continuing to measure our progress, as well as supportingorganizations that steadfastly work to cultivate racial, ethnic, and gender diversity in the economics profession.
Apply to our programs
Equitable Growth is currently accepting applications for the Dissertation Scholars program in response to our annual Request for Proposals. Application materials include a curriculum vitae, a six-page proposal describing your research project, a two-page statement of work, and two letters of recommendation. Dissertation Scholar applicants who are not selected for the program are automatically considered for a doctoral grant.
For the Summer Economics Fellows program, applicants are asked to apply directly through the main AEA program website. Applicants interested in joining Equitable Growth should indicate this preference on the application form. In addition to the application form, a resume and a one-page description of your proposed research is required. We encourage applicants interested in joining Equitable Growth to include goals on how spending time with us would further both your career and research, especially as those goals relate to policy engagement, in the comment box on the application form.
For the Summer Training program, applicants are asked to apply directly through the main AEA program website. Applicants are paired with host institutions by the program organizers.
Summer Training program applications should be received by January 31, 2022. Summer Economics Fellowship program applications should be received by February 1, 2022. Dissertation Scholar applications should be received by January 26, 2022.Doctoral/postdoctoral grant proposals should be received by March 21, 2022.
The daily economic news cycle is awash with stories these days about the threat of automation and artificial intelligence to the future of work for hundreds of millions of U.S. workers. Amid near-hysteria over ostensibly widening “skills gaps” and deepening labor shortages in key U.S. production and services industries—stories that are especially scary as the coronavirus pandemic enters its third year—workers across the country are hearing that these technologies are inexorably destroying their sources of livelihoods now and well into the future.
These stories could not be more pessimistic about the future of work in our nation. And they couldnot bemore wrong. The reason? Technology is not like gravity. Workplace automation and artificial intelligence technologies do what the humans who design and deploy them are rewarded to have them do. Those rewards can be changed.
To be sure, workers’ fears of technological change aren’t without basis. Yet the biggest technology opportunities have always augmented the work of humans, rather than replaced it altogether. New technological breakthroughs could amplify this trend, combining machine efficiency with human empathy to make people’s interactions more efficient and effective. Artificial intelligence and machine learning will enable teams of people to learn much faster than before.
Before I detail the kinds of steps that need to be taken and detail the kinds of evidence-based research that could be conducted to make this happen, it makes sense to first briefly walk through why so many falsely believe that technology and automation are taking over our jobs.
A key contributor to common fears regarding technology is that the jobs of working people without bachelor’s degrees—which some pejoratively and wrongly view as “unskilled” occupations—are considered most likely to be eclipsed by computers, automation, and artificial intelligence and are first in line to be automated. Some say that these kinds of workers need to be “upskilled” to find work in the current and post-pandemic U.S. economy, or they will be “replaced by the robots.”
Another common denominator in this fear about the future of work is the experience many of us face when applying for jobs. Despite a record number of open jobs, getting hired hasn’t gotten any easier for the millions searching for work. It also is readily apparent that outdated hiring practices screen out qualified applicants such that “the endless quest to make hiring efficient has rendered it inefficient,” explain Rani Molla and Emily Stewart at Vox.
First and foremost, the idea that workers in our economy are unskilled is false. In fact, employers play a lead role in building these kinds of destructive automation processes—ones that, by and large, do not benefit them or their employees and prospective new hires. And employers can play a lead role in dismantling these practices by being held accountable for how they use these technologies for their own benefit and for the greater prosperity of U.S. workers and their families and the broader U.S. economy.
With the rise of automated hiring processes, many companies use “bachelor’s degree” as a keyword search in their applicant tracking system, which omits candidates before any human gets to consider them. This one choice automatically screens out approximately 60 percent of all U.S. workers. But it’s not the applicant tracking system that is choosing how or who to screen; it is the humans behind it. The equitable answer to this hiring inefficiency is to look for talented individuals who are “Skilled Through Alternative Routes,” or STARs, by removing out-of-date barriers and letting workers shine because of their skills.
National awareness and validation for the STARs talent category is growing—just last week, The New York Timesprofiled new insights on STARs from our latest report, “Rise with the STARs,” which quantifies the damage done by two decades of rising career barriers to more than 70 million U.S. workers skilled through alternative routes. These STARs don’t have bachelor’s degrees, but they have gained skills through community colleges, military service, training programs, skills bootcamps, and on-the-job learning.
Two papers in the National Bureau of Economic Research build on the body of work about STARs, including:
“Searching for STARs,” which segments and presents the more than 30 million STARs with trajectories to higher wages based on their skills
“Skills, Degrees and Labor Market Inequality,” which presents rigorous quantitative analysis to show workers with bachelor’s degrees have dramatically better access to higher-wage occupations than STARs, exacerbating inequality between these groups
In this way, individuals’ skills will be augmented by technology, enabling them to succeed in more valuable, reconfigured jobs that meet real needs. As a result, workers will need to be trained to perform what Federal Reserve economists have called “opportunity occupations,” or those that require modest upskilling and pay more than their previous jobs. Businesses that create the conditions for these kinds of augmented technologies to flourish will deliver more overall productivity. They will be rewarded for the rapid reskilling of their workforces, enabling more inclusive innovation, creativity at every level, greater openness to change, better earnings, and more fulfilling experiences for workers and their managers alike.
Indeed, employers have already automated many routine tasks in the workplace. Today, most of what workers get paid for is effective interactions, such as communicating, problem-solving in teams, learning what users value, and finding the “sweet spots” that make companies and their customers better off. These kinds of tasks will be enhanced, not replaced, by technology.
Policymakers also need to come to grips with the institutional blockers to progress. Policies need to be put in place so that the use of technology improves the experiences, earnings, opportunities, and outcomes of working Americans and their families. In short, policymakers and economists alike need to stop blaming the tools and start fixing the rules. We need to make technology an empowering tool in the hands of workers—not because of luck, but through deliberate choices, including long-term investments, by our government, industry, and citizenry.
There is a key role for scholars to help us understand how best to handle the transformation of workplaces due to automation and artificial intelligence. The Washington Center for Equitable Growth, through its grant giving and its network of scholars, is a place where researchers come together and analyze the causes and consequences of the multiple dimensions of inequality, including in U.S. workplaces and across the U.S. workforce. The impact of technology on our lives—and on the future of meaningful work—is the result of research, investment, regulatory action, and business-model choices that are made by people. Together, we can make the future of work one of hope and prosperity, not disillusionment and despair.
Direct government payments to individuals are now a standard part of U.S. fiscal policymakers’ recession-fighting toolkit. Three rounds of so-called economic impact payments from the federal government have been paid out since the onset of the coronavirus pandemic and the subsequent recession set in, with the most recent round concluding at the end of 2021. These payments built off similar payments made in several earlier periods of economic weakness, including the “tax rebates” of 2001 and 2008.
In legislating direct payments to individuals, U.S. policymakers generally have had two goals in mind: first, boosting the macroeconomy by stimulating aggregate demand and, second, mitigating recession-related harm to individuals. Many academic papers have studied the effects of these economic impact payments and earlier rounds of such payments. Most of this research has been aimed at estimating the spending response, also known as the marginal propensity to consume out of the payments.
These three studies look at the initial months following the payout of economic impact payments and estimate marginal propensities to consume out of nondurable goods that range from 0.1 to 0.5, implying that households put between 10 cents and 50 cents of every dollar they received toward purchases of nondurable goods. This research has informed us generally about how the spending of the average household responds when it receives an infusion of cash and points to higher propensities for households with low levels of liquid assets.
In a recession-fighting context, these research results are helpful because they speak to the stimulus impact of the measures—the boost to aggregate spending. This aggregate response reflects not only the spending directly spurred by the receipt of these payments but also additional outlays arising because new spending produces more income for those producing the goods and services produced, or the so-called multiplier effect. Having estimates of the marginal propensity to consume and multiplier effects is crucial for assessing how a fiscal package with direct payments to individuals and households will affect the aggregate economy and also for thinking about how to target future payments, so they have the most effect on the overall economy.
Much less of the research on the three coronavirus-recession-linked economic impact payments and earlier rounds of such payments has focused on the more general question of how this type of countercyclical fiscal policy helps to protect households from harm that might otherwise result from a weak economy. Such harm includes the immediate hardship that might arise from the loss of jobs or incomes and the degree to which such losses create longer-term scars that put households on weaker economic and financial footing for years to come.
A natural extension of this type of research on the marginal propensity to consume would be a consideration of the degree to which economic impact payments, as well as support from more traditional programs such as Unemployment Insurance, helped households in different parts of the income distribution smooth their consumption in the face of the massive job losses caused by the pandemic. Many households had low levels of liquid assets going into this period. Indeed, economist Neil Bhutta at the Federal Reserve Board and his co-authors find that close to half of households had insufficient financial buffers to cover their expenses were they to lose their income for 6 months, allowing for the receipt of standard Unemployment Insurance benefits.
The high degree of consumption volatility that might arise from unexpected shocks to income when households have little financial buffer has been documented to have large welfare costs. In their 2020 study, “Wealth, Race, and Consumption Smoothing of Typical Income Shocks,” Peter Ganong at the University of Chicago and his co-authors find that consumption volatility is particularly high among households with Black and Hispanic heads, who tend to have low levels of liquid wealth.
Relatedly, the question of the degree to which these measures helped households avoid food and housing insecurity is a critical one. These types of insecurity are disruptive and difficult for families in an immediate sense but can also have much longer-lasting consequences, particularly for children. UC Berkeley’s Hoynes and Diane Whitmore Schanzenbach at Northwestern University underscore, in a 2018 literature review, how food insecurity can harm the future economic prospects of children through its adverse effects on cognitive and physical development. Otherstudies by the two scholars and Douglas Almond at Columbia University have documented specific harms along these lines.
Housing instability also is likely to have long-run consequences for children through the resulting instability in schooling and perhaps other channels (economist John Eric Humphries at Yale University and his co-authors show that evictions can also have lasting consequences for adults via its effects on credit access). And, tellingly, the 3 percentage point drop in the child poverty rate in 2020 hints that economic impact payments and other parts of the pandemic fiscal response improved outcomes along these lines. Additional research, however, that more rigorously documents these linkages would bolster the case for deploying such measures in the next economic downturn.
The three recent rounds of economic impact payments and other fiscal support measures probably also allowed many U.S. households to avoid setbacks in their finances that might otherwise have resulted from long periods of not working during the pandemic. The scarring of household balance sheets after the Great Recession of 2007–2009 is documented in research, such as a 2018 study by Federal Reserve Board economists Lisa Dettling and Joanne Hsu, titled “A Wealthless Recovery? Asset Ownership and the Uneven Recovery from the Great Recession.” Dettling and Hsu show that 2016 levels of average working-age family wealth were more than 30 percent below 2007 levels for families in the lower two-thirds of the income distribution. Such scarring is viewed as one reason why the overall economy took so long to recover from that downturn, with the unemployment rate only returning to its pre-recession lows in early 2017.
Economists Olivier Armantier, Leo Goldman, Gizem Koşar, and Wilbert van der Klaauw at the Federal Reserve Bank of New York document that many recipients of economic impact payments reported saving their payments or using them to reduce debt. And another study by economists at JPMorgan Chase & Co. shows higher cash bank account balances since the coronavirus pandemic began. This evidence suggests that fiscal support during the pandemic may have left many households on stronger financial footing, compared with their experiences during the Great Recession. But more research is needed on the degree to which families’ balance-sheet improvements have persisted and also on whether family balances sheets have been strengthened mostly for well-off households or whether the improvements extended to the households in the lowest part of the income distribution, which traditionally have faced the most economic precarity.
In sum, more research on economic impact payments and other pandemic-related income support programs that go beyond the marginal propensity to consume would help policymakers better understand the near-term and longer-term impact of these measures on U.S. households. More research would also help them design an effective fiscal response in the next economic downturn. It is worth remembering, too, that helping individual households better weather economic fluctuations has benefits for the broader U.S. economy. It creates a stronger consumer base that can hasten economy recovery and leaves households in a better position over the longer run to participate in the labor force, invest in skills, start businesses, and otherwise boost the productive capacity of the economy.
Equitable Growth is committed to building a community of scholars working to understand how inequality affects broadly shared growth and stability. To that end, we have created the monthly series, “Expert Focus.” This series highlights scholars in the Equitable Growth network and beyond who are at the frontier of social science research. We encourage you to learn more about both the researchers featured below and our broader network of experts.
One of our missions since Equitable Growth was founded in 2013 is to make evidence-backed policy the norm in the United States, centering innovative research from academics across disciplines to inform policy decision-making. It goes without saying that economic data is central to this work—which is why Equitable Growth is excited to continue seeding and supporting academic research that advances our understanding of economic measurement in 2022.
This month’s installment of Expert Focus highlights exemplary economic data collection, creation, and linking projects that cut across Equitable Growth’s issue areas, from fighting poverty and inequality to enforcing U.S. antitrust laws, and from addressing the racial wealth divide to bolstering the macroeconomy. These projects make economic data more accessible for both researchers and policymakers, provide for cross-sector analyses, and can inform policy that will foster strong, stable, and broad-based economic growth for all.
The scholars profiled below are all Equitable Growth grantees from diverse backgrounds, various disciplines, and at all stages of their careers. Learn more about Equitable Growth’s funding opportunities via our annual grants program.
Martha Bailey is a professor of economics at the University of California, Los Angeles and a faculty research associate at the National Bureau of Economic Research. Her research focuses on labor economics, demography, and health in the United States. Her recent studies examine the short- and long-term effects of anti-poverty programs, as well as the implications of contraception on women’s career and childbearing decisions and outcomes. Bailey leads UCLA’s Longitudinal, Intergenerational Family Electronic Micro-database, or LIFE-M database, which combines four generations of U.S. individuals’ vital records—such as birth, marriage, and death certificates—with their U.S. Census Bureau data. LIFE-M achieves an unprecedented level of historical record data linkage, which Bailey has co-authored studies about in recent years.
Bailey received two Equitable Growth grants, including one in 2020 (with Paul Mohnen at the University of Michigan and Shariq Mohammed at Northwestern University) focused on measuring intergenerational mobility in the United States. This project is a massive undertaking to produce a set of economic data on mobility going back to 1900, extending the scope of previous studies that typically use data from the mid-20th century. It also uses Social Security Numerical Identification files, which are more detailed than census records, allowing for more and better-quality data linkages, including the ability to study geographic, racial, and gender mobility disparities.
Simcha Barkai
Boston College
Simcha Barkai is an assistant professor of finance at Boston College, where he studies the competition between firms in the United States and implications for the macroeconomy. He also studies the decline in the labor share of income since the 1980s. Barkai is a junior fellow at the George J. Stigler Center for the Study of the Economy and the State at the University of Chicago, a research institute dedicated to promoting the power of markets to enhance people’s well-being.
Barkai—alongside co-authors Tania Babina at Columbia University, Jessica Jeffers at the University of Chicago’s Booth School of Business, Ezra Karger at the Federal Reserve Bank of Chicago, and Ekaterina Volkova at the University of Melbourne—is currently compiling a comprehensive database of U.S. antitrust enforcement actions against firms and individuals in the United States between 1890 and 2017. The data will then be linked to industry-level economic outcomes and restricted firm-level tax records. This project—for which Barkai and Karger received an Equitable Growth grant in 2019—will advance the existing knowledge base on the effects of antitrust enforcement on economic output and outcomes.
Jamein Cunningham
Cornell University
Jamein Cunningham is an assistant professor in the Department of Policy Analysis and Management and the Department of Economics at Cornell University. His research interests center on four broad themes: the intersectionality of institutional discrimination, access to social justice, crime and criminal justice, and race and economic inequality. Cunningham is a co-creator, alongside Rob Gillizeau at the University of Victoria, of the Racial Uprisings Lab, which is working to create a database of all racialized uprisings in the United States since 1991, with a particular emphasis on the Black Lives Matter movement.
Cunningham recently co-authored a working paper and accompanying column with Robynn Cox at the University of Southern California and Alberto Ortega at Indiana University that examine the link between affirmative action litigation, the racial composition of U.S. police forces, and police killings of civilians. He also received an Equitable Growth grant in 2020, alongside Jose Joaquín Lopez at the University of Memphis, to study the connection between civil rights enforcement and socioeconomic outcomes of communities of color. This innovative project will track enforcement at the court level and link it to individual and household-level data on labor market outcomes and intergenerational mobility, and then create a comprehensive dataset to determine how presidential judicial appointees have influenced civil rights enforcement over time.
David Johnson
University of Michigan, Ann Arbor
David Johnson is a research professor at the University of Michigan, Ann Arbor. He is also the director of the Panel Study of Income Dynamics, the longest-running household panel survey in the United States and a cornerstone of data infrastructure for social science research, having been used in more than 6,800 peer-reviewed publications and by at least nine federal agencies. Johnson is a member of Equitable Growth’s Research Advisory Board and previously worked for several years in the federal statistical system. His research focuses on the measurement of inequality and mobility, poverty measurement, and the effect of tax rebates, among others.
In 2014, he and his co-authors—Equitable Growth’s Jonathan Fisher, Timothy Smeeding at the University of Wisconsin-Madison, and Jeffrey Thompson at the Federal Reserve Bank of Boston—were awarded an Equitable Growth grant to study how income and wealth inequality affect consumption and saving in the United States. One of the resulting working papers from this grant, “Inequality in 3D: Income, consumption, and wealth,” produced a groundbreaking method for researchers investigating and modeling inequality by using economic data on well-being along three conjoint dimensions—inequality, consumption, and wealth—for the same U.S. households. Their findings show that looking at economic data on inequality through just one of these dimensions understates the level and growth of economic inequality.
Jacob Robbins
University of Illinois at Chicago
Jacob Robbins is an assistant professor of economics at the University of Illinois at Chicago, where he specializes in inequality and macroeconomics. His research uses theory and data to better understand key economic trends in the United States. Since the start of the coronavirus pandemic, for instance, he has written about both the importance of a bold economic response to avoid an economic depression and has studied the impact of COVID-19 lockdown policies on retail spending. Robbins was a Dissertation Scholar at Equitable Growth from 2017–2018 and has received two Equitable Growth grants to study various aspects of consumption and inequality in the United States—including one in 2020 to develop a novel dataset that measures individual holdings of public equities and fixed-income assets using IRS data in order to track U.S. wealth inequality.
Most recently, in 2021, Robbins was awarded funding, along with Loujaina Abdelwahed of The Cooper Union, to examine U.S. economic insecurity amid the coronavirus recession using real-time data on the impact of the pandemic on consumer spending inequality. Robbins and Abdelwahed will release their aggregate data publicly at the state and county levels along with quarterly reports, providing other researchers and policymakers with a valuable new data source.
Jennifer Romich
University of Washington
Jennifer Romich is a professor in the School of Social Work at the University of Washington and the director of the West Coast Poverty Center. Her research centers on family economic stability and well-being, particularly among low-income workers and families, household budgets, and household interactions with public policy. Some of her recent projects include an investigation of the income of families involved with the child welfare system and mixed-method evaluations of the Seattle Paid Safe and Sick Time Ordinance and $15 minimum wage.
In 2019, she and her co-authors—UW colleagues Scott Allard, Heather Hill, and Mark Long—were awarded an Equitable Growth grant to support their work developing the Washington Merged Longitudinal Administrative dataset, which links demographic information to employment records and public program administrative data, such as state Unemployment Insurance records. The dataset, which contains information on more than 10 million individuals dating back to 2000, will be used to measure the impact of minimum wage laws on earnings inequality. Its innovative methodology is replicable for other scholars looking to analyze a range of policy interventions on household income and program participation.
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The United States is one of only three high-income countries in the world that does not have a universal paid sick leave program available to its workforce. Although an emergency federal leave program was temporarily enacted under the Families First Coronavirus Response Act at the start of the coronavirus pandemic in March 2020 and then extended through September 30, 2021, it has now expired—despite the ongoing public health crisis now about to enter its third year.
In the absence of a nationwide paid sick leave program, over the past decade, many U.S. states and localities have implemented their own sick leave mandates. Thirty-six U.S. jurisdictions have laws that enable eligible workers to accrue paid time off from their employer; typically, workers earn 1 hour of paid sick time per 30 to 40 hours worked with the employer. These individual sick time accounts can be used when the worker or a family member experiences a short-term illness, and unused sick time rolls over to the next year.
Likewise, some U.S. employers voluntarily offer paid sick leave as a benefit, creating inequality in coverage across jobs and industries. In fact, data from the U.S. Bureau of Labor Statistics show that 97 percent of private-sector workers in finance and insurance occupations have access to paid sick leave, compared to just 49 percent of those in the food-services and accommodation industries.
This situation not only creates structural labor market inequities in which predominately lower income workers, disadvantaged workers, and workers of color lack access to paid sick leave. Limited and unequal access to paid sick leave also leads to undesirable outcomes for the economy as a whole, such as when unmet sick leave needs induce workers to quit their jobs, contributing to the current labor shortage, or make workers feel obligated to show up at work sick, contributing to the spread of infectious diseases.
Despite some misleading rhetoric, empirical studies do not find that sick pay mandates lead to economically significant employment losses or wage reductions at the regional labor market level. In fact, providing sick leave can even offset firms’ higher labor costs, as worker access to sick leave reduces presenteeism—showing up to work while sick. Further, surveys in jurisdictions with sick leave mandates suggest generally positive employer experiences with these programs
In our new working paper, “Mandated Sick Pay: Coverage, Utilization, and Welfare Effects,” we expand the previous literature that examines the U.S. labor market effects of guaranteed sick pay. We use firm-level data specifically designed and used by the federal government to pinpoint labor compensation, including benefits, to estimate the impact of these policies on employers’ provision of sick leave, worker utilization rates, labor costs, and other worker benefits.
We find that state-level sick pay mandates effectively increase the number of U.S. employers who offer paid sick leave to their employees. Worker access to sick pay increases by 18 percentage points within 2 years of the policy being adopted. (See Figure 1.)
Figure 1
This increase in coverage, we find, leads employees to use roughly 2 additional paid sick days per year, on average. At the same time, however, we find that approximately 1 in 5 workers still lacks access to sick pay even after the law is implemented. Further research is required to determine if this gap is a result of employer noncompliance, a lack of awareness that the policy exists, or any other factors.
In terms of the impact on other employee benefits, we find no evidence that they are curbed by employers in response to providing paid sick leave. These benefits, including paid vacation and holiday time off or group benefit policies, such as health or dental insurance, are valuable to employees, but U.S. employers are generally not required to provide them. Additionally, we do not find that employers cut hours worked for employees or reduce wages as a result of paid sick leave policies.
Our study uncovers modest increases in sick leave costs to employers. On average, employers incur an additional 2.7 cents per worker per hour to cover the cost of sick leave. For marginal firms newly covered by state-level policies, employers incur an additional 21 cents per worker per hour due to the new policies. In addition, employers may incur other indirect costs that we cannot measure—in productivity losses or reduced morale, for example, when workers are out sick. in contrast, employers may also accrue indirect savings if, for example, they increase rates of worker retention or reduce costs associated with workplace illness and presenteeism.
Indeed, our findings on the modest cost of sick leave are complemented by other research that examines the cost savings to businesses that are associated with these laws. A recent study by Heather Hill at the University of Chicago’s School of Social Service Administration on the impact of paid sick leave on job separation rates finds that it reduces the probability that a worker leaves their job by at least 2.5 percentage points, or 25 percent, with the strongest effects seen among working mothers and workers who do not receive paid time off for vacation.
Additionally, research suggests that businesses save on labor costs that no longer arise from presenteeism and the resulting enhanced productivity, and thus profitability, of workers who are all in good health.
Paid sick leave guarantees also are seen by many public health experts as one of the strongest tools in stopping the spread of infectious diseases. Researchshows that paid sick leave reduces the spread of influenza. More recently, two other studies on the emergency paid sick leave program enacted under the Families First Coronavirus Relief Act show that it slowed the spread of the coronavirus by encouraging workers to stay at home when sick. And an OECD report from July 2020 argues that paid sick leave is “an effective social and employment policy response to protect income, health and jobs through the COVID-19 crisis.”
Paid sick leave policies not only improve public health outcomes but also support workers dealing with medical emergencies, lower rates of presenteeism, reduce inequality, likely boost worker productivity, and strengthen worker ties to the labor market. Sick pay also comes at a relatively low price-tag for employers. Importantly, it offers potential cost savings for employers through reduced sickness in the workplace, better worker moral and commitment to firms, or lower costs due to reduced turnover rates. It may even boost demand for products and services as customers generally appreciate when firms treat their employees well and generally dislike interactions with sick employees.
Policymakers should continue to advocate for, enact, and enforce sick pay policies as a cost-effective means of protecting the health of the public and strengthening the U.S. economy.
In the current debate among economists and policymakers in the United States about the causes of inflation, one of the most persistent and most deeply rooted questions is whether today’s round of price increases are, fundamentally “macroeconomic” in scope—meaning they are happening because there is a general excess of demand over supply. Despite findings from both journalists and the White House that swelling industry profits and bottlenecks in the industries supplying pandemic-shaped demand are the main forces behind recent price increase, there is remarkable insistence from senior officials in both political parties that general fiscal restraint should be the stabilization instrument of choice.
“Ultimately inflation is a macroeconomic problem,” writes Jason Furman, the former head of President Barack Obama’s Council of Economic Advisers, in The Wall Street Journal. He attributes rising prices to the “oversize and poorly designed” coronavirus recession rescue packages of December 2020 and March 2021. In TheWashington Post, former Clinton administration U.S. Treasury Secretary Larry Summers describes the present moment as one of an “overheating economy” caused by “far too much fiscal stimulus and overly easy monetary policy.”
Sen. Pat Toomey (R-PA), the ranking member of the Senate Banking Committee, echoes this interpretation. “Congressional Democrats’ extreme Leftist policies are contributing to the price hikes hitting Americans’ wallets,” he said in late November. Democrats, he continued, are “pushing a multi-trillion dollar reckless tax-and-spend plan that will contribute to more inflation and damage our economy.”
Across the ideological spectrum, influential voices today echo the complaint heard during the Cold War most frequently among Southern Democrats, Midwest small business leaders, and Western insurgents of the Republican Party: Sustained non-defense-related government spending and low interest rates increase inflationary pressures, in turn destabilizing the U.S. economy and society. As the late Arizona Senator and Republican Party presidential candidate Barry Goldwater complained during the late 1960s, “the essential item in the inflation we are experiencing is government spending.” Preparing his California gubernatorial campaign stump speech in 1966, Hollywood actor Ronald Reagan said the same: “The real cause of inflation is government spending.”
To the extent this conventional wisdom about inflation is rooted in historical knowledge, it is the latent memory of this conservative diagnosis of the previous serious bout of inflation, which began with the escalation of the Vietnam War in 1965 and extended through the two import-driven oil-price spikes in 1974 and 1979. This view holds that the prolonged period of rising prices in the 1960s and 1970s was fundamentally an error in the “indirect” macroeconomic management of fiscal and monetary policy, meaning there was too much government spending and borrowing costs that were too low due to lax monetary policy.
This interpretation was wrongheaded then—see Figure 1—and it is wrong now.
Figure 1
First of all, it is historically and economically wrong that the previous round of sustained inflation was driven by Congress spending uncontrollably on “social programs”—nondefense expenditures and government transfers such as food stamps, the Aid to Families with Dependent Children program, and the Medicare and Medicaid programs. In fact, austerity measures taken to varying degrees by the Nixon, Ford, and Carter administrations coincided with accelerating price increases. Indeed, during the 1970s, small increases in what we would today call “social infrastructure” spending were actually associated with the subsiding of inflation.
Secondly, there is good evidence that the microeconomic and macroeconomic management tools used by the Kennedy and Johnson administrations in the 1960s to stem price increases—a surgical and largely voluntary attempt to encourage certain industries to follow wage and price guidelines, per the direction set by fiscal policy—were working to a large degree, according to the late economist Arthur Okun as detailed in his 1970 book, The Political Economy of Prosperity. It wasn’t until the Nixon administration eschewed these tactics that the U.S. economy experienced real price escalation—an inflationary spiral that continued under the Ford and Carter administrations due to their own misplaced reliance on fiscal austerity, exacerbated by two sharp import-driven energy price spikes.
Combined, these historical and economic facts provide an important lesson to today’s policymakers. Namely, fiscal austerity is not an antidote to today’s inflation. Instead, austerity will likely exacerbate aggressive wage hikes and profit taking, and the inflation that can produce.
This column will walk through this history to demonstrate why the lessons mislearned in the 1970s about austerity policies, if repeated now, could well result in the same inflationary spiral and economic volatility that marked that era in U.S. economic history.
The history of fiscal austerity and monetary restraint as anti-inflation tools
It was the misguided belief that the inflation of the 1970s was, at root, a macroeconomic problem that led the Nixon, Ford, and Carter administrations to restrain government spending. Each of these administrations leaned toward fiscal and monetary contraction to slow rising prices—but it did not work. Fiscal contraction only exacerbated a decade of high unemployment by inducing three recessions and prolonging business uncertainty, while discretionary monetary policy drove wild swings in construction, antagonizing building contractors, homeowners, and workers across the nation. (See Figure 2.)
Figure 2
It is important to emphasize that the federal government’s share of Gross Domestic Product declined persistently throughout the inflationary years of the 1970s. While the defense share of GDP drove the overall decline in the federal share—due to the end of the Vietnam War and détente with the Soviet Union and the People’s Republic of China—this is even true when considering only nondefense expenditures and transfers, which fiscal hawks then, as now, invariably target for criticism rather than defense spending. Indeed, the nondefense share of GDP fluctuated very little during the 1970s. (See Figure 3.)
Figure 3
It was these fiscal austerity drives that created the “stag” in stagflation. This was deliberate policy—and recognized as such at the time. After the 1972 elections, for example, the Nixon administration put an economy-breaking ceiling on federal expenditures, which the Ford administration tried to continue until the 1974 recession forced up unemployment claims.
This was the original “sequestration” move by fiscal-policy hawks—the 1973 “impoundment” of congressionally appropriated funds that the Nixon White House used to starve public institutions across the U.S. economy, long before the 113th U.S. Congress in 2013, led by then-Speaker of the House Paul Ryan (R-WI). Of course, threats by fiscal hawks to shut down the U.S. government to curtail federal spending have been regular features of U.S. politics since the 1990s, as the general decline in the federal tax-revenue share of GDP coincided with skyrocketing U.S. income and wealth inequality.
There was no dramatic and sudden increase in federal social infrastructure spending during the 1970s. The increases in the so-called transfer-payment share of GDP that did occur were only during recessions. Opportunistically, many politicians and conservative intellectuals defined the decade’s political culture through misplaced and often racist popular caricatures of “welfare queens” and the “undeserving” unemployed collecting public Unemployment Insurance. Yet across the decade, the growth of transfers was moderate and gradual, and intentionally slowed to keep pace with the growth of the private sector. (See Figure 4.)
Figure 4
So, what caused stagflation in the 1970s?
It’s clear that fiscal macroeconomic restraint did not cure inflation during the 1970s. But what caused the steady rise in prices? Most historians agree with contemporary journalistic accounts that the inflation grew out of President Lyndon Johnson’s decision to escalate the Vietnam War in July 1965 without moving the U.S. economy to a “war footing”—by not instituting excess-profits taxes, wage-price controls, or, at the very least, a wartime income-tax increase to accompany the war. The only “bump” in federal expenditures during the previous period of inflation occurred in defense spending. (See Figure 5.)
Figure 5
Less understood is the burst of price and wage increases in 1969 and 1970, when the Nixon administration entered office and renounced the Kennedy and Johnson administrations’ program of shaping production in key markets and planning wage-price guidelines. These efforts by the two Democratic administrations in effect maintained progressive fiscal policies to sustain high employment and expand social infrastructure programs. In exchange, the largest unions of the AFL-CIO agreed to moderate wage demands.
Likewise, the Kennedy and Johnson administrations encouraged the largest and most efficient companies capable of influencing product and services prices in their markets to pass on productivity increases in the form of lower prices and higher capacity utilization, rather than taking them as monopolistic profits.
When Marilyn Monroe sang “Happy Birthday, Mr. President” to John F. Kennedy in May 1962, her lyrics actually sang the praises of enforcing price guidelines in the steel industry:
For all the things you’ve done/ The battles that you’ve won/ The way you deal with U.S. Steel/ And our problems by the ton/ We thank you so much.
The incoming Nixon administration campaigned against this principle. Under the flag of “free enterprise” guided by hands-off government macroeconomic policies, the White House ended all microeconomic interventions, such as wage and price guidelines and exhortations. In the process, the 3 percent rate of inflation under President Johnson became a 6 percent rate of inflation under President Richard Nixon.
When the Nixon administration, in August 1971, did stabilize the economy after the 1970 recession—by tellingly using a formal wage-price freeze and phased price-control program—it paired its “incomes policy” with an acceleration of government spending timed to a climax in November to December 1972—the moment of presidential election. Incomes policy broadly refers to the kind of social compacts forged by governments, the private sector, and labor unions in Western Europe at the time to tame inflation without inducing a recession.
This history is often written as if such planning efforts were pursued in lieu of macroeconomic fiscal-monetary guidance, but nothing could be further from the truth. They were always described by their administrators as “supplementary” and temporary—and, if anything, it is this reticence to engage in incomes policies that explains their historical weakness in the United States. What’s more, the inflation that exploded during 1973—for 10 months before the first foreign oil shock—resulted from their immediate repeal and the shifting of the stabilization program to a purely macroeconomic basis.
In the moment of political victory in January 1973, the Nixon administration rejected its temporary incomes policy and turned dramatically toward austerity, defunding what remained of the Johnson-era Office of Economic Opportunity, the core office responsible for administering the War on Poverty programs, and imposing a ceiling on congressional appropriations. The result was an explosion of prices, as U.S. corporations rebuilt profit margins squeezed by the 16 months of government price regulations.
Then, after 10 months of this unstable domestic situation, the first “oil shock” slammed the U.S. economy. Orchestrated by the ambitious and suddenly powerful Organization of Petroleum Exporting Countries, or OPEC, the price hike came in opposition to U.S. foreign policy—specifically, in response to the October 1973 Yom-Kippur War between Israel, Egypt, and Syria. Inflation, for the first time, entered double-digit territory by 1975.
To be sure, there were real policy errors that allowed this runaway bout of inflation to happen—but they were microeconomic as much as macroeconomic errors. Just when austerity was imposed to reduce demand, the Nixon administration released controls over profit margins and allowed producers to recoup revenues in price increases. By freeing the corporate sector to drive up prices swiftly and sharply before supply had caught up to the administration’s election-year demand, the Nixon White House produced double-digit inflation.
But in neither 1972 nor in 2021 would it be reasonable to argue that the U.S. economy was experiencing a general excess of demand. Unemployment at the time persisted in many cities then, as now, demonstrating that the existing level and composition of demand was inadequate for achieving full employment. The composition of demand in both situations included enough bottleneck sectors to drive rising prices—famously, wheat and corn prices after the 1972 détente grain deals with the Soviet Union, as well as petroleum and steel prices.
Some of these sudden price spikes resulted from inadequate forward planning. Then-White House adviser Donald Rumsfeld and U.S. Department of Agriculture Secretary Earl Butz rejected the pleas of the Cost-of-Living Council to expand planned acreage for 1972 and 1973, before and after the rush of purchases by the Soviet Union. Other spikes, such as petroleum, were rooted in deeper geopolitical shifts driving the terms of trade with the developing world. Amid these sector-specific price increases, fiscal-monetary restraint exacerbated wide areas of unemployment, particularly in many cities and among people of color—as our memory of the era’s “urban crisis” attests.
Yet the misinterpretation of the inflationary pressures in the 1970s persists today. As Harvard’s Summers has written elsewhere about this era, “The first attempts to contain inflation were too timid to be effective, and success was achieved only with highly determined policy. A crucial step was the abandonment of the idea that the problem was structural in nature rather than driven by macroeconomic policy.” Summers is wrong. The mistakes made in the 1970s were precisely the limitations placed on the expansionary fiscal and monetary policies required for effective sectoral planning.
Lessons to be learned from the causes of stagflation in the 1970s
The persistence of the misinterpretation of inflationary pressures in the 1970s is worth considering today. In the period since the 1970s, the macroeconomic prescription for inflation has been to induce a recession that is long and deep enough to stop prices from rising. To work, proponents of this macro-only approach argue, the policy must be well-telegraphed to the public, unwavering in its implementation, and, until only recently, free of any microeconomic policies that might distract from the imperative of fiscal-monetary restraint.
This is different than the contending claims of price controllers then, and of experts today urging more extensive planning. From their perspectives, inflation persists because incomes policies—rather than the induced recessions of 1970 and 1974—were not given enough time to work. Rising prices are, after all, a traditionally business-friendly incentive to expand production and capacity. If supply is to increase without higher prices, then the simplest alternative is to produce for the market at a loss, offset by subsidies from the public budget. But this can subject producers’ incomes to public supervision, and that didn’t happen during the late 1970s.
When President Gerald Ford’s austerity policies failed to stabilize the U.S. economy, the Carter administration sought to manage a rapid recovery through a private-sector growth program. To induce private investment and expand capacity, this program relied on the incentives of private corporate earnings through unregulated profits and tax cuts—in particular, a capital gains tax cut in 1978. Amid inherited cost increases, this private-investment and profit boom came at the expense of personal consumption in the form of even higher inflation. Between 1977 and 1979, as the gross private investment share of GDP increased from 18 percent to 21 percent, personal consumption in the economy actually fell. (See Figure 6.)
Figure 6
As a share of national income, wages and salaries fell steadily in the 1970s. The surge in private investment accelerated the development of the Gulf Coast petroleum industry and financed a wave of construction across the Sunbelt. But the resulting business boom itself pushed up the general price level, with neither personal consumption expenditures nor the federal-spending share of GDP rising during the Carter years.
In fact, if any correlation between nondefense spending and price levels can be drawn from the 1970s, it is that inflation subsided when nondefense spending expanded, as detailed in Figures 2 and 3 above.
This makes sense when one considers the institutional factors bearing on the determination of wages. When workers’ consumption of basic services is stabilized by public programs, they have less incentive to seek to squeeze it out of their profit-seeking employers, particularly if existing wage differentials are perceived to be equitable. Such perceptions of equity were rare during the 1970s, but there is likewise little evidence that any aggressive union wage offensive drove the decade’s inflation.
In fact, that decade’s upsurge in labor militancy and strike action was purely defensive, as workers sought—with decreasing effectiveness—to defend their real incomes amid the supply-shortage and profit-driven inflation, particularly during the Carter administration era’s economic expansion. (See Figure 7.)
Figure 7
Before the so-called Volcker Shock began in 1979, the incomes policies that sought to stabilize and to direct shares of the U.S. economy were the cutting edge of macroeconomic policy discussion. During both World War II and the Korean War, subsidies to producers selling under controlled prices performed an economically analogous function of coordinating the growth of money incomes to the limits of real output. But whereas the Truman, Kennedy, and Johnson administrations had been willing to move toward this direction by managing wages and prices, and while even the Nixon administration opportunistically used this playbook, the Carter administration did not. Instead, the Carter administration’s growth program relied on the incentives of private corporate earnings to induce investment and expand capacity. (See Figure 8.)
Figure 8
Conclusion
If the U.S. economy today cannot sustain expanded public investments in physical and social infrastructure or support higher incomes for working people, then the appropriate response to today’s inflation may well be to bring demand down to the lower levels of pandemic-restricted supply. This option, of course, is neither politically feasible nor economically responsible.
But there is evidence that public investments can tame current price pressures, not least because of the experience of the late 1960s, the early 1950s, and, of course, during World War II. Advocates of fiscal restraint today may consider a national U-3 unemployment rate (defined as unemployed people actively looking for work) of 4.2 percent as a sign there are too many jobs and too few workers to fill them, risking a runaway inflation. But the economywide rate of capacity utilization (the key measure of U.S. economic capacity) is still well-below its pre-pandemic level.
According to the Federal Reserve’s survey of production and capacity, utilization has measured around 76 percent since the summer of 2021, compared to 79 percent and 80 percent in the low-inflation years of 2014 and 2018. In November, the U.S. Bureau of Labor Statistics reported the U-3 unemployment measure much higher than the national average, from 5.1 percent in Chicago and 5.4 percent in Houston to 6.3 percent in New York City and 7.1 percent in Los Angeles.
Then, there’s the fuller U-6 unemployment measure, which includes those working part time for economic reasons. It remains at a staggering 7.8 percent nationally. The U.S. labor market, in short, is nowhere near maximum employment.
The upshot: The production of goods and services in the U.S. economy can expand because there is excess capacity and underemployment. It is not shortages that are driving up prices in every market—though in select bottlenecks, there are capacity constraints that can and do ripple out through the supply chain. Rather, it is the general increase in producer profits and wages that is taking place as corporations take advantage of what many see as a temporary condition of government stimulus and workers seek to rectify perceived historical wrongs.
The answer, then, is for U.S. government fiscal policies to continue to support physical and social infrastructure spending amid the continuing coronavirus pandemic. These policies will sustain a high level of demand in the U.S. economy to encourage market forces and should be complemented by plans to prepare where markets fail. For those who believe the nation can supply the changing demands of a more egalitarian society, maintaining a high level of government spending is an indispensable condition.
But should the notion persist that inflation is essentially a macroeconomic problem that warrants the macroeconomic solution of reduced spending through raising interest rates and curtailing public budgets, then that needed demand will not be available for producers to meet. Without it, the vision of remaking the U.S. economy will go nowhere, economically or politically.
— Andrew Elrod holds a Ph.D. in history from the University of California, Santa Barbara and is a 2016 Washington Center for Equitable Growth grantee. Elrod, in the fall of 2021, completed his dissertation on the history of wage and price controls in the United States between 1940 and 1980. He works in the research department at UTLA, a 36,000-member public-sector labor union in Los Angeles.
Yesterday was the third and final day of the annual meeting of the Allied Social Science Associations, which is organized by the American Economic Association. The conference, held virtually again this year due to the ongoing coronavirus pandemic, features hundreds of sessions covering a wide variety of economics and other social science research. This year, Equitable Growth’s grantee network, Steering Committee, and Research Advisory Board and their research are well-represented throughout the program, featured in more than 60 different sessions of the conference.
Below are abstracts from some of the papers and presentations that caught the attention of Equitable Growth staff during the third day of this year’s conference and which relate to the research interests laid out in our current Request for Proposals. We also include links to the sessions in which the papers were presented.
Click here to review the highlights from day one, and here for highlights from day two.
Abstract: It is evident that both male and female workers in medium/larger establishments not only receive higher wages but also have a higher probability of participating in benefit programs than those in smaller establishments. This reinforces the well-documented “size” effect. Further, the firm-size wage effects are much larger for men than women. The union wage effect decreases with establishment size for both genders. This supports the argument that large nonunion firms pay higher wages to discourage the entrance of unions (i.e., the “threat” effect argument). In addition, the union wage premium is higher for males across firm sizes relative to females. This implies that unions in the large establishments may have a role to play in achieving a narrowing of the gender union wage gap. Further, given the presence of noticeable gender differences in estimated union effects on benefits—such as health insurance, maternity leave, life insurance, and retirement—unions should not treat both genders similarly.
Martina Jasova, Columbia University-Barnard College; Caterina Mendicino, European Central Bank; Ettore Panetti, University of Naples Federico II; Dominik Supera, University of Pennsylvania
Abstract: We show that softer monetary policy reduces labor income inequality via the credit channel. For identification, we exploit administrative matched datasets in Portugal—employee-employer and credit register—and monetary changes since the Eurozone creation in 1999. We find that softer monetary policy conditions reduce labor earnings differentials across firms and workers in the economy. Small and young firms increase workers’ wages the most and the effects are particularly strong for firms that are more levered. We also find that workers that benefit the most from looser monetary policy are young, educated, and female. Similar results also hold for firm-level employment and workers’ total hours worked. Our findings uncover a central role for the firm balance sheet and the bank lending channels of the transmission of monetary policy to labor income inequality, with state-dependent effects that are substantially stronger during crisis times. Note: This research was funded in part by Equitable Growth.
Emily Nix, University of Southern California; Martti Kaila, University of Helsinki; Krista Riukula, ETLA Economic Research
Abstract: Does job loss cause less economic damage if your parents are higher income, and what are the implications for intergenerational mobility? In this paper, we show that following a layoff, adult children born to parents in the bottom 20 percent of the income distribution have almost double the unemployment, compared with those born to parents in the top 20 percent, with 50.5 percent higher present discounted value losses in earnings. Second, we show that the unequal impacts of job loss are larger when the economy is growing than when it is in recession. Third, we show that these disparate impacts of job loss have important implications for inequality and intergenerational mobility. They increase the 80:20 income inequality ratio for those impacted by 5.2 percent and increase the rank-rank coefficient by 23 percent, implying large reductions in intergenerational mobility. In the last part of the paper, we explore mechanisms and show that much of these differences in the impacts of job loss between children of low- and high-income parents can be explained by “baked in” advantages.
Sara Chaganti, Federal Reserve Bank of Boston; Erin Graves, Federal Reserve Bank of Boston
Abstract: Job quality—not just the fact of having a job, but also the conditions of the job—is a central concern for workers individually and for U.S. social policy. Going into the pandemic, a strong body of research showed that while the economy was generating lots of jobs, the quality of these jobs was increasingly poor, and this was especially the case for jobs held by non-White and female workers. The pandemic spotlighted not just economic inequality but also work inequality, where workers vary in wages and important working conditions. Policymakers are now committing to a recovery from the pandemic that includes equitable distribution of quality jobs. In this paper, we outline a policy-oriented framework for understanding job quality and options for improving it. First, we conceptualize a functional definition of job quality, one that defines a job less by its features than by the role it serves in people’s lives. We suggest that the essential function of a quality job is that the conditions of the job itself advance worker well-being. Second, we describe the conditions that make a job a quality job, distinguishing those that are endemic to the job and those that are conventionally (though not necessarily) tied to the job in the U.S. context. Third, we advance our argument that specific and deliberate post-Fordist policy interventions shifted the ecology of our labor (and product) markets, and these shifts created incentives to drive down the quality of jobs, especially for those workers with the least social and economic power. Finally, we identify policy responses—public, private, and cross-sectoral—that may increase the numbers of and equitable access to good jobs: jobs that advance worker well-being and strengthen contemporary links between worker well-being and conditions of the job.
Peter Q. Blair, Harvard University; Darwyyn Deyo, San Jose State University; Jason F. Hicks, University of Minnesota; Morris M. Kleiner, University of Minnesota
Abstract: We collect data on the origins and evolution of state laws affecting the ability of people with criminal records to be issued an occupation license. The data range from year of initial licensure, which occurred as early as the mid-19th century, to 2020 for 30 occupations ranging across different industries but currently requiring licensure in all states. Additionally, we collected data on universal criminal records-occupational licensing, or CROL, requirements, which are requirements that apply to all occupations requiring licensure in a state. These requirements were typically enacted in states from the mid-1970s through the late-2010s. The CROL requirements we collected include (1) good moral character clauses, which allow licensing authorities to reject applicants who are deemed to not be of good moral character, (2) criminal records restrictions, which prevent an individual from being issued an occupational license due to a previous conviction, (3) the requirement of a relationship between an offense and the tasks and duties of an occupation, (4) consideration of rehabilitation, and (5) limitations on scope of inquiry, which limit the ability of licensing authorities to consider certain criminal records. We will describe how the distribution of CROL requirements varies across states, occupations, and industries. Additionally, we will describe how the stringency of the requirements have changed through time. We are using the data to examine the effects of different CROL requirements on labor market outcomes of minority populations who have disproportionate felony conviction and incarceration rates. Additionally, we are examining the political economy of CROL requirements by identifying the social, political, and economic factors that lead to the enactment of these requirements. Note: This research was funded in part by Equitable Growth.
Nina Roussille, London School of Economics; Elizabeth Linos, University of California, Berkeley; Sanaz Mobasseri, Boston University
Abstract: This study examines how working with White co-workers affects turnover rates for Black employees in a large professional services firm. Black employees are 10 percentage points more likely to turnover within 2 years, relative to similar White employees in the same office, whose average turnover rate is 21 percent. Drawing on conditional random assignment to their initial project for more than 9,000 newly hired employees in the United States, we find that a one standard deviation (20 percent) decrease in the percentage of White co-workers in the initial project decreases turnover for Black women (but not Black men, other non-White, or White employees) by 10 percentage points. We further collect performance review and talent surveys of employees to understand the mechanism behind this result. Early results suggest that when Black women are assigned to initial projects with more White co-workers, they are less satisfied at work and receive more negative performance evaluations: Evaluators are more likely to identify them as “at risk of low performance” and are less willing to “always want the [given employee] on their team.” We are currently collecting information on network formation and promotion at the firm to understand how the initial project assignment impacts career evolution at the firm.
Ingrid Haegele, University of California, Berkeley
Abstract: Women are vastly underrepresented in leadership positions, but little is known about when and why gender gaps in representation first emerge in the leadership hierarchy. This study uses novel personnel data from a large manufacturing firm to document that gender differences in applications for first-level leadership positions create a key bottleneck in women’s career progression. Women are not less likely to learn about job openings at the firm and do not experience lower hiring likelihoods than male applicants. Instead, gender differences in revealed preferences for leading a team account for women’s lower propensities to apply for first-level leadership positions. Women who rise to the first leadership level are not less likely than men to apply to or to receive subsequent promotions, rejecting the common notion that a glass ceiling at higher-level leadership positions is the key barrier to gender equality.
Dania V. Francis, University of Massachusetts Boston; Thomas Mitchell, Texas A&M University; Darrick Hamilton, TheNew School for Social Research; Bryce Wilson Stucki, nonaffiliated
Abstract: In this paper, we estimate the value of lost Black agricultural land. Countless Black farmers fell victim to violent dispossession of their land prior to the Civil Rights reforms of the 1960s. Many more, however, lost land due to discriminatory federal farm credit policies, and the discriminatory implementation of federal, state, and local agricultural policies, before, during, and after the Civil Rights era. We use Census of Agriculture data on Black ownership of agricultural land from 1910 to 1997 to estimate the present value of average yearly land losses to Black land owners. By our most conservative estimate, the dispossession of Black agricultural land resulted in the loss of hundreds of billions of dollars of Black wealth. However, in addition to its production value, land also has value as collateral for investing in education and other business ventures. Taking this additional value of land into account, depending on multiplier effects, rates of returns, and other factors, the value of lost Black agricultural land reaches into the trillions.
Vicki Bogan, Cornell University; Sarah Wolfolds, Cornell University
Abstract: Recent estimates indicate that approximately 9 million households in the United States are unbanked, with an additional 24.5 million households being classified as underbanked. In this paper, we focus on intersectionality, specifically the intersection of race and gender, to better understand the probability of being unbanked and underbanked in the United States. Additionally, we look at which drivers could be chief contributors to this type of financial exclusion. We find that while White men and White women have similar levels of engagement with the banking system, Black women are significantly more likely than Black men to be both unbanked and underbanked.
Anastasia Zervou, University of Texas at Austin; Aarti Singh, University of Sydney; Jacek Suda, Narodowy Bank Polski and Warsaw School of Economics
Abstract: We study the effects of monetary policy shocks on the growth (rates) of employment, hiring, and earnings of new hires across firms of different sizes. We find that a lower-than-expected policy rate increases hiring and employment growth in all firms, but it does so more in larger firms. We also find that as a consequence of a surprise monetary expansion, earnings of newly hired employees grow in a similar rate in all firms. In our empirical analysis, we use the publicly available Quarterly Workforce Indicators and employ local projections to compute impulse responses of the labor market variables to high frequency monetary policy shocks. We control for differential effects of monetary policy across industries and for differential effects of state unemployment across firm sizes. We also include a robustness exercise that corrects the reclassification bias. Using firm size as a proxy for financing constraints, we employ a theoretical model with heterogeneous firms, the financial accelerator channel, a working capital constraint, and an upward slopping marginal cost curve, as previously used in the literature. We incorporate in the model our empirical finding that the growth of earnings of new hires increases after monetary policy expansion. This new channel suggests that large firms increase hiring and employment growth more than small firms after a monetary policy expansion because large firms finance the wage increase cheaper than what small firms do. We find that our empirical results are consistent with our theoretical framework as long as the combined effect due to varying steepness of the marginal cost curve and the change in wages is stronger than the financial accelerator channel.
Amanda Starc, Northwestern University; Thomas Wollmann, University of Chicago
Abstract: Entry represents a fundamental threat to cartels. We study the extent and effect of this behavior in the largest price-fixing case in U.S. history, which involves generic prescription drugmakers. We observe abrupt increases in generic drug prices linked to the collusive conduct of manufacturers. We link information on the cartel’s internal operations to regulatory filings and market data. A pairwise testing procedure shows that prices during the cartel period are consistent with collusion. Prices after an antitrust investigation are still consistent with collusion; enforcement alone does not discipline firm behavior. Yet we find that collusion induces significant entry, which, in turn, reduces prices, although regulatory approvals delay most entrants by 2–4 years. We find that reducing regulatory delays and fees would have reduced drug expenditures by billions of dollars.
Abstract: Dual-earner couples’ decisions of where to live and work often result in one spouse—the trailing spouse—experiencing earnings losses at the time of a move. This paper examines how married couples’ migration decisions differentially impact men’s and women’s earnings and the role that policy can play in improving post-move outcomes for trailing spouses. I use panel data from the NLSY97 and a generalized difference-in-differences design to show that access to Unemployment Insurance for trailing spouses increases long-distance migration rates by 1.9 percentage points to 2.3 percentage points (38 percent to 46 percent) for married couples. I find that women are the primary beneficiaries of this policy, with higher UI uptake following a move and higher annual earnings of $4,500 to $12,000 3 years post-move. I then build and estimate a structural model of dual-earner couples’ migration decisions to evaluate the effects of a series of counterfactual policies. I show that increasing the likelihood of joint distant offers substantively increases migration rates, increases women’s post-move employment rates, and improves both men and women’s earnings growth at the time of a move. However, unconditional subsidies for migration that are not linked to having an offer in hand at the time of the move reduce post-move earnings for both men and women, with stronger effects for women. Note: This research was funded in part by Equitable Growth.
Ana Costa-Ramon, University of Zurich; Anne-Lise Breivik, Norwegian Tax Authority
Abstract: We provide novel evidence on the impact of a child’s health shock on parental labor market outcomes. To identify the causal effect, we leverage long panels of high-quality Finnish and Norwegian administrative data and exploit variation in the exact timing of the health shock. We do this by comparing parents across families in similar parental and child age cohorts whose children experienced a health shock at different ages. We show that these families are comparable and were following very similar trends before the shock. This allows us to use a simple difference-in-differences model: We construct counterfactuals for treated households with families who experience the same shock a few years later. We also exploit this variation in an event study framework. We find a sharp break in parents’ earnings trajectories that becomes visible just after the shock. The effect is stronger for mothers than for fathers and is driven by health shocks that need persistent care after the event. We also document a strong impact on parents’ mental well-being.
Claudia Goldin, Harvard University; Sari Pekkala Kerr, Wellesley College; Claudia Olivetti, Dartmouth College
Abstract: Women earn less than men, and that is especially true of mothers relative to fathers. Much of the widening occurs with family formation. We estimate two earnings and hours gaps: (1) that due to the “motherhood penalty,” which is the difference between the earnings and hours of women who are currently mothers and those who are not; and (2) that due to the “parental gender gap,” which is the difference in outcomes between mothers and fathers. Women with young children work far fewer hours per week than do others. But what happens on the “other side of the mountain,” as the children grow up and eventually leave home? The answer is that women work more hours and transition to higher-earning positions. The motherhood penalty is greatly reduced, and by their 50s, women with and without children earn nearly the same amount. But fathers manage to maintain their relative gains and do monumentally better than mothers, women without children, and men without children. Fathers earn almost 7 log points more per child regardless of their age, whereas mothers lose more than 10 log points per child, holding hours of work constant.
David Cutler, Harvard University; Leemore Dafny, Harvard University; David Grabowski, Harvard University; Steven Lee, Brown University; Christopher Ody, Analysis Group
Abstract: The landscape of the U.S. healthcare industry is changing dramatically as healthcare providers expand both within and across markets. While federal antitrust agencies have mounted several challenges to same-market combinations, they have not challenged any nonhorizontal affiliations—including vertical integration of providers along the value chain of production. The Clayton Act prohibits combinations that “substantially lessen” competition; few empirical studies have focused on whether this is the source of harm from vertical combinations. We examine whether hospitals that are vertically integrated with skilled nursing facilities, or SNFs, lessen competition among SNFs by foreclosing rival SNFs from access to the most lucrative referrals. Exploiting a plausibly exogenous shock to Medicare reimbursement for SNFs, we find that a 1 percent increase in a patient’s expected profitability to a SNF increases the probability that a hospital self-refers that patient (i.e., to a co-owned SNF) by 2.5 percent. We find no evidence that increased self-referrals improve patient outcomes or change post-discharge Medicare spending. Additional analyses show that when integrated SNFs are divested by their parent hospitals, independent rivals are less likely to exit. Together, the results suggest vertical integration in this setting may reduce downstream competition without offsetting benefits to patients or payers.
Yesterday was the second day of the 3-day annual meeting of the Allied Social Science Associations, which is organized by the American Economic Association. The conference, held virtually again this year due to the ongoing coronavirus pandemic, features hundreds of sessions covering a wide variety of economics and other social science research. This year, Equitable Growth’s grantee network, Steering Committee, and Research Advisory Board and their research are well-represented throughout the program, featured in more than 60 different sessions of the conference.
Below are abstracts from some of the papers and presentations that caught the attention of Equitable Growth staff during the second day of this year’s conference and which relate to the research interests laid out in our current Request for Proposals. We also include links to the sessions in which the papers were presented.
Come back tomorrow morning for more highlights from day three, and click here to review the highlights from day one.
Abstract: Literature on opportunity vs. necessity entrepreneurship debates the extent to which these categories should be considered dichotomous constructs. Fairlie and Fossen (2019) design a measure in which unemployed workers who subsequently report being self-employed are classified as necessity entrepreneurs and all others as opportunity entrepreneurs. Their construct operationalizes and builds upon the push-pull theoretical framework which posits that weak labor markets push workers into entrepreneurship while strong demand and abundant supply of financial capital pull workers into entrepreneurship. Given that Black workers face higher levels of unemployment, these theories would predict higher levels of necessity entrepreneurship among this group. However, substantial empirical evidence documents wide Black-White gaps in entrepreneurship. In this study, I examine whether Black-White gaps in entrepreneurship reflect the net effect of racial differences in opportunity vs. necessity entrepreneurship. Using data from the Panel Study of Income Dynamics, I begin with Fairlie and Fossen’s measure of opportunity and necessity entrepreneurship by looking at gaps in self-employment rates among Black and White workers who were previously unemployed or employed by someone else. I then extend their construct. I examine whether length of unemployment increases the likelihood of entering self-employment to assess whether unemployment duration is a better measure of labor demand than the dichotomous unemployment measure. Next, I examine whether the change in local unemployment rates, measured separately for Black and White residents, changes the likelihood of self-employment. Finally, I examine whether earnings from necessity entrepreneurship are comparable to labor market earnings and if earnings differences are the same across racial groups. This analysis will help policymakers and researchers identify the conditions in which rising entrepreneurship among disadvantaged communities produces positive outcomes worth promoting and the conditions under which rising entrepreneurship may be a sign of troubling underlying economic realities for Black workers.
Abstract: This paper investigates how the earnings of young workers are affected by individuals working for the same firm as their parent. My analysis of U.S. linked survey and administrative data indicates that 7 percent of young workers find their first stable job at a parent’s employer. Using an instrumental variables strategy that exploits exogenous variation in the availability of jobs at the parent’s employer, I estimate that working for a parent’s employer increases initial earnings by 31 percent. The earnings gains are attributable to parents providing access to higher-paying firms. Individuals with higher-earning parents are more likely to work for their parent’s employer and experience larger earnings gains when they do. Thus, the intergenerational transmission of employers increases the intergenerational persistence in earnings. Specifically, the elasticity of initial earnings with respect to parental earnings would be 10 percent lower if no one worked for their parent’s employer.
Illenin Kondo, Federal Reserve Bank of Minneapolis; Teegawende H. Zeida, Brock University; William A. Darity Jr., Duke University; Samuel L. Myers Jr., University of Minnesota
Abstract: While there is a large empirical literature on ongoing racial discrimination and persistent socioeconomic disparities between Black and White households, far fewer contributions evaluate these disparities in the macroeconomics literature. We decompose the determinants of historically persistent and large racial wealth differences in the U.S. since 1950 through the lens of a standard heterogeneous-agents model that allows for group-based privileges or exclusions as wedges. We find that a wedge akin to wealth destruction risk for Black households is essential for generating the persistent and large racial wealth divide. We discuss the implications of these findings for modeling racial wealth disparities and reparations policies.
Abstract: Alternative and contingent employment arrangements offer fewer protections, pay, and benefits. Occupational crowding measures the degree to which a group is over-, under-, or proportionally represented in an occupation, taking educational requirements and the group’s qualifications into account (Hamilton, 2006). Black workers have been systematically crowded into low-wage occupations. This work examines whether Black workers are also overrepresented in nonstandard work. This research expands on the crowding literature by comparing Black women, Black men, and White women to White men, the group with the most labor market advantage (King 1993). My analysis finds Black women and Black men are crowded into contingent work and some of the worst alternative arrangements (e.g., temp agency work) while White men are crowded into more desirable forms of work, such as contract arrangements.
Carter Braxton, University of Wisconsin; Kyle Herkenhoff, University of Minnesota; Jonathan L. Rothbaum, U.S. Census Bureau; Lawrence Schmidt, Massachusetts Institute of Technology
Abstract: For whom has earnings risk changed, and why? To answer these questions, we develop a filtering method that estimates parameters of an income process and recovers persistent and temporary earnings for every individual at every point in time. Our estimation flexibly allows for first and second moments of shocks to depend upon observables, as well as spells of zero earnings (i.e., unemployment) and easily integrates into theoretical models. We apply our filter to a unique linkage of 23.5m SSA-CPS records. We first demonstrate that our earnings-based filter successfully captures observable shocks in the SSA-CPS data, such as job switching and layoffs. We then show that despite a decline in overall earnings risk since the 1980s, persistent earnings risk has risen for both employed and unemployed workers, while temporary earnings risk declined. Furthermore, the size of persistent earnings losses associated with full year unemployment has increased by 50\%. Using geography, education, and occupation information in the SSA-CPS records, we refute hypotheses related to declining employment prospects among routine and low-skill workers, as well as spatial theories related to the decline of the Rust Belt. We show that rising persistent earnings risk is concentrated among high-skill workers and related to technology adoption. Lastly, we find that rising persistent earnings risk while employed (unemployed) leads to welfare losses equivalent to 1.8\% (0.7\%) of lifetime consumption, and larger persistent earnings losses while unemployed lead to a 3.3\% welfare loss.
Alexander Wickman Bartik, University of Illinois at Urbana-Champaign; Zoe Cullen, Harvard University; Edward Glaeser, Harvard University; Michael Luca, Harvard University; Christopher Stanton, Harvard University
Abstract: What happens when vast public resources are allocated by private actors, whose objectives may be imperfectly aligned with public goals? We study this question in the context of the Paycheck Protection Program, which relied on private banks to rapidly disburse more than $500 billion of aid to small businesses. We present a model suggesting that such delegation is optimal if delay is very costly, the variance of the impact of funds across firms is small, and the correlation between public and private objectives is high. We then use firm-level data to measure heterogeneity in the impact of the PPP and to assess whether banks targeted loans to high-impact firms. Using an instrumental variables approach, we find that PPP loans increased business’s expected survival rates by 9 to 22 percentage points and modestly boosted employment. The potential for heterogeneous treatment effects suggests that targeting may have increased the overall program impact. Yet while banks did target loans to their preexisting customers, treatment effect heterogeneity is sufficiently modest and the correlation between bank loan allocations and public objectives seems sufficiently strong, so that delegation could still have been optimal given the high costs of delay.
Abstract: Despite growing discussion of the unpaid and underpaid labor of incarcerated workers, little is known about how often inmates work, how often they are paid, or precisely how much. We describe the income of incarcerated workers by analyzing data on inmates’ reported earnings from prison and jail surveys. We find that a large share of workers work for no pay. We also find substantial rates of unpaid labor among nonconvicted workers who were incarcerated for pretrial detention. We also find large racial gaps in the wages. The median White incarcerated worker earned, on average, nearly twice as much as his Black counterpart and more than four times as much as his Hispanic counterpart in 2004. Between 1972 and 2004, these gaps seem to have widened more than they did in the general workforce. The findings from our study have four main implications. First, they illustrate just how poorly paid prison work is, for all incarcerated workers. Second, they show elevated racial inequality inside prisons. Third, our findings suggest that social scientists have hitherto mischaracterized the income distribution in the United States. This is because prior studies examining earnings either ignore incarcerated workers, impute their wages based on similar workers outside prison, or assume that they receive nothing for their work. This emphasizes the importance of conceiving of incarcerated workers as members of the formal economy. We suggest that social scientists must take the existence of “incarcerated workers” more seriously.
Jan de Loecker, KU Leuven; Tim Obermeier, Institute for Fiscal Studies; John Van Reenen, London School of Economics
Abstract: Dramatic changes have been documented in the U.S. business landscape in the past few decades, including rising productivity dispersion between firms, higher aggregate mark-ups, the growing dominance of big companies, a fall in labor share and declining business dynamism. In this paper, we address several questions: (i) why should we care about such trends in firm inequality? (ii) have similar trends been occurring in the U.K.? (iii) what are the explanations for these trends? and (iv) what, if any, should be the policy responses? We conclude that most, but not all, of the same empirical trends seen in the United States have occurred in Britain since the mid-1990s, and the likely explanations are related to fundamental forces of technology and globalization rather than country-specific institutions. Over the long run, real wage growth in most countries has tended to follow productivity growth. Since the U.K. had little productivity growth since Global Financial Crisis, it is unsurprising that median and mean real wages had barely recovered to pre-crisis levels by the start of the pandemic. By contrast to the United States, labor shares do not seem to have fallen since 1980 in the U.K., so our key problem is less to do with a decoupling of wages from productivity, and more to do with the severe slowdown in productivity growth since 2007.
Guillaume Vermeylen, University of Mons; Alexandre Waroquier, University of Mons
Abstract: We provide first evidence regarding the direct effect of a hiring policy oriented through higher (over) education on firm productivity. Moreover, we put light on the moderating role of the working environment of the firm, qualified as high-tech/knowledge intensive. Using a detailed Belgian firm panel data, and computing a measure of overeducation hiring policy robust to sectorial bias, we show that firms that decide to implement a hiring policy of overeducation are found to be more productive than others which follow the hiring standards in terms of educational levels. Concerning the role of the technological environment, we show that high-tech firms may take advantage of additional skills provided by highly educated workers to a bigger extent, the overeducation hiring policy leading to even higher productivity improvements. Unlike much of the earlier literature (still essentially focused on workers’ wages, job satisfaction, and related attitudes and behaviors), our econometric estimates are based on direct measures of productivity. They are also robust to a range of measurement issues, such as time-invariant labor heterogeneity and firm characteristics.
Ian Burn, University of Liverpool; Patrick Button, Tulane University; Luis Felipe Munguia Corella, University of California, Irvine; David Neumark, University of California, Irvine
Abstract: We study the relationships between ageist stereotypes—as reflected in the language used in job ads—and age discrimination in hiring, exploiting the text of job ads and differences in callbacks to older and younger job applicants from a resume (correspondence study) field experiment (Neumark, Burn, and Button, 2019). Our analysis uses methods from computational linguistics and machine learning to directly identify, in a field-experiment setting, ageist stereotypes that underlie age discrimination in hiring. The methods we develop provide a framework for applied researchers analyzing textual data, highlighting the usefulness of various computer science techniques for empirical economics research. We find evidence that language related to stereotypes of older workers sometimes predicts discrimination against older workers. For men, our evidence points to age stereotypes about all three categories we consider—health, personality, and skill—predicting age discrimination, and for women, age stereotypes about personality. In general, the evidence is much stronger for men, and our results for men are quite consistent with the industrial psychology literature on age stereotypes.
Ellora Derenoncourt, Princeton University; Chi Hyun Kim, University of Bonn; Moritz Kuhn, University of Bonn; Moritz Schularick, University of Bonn
Abstract: The racial wealth gap is the largest of the economic disparities between Black and White Americans, with a White-to-Black per capita wealth ratio of 6-to-1. It is also among the most persistent. In this paper, we provide a new long-run series on White-to-Black per capita wealth ratios from 1860 to 2020, combining data from the U.S. decennial census, historical state tax records, and a newly harmonized version of the Survey of Consumer Finances (1949–2019). Using these data, we show that wealth convergence was rapid in the 50 years after Emancipation but slowed to a halt by 1950. A simple model of wealth accumulation by racial group reveals that even under equal conditions for wealth accumulation, convergence is a distant scenario, given vastly different starting conditions under slavery. Accounting for post-Emancipation differences in wealth accumulating opportunities indicates that the racial wealth gap is on track to arrive at a “steady state,” close to today’s levels. Our findings shed light on the importance of policies such as reparations, which address the historical origins of today’s persistent gap, as well as policies that reduce inequality and thereby improve the relative wealth position of Black Americans.
Fabian Eckert, University of California, San Diego
Abstract: Since 1980, economic growth in the United States has been fastest in its largest cities. We show that a group of skill- and information-intensive service industries are responsible for all of this new urban bias in recent growth. We then propose a simple explanation centered around the interaction of three factors: the disproportionate reliance of these services on information and communication technology, or ICT, the precipitous price decline for ICT capital since 1980, and the preexisting comparative advantage of cities in skilled services. Quantitatively, our mechanism accounts for most of the urban biased growth of the U.S. economy in recent decades.
Anton Korinek, University of Virginia; Joseph E. Stiglitz, Columbia University
Abstract: Rapid progress in new technologies such as Artificial Intelligence has recently led to widespread anxiety about potential job losses. This paper asks how to guide innovative efforts so as to increase labor demand and create better-paying jobs. We develop a theoretical framework to identify the properties that make an innovation desirable from the perspective of workers, including its technological complementarity to labor, the factor share of labor in producing the goods involved, and the relative income of the affected workers. Examples of labor-friendly innovations are intelligent assistants who enhance the productivity of human workers. The paper discusses measures to steer technological progress in a desirable direction for workers, ranging from nudges for entrepreneurs to changes in tax, labor market, and intellectual property policies to direct subsidies and taxes on innovation. In the future, we find that progress should increasingly be steered to provide workers with utility from the nonmonetary aspects of their jobs.
Yesterday was the first day of the 3-day annual meeting of the Allied Social Science Associations, which is organized by the American Economic Association. The conference, held virtually again this year due to the ongoing coronavirus pandemic, features hundreds of sessions covering a wide variety of economics and other social science research. This year, Equitable Growth’s grantee network, Steering Committee, and Research Advisory Board and their research are well-represented throughout the program, featured in more than 60 different sessions of the conference.
Below are abstracts from some of the papers and presentations that caught the attention of Equitable Growth staff during the first day of this year’s conference and which relate to the research interests laid out in our current Request for Proposals. We also include links to the sessions in which the papers were presented.
Come back tomorrow morning for more highlights from day two, and Monday morning for highlights from day three.
Manish Raghavan, Harvard University; Solon Barocas, Microsoft Research; Jon Kleinberg, Cornell University; Karen Levy, Cornell University
Abstract: There has been rapidly growing interest in the use of algorithms in hiring, especially as a means to address or mitigate bias. Yet, to date, little is known about how these methods are used in practice. How are algorithmic assessments built, validated, and examined for bias? In this work, we document and analyze the claims and practices of companies offering algorithms for employment assessment. In particular, we identify vendors of algorithmic pre-employment assessments (i.e., algorithms to screen candidates), document what they have disclosed about their development and validation procedures, and evaluate their practices, focusing particularly on efforts to detect and mitigate bias. Our analysis considers both technical and legal perspectives. Technically, we consider the various choices vendors make regarding data collection and prediction targets, and explore the risks and trade-offs that these choices pose. We also discuss how algorithmic de-biasing techniques interface with, and create challenges for, anti-discrimination law.
Anna Sinaiko, Harvard University; Meredith Rosenthal, Harvard University; Vilsa Curto, Harvard University
Abstract: Vertical integration in healthcare has recently garnered scrutiny by antitrust authorities and state regulators. We examined trends, geographic variation, and price effects of vertical integration and joint contracting between physicians and hospitals using physician affiliations and all-payer claims data from Massachusetts in 2013–2017. Vertical integration and joint contracting with small and medium systems rose from 19.5 percent to 32.8 percent for primary care physicians and from 26.1 percent to 37.8 percent for specialists; vertical integration and joint contracting with large systems slightly declined. Geographic variation in vertical integration and joint contracting with large systems increased. We found that vertical integration and joint contracting led to price increases of 2.1 percent to 12 percent for primary care physicians and 0.7 percent to 6 percent for specialists, with the greatest increases in large systems. These findings can inform policymakers seeking to limit growth in healthcare prices.
Mark Curtis, Wake Forest University; Daniel G. Garrett, University of Pennsylvania; Eric Ohrn, Grinnell College; Kevin A. Roberts, Duke University; Juan Carlos Suarez Serrato, Duke University
Abstract: We study how tax policies that lower the cost of capital impact investment and labor demand. Difference-in-differences estimates using confidential U.S. Census Data on manufacturing establishments show that tax policies increased both investment and employment, but did not lead to wage or productivity gains. Using a structural model, we show that the primary effect of the policy was to increase the use of all inputs by lowering overall costs of production. The policy further stimulated production employment due to the complementarity of production labor and capital. Supporting this conclusion, we find that investment is greater in plants with lower labor costs. Our results show that recent tax policies that incentivize capital investment do not lead manufacturing plants to replace workers with machines. Note: This research was funded in part by Equitable Growth.
Arindrajit Dube, University of Massachusetts Amherst; Suresh Naidu, Columbia University; Adam Dalton Reich, Columbia University
Abstract: What is the value of workplace dignity to low-wage workers, and is it supplied efficiently? We present a methodology to elicit valuations of difficult-to-measure job characteristics under imperfect competition and use it to measure the value of workplace dignity to workers and its relationship to wages. We draw on extensive ethnographic work conducted with 87 Walmart workers to design and implement a survey experiment with over 10,000 Walmart workers recruited online. We first validate our experimental design by showing that our hypothetical quit elasticities are close to other estimates in the literature, and that subjects’ behavior (their likelihood of clicking on an outside job link) is consistent with their stated preferences and together imply a nontrivial degree of monopsony power. Next, we estimate workers’ valuations of different workplace amenities, from commuting and scheduling to more subjective measures of workplace dignity, including supervisor respect and self-expression at work. We find that workers value workplace dignity at approximately 6 percent of their current wage, making it comparable to amenities like commute time and more valuable than widely discussed amenities like control over one’s schedule. We find that workers’ experience of dignity at work is higher for White, older, and Southern workers, and is correlated with a measure of job rents. High-dignity jobs are also associated with a lower quit elasticity, but a higher bargaining elasticity, with no such heterogeneity by the nondignity job amenity values. Third, we use geographic variation in the bite of Walmart’s 2014 voluntary minimum wage policy to estimate the causal impact of higher wages on changes in dignity. Contrary to the theory of compensating differentials, we find that workplace dignity is not a substitute for wages, as reported dignity values do not decrease among those workers likely to have experienced a raise due to the voluntary minimum wage. Note: This research was funded in part by Equitable Growth.
Ihsaan Bassier, University of Massachusetts Amherst
Abstract: How does centralized bargaining affect the broader wage structure? And what does this tell us about the mechanisms that govern the wages and flows of labor? Using bargaining council contracts matched with firm- and worker-level data in South Africa, I show wages correspond sharply to large contracted wage increases especially in mid-wage and mid-size firms. A simple model of monopsonistic competition and strategic interaction predicts sizable cross-firm wage spillovers from such partially treated labor markets. To account for the overlapping and localized nature of labor markets, I show that a model-based measure of wage spillovers is proportional to worker flows between firms. Using observable worker-level flows, I isolate the empirically relevant labor market segment, and find a cross-wage elasticity of about 0.8. Previous estimates are lower, which is consistent with being based on less precise measures of spillovers. A microdata simulation suggests that accounting for these spillovers doubles the effect of contracted wage increases on the full wage distribution. Note: This research was funded in part by Equitable Growth.
Enghin Atalay, Federal Reserve Bank of Philadelphia; Sebastian Sotelo, University of Michigan, Ann Arbor; Daniel Tannenbaum, University of Nebraska-Lincoln
Abstract: Working in urban commuting zones (CZs) commands a large earnings premium, and this premium differs significantly by worker skill level. In this paper, we produce new descriptive evidence and introduce new measurement tools to understand the mechanisms behind the urban premium and why it differs by worker skill level. We use the near-universe of job vacancies and develop granular measures of job tasks—based on the natural language employers use, rather than survey-based categories—that allow for differences within occupations and across CZs. We find evidence for three mechanisms behind the earnings premium. First, jobs are more interactive and analytic in urban CZs, even within narrow occupation categories. Second, the computer software requirements of jobs are more intensive in urban CZs. Third, urban workers are more specialized, with less overlap in the sets of tasks performed, within occupations. Furthermore, these differences across CZs are more pronounced for college-educated workers than for noncollege workers. We show that job tasks and technologies account for a substantial portion of the urban CZ premium—even within occupations—and this relationship is stronger for white-collar occupations. Note: This research was funded in part by Equitable Growth.
Marshall Drake, Boston University; Neil Thakral, Brown University; Linh Tô, Boston University
Abstract: This paper introduces the use of a Bayesian Adaptive Choice Experiment, or BACE, a dynamic preference elicitation method. The method makes it possible to obtain individual-level willingness-to-pay estimates taking into account heterogeneity in inattention by using a dynamically chosen sequence of discrete choice scenarios that yields the largest information gain about preference parameters. We apply the method to understand differences in the values of job amenities by gender. The new data also allow us to estimate a new model of compensating differentials extending the Rosen (1986) framework to understand how workers trade off workplace flexibility.
Natalie Cox, Princeton University; Ernest Liu, Princeton University; Daniel Morrison, Princeton University
Abstract: Do government-funded guarantees and interest rate caps primarily benefit borrowers or lenders under imperfect competition? We study how bank concentration impacts the effectiveness of these policy interventions in the small business loan market. Using data from the Small Business Administration’s Express Loan Program, we estimate a tractable model of bank competition with endogenous interest rates, loan size, and take-up. We introduce a novel methodology that exploits loan “bunching” in the two-dimensional contract space of loan size and interest rates, utilizing a discontinuity in the SBA’s interest rate cap. In concentrated markets, we find that a modest decrease in the cap would increase borrower surplus by up to 1.5 percent, despite the rationing of some loans. In concentrated markets with a 50 percent loan guarantee, each government dollar spent raises borrower surplus by $0.64, boosts lender surplus by $0.34, and generates $0.02 of deadweight loss.
Abstract: A rising tide does not lift all boats equally. During the expansion from the Great Recession, Black wage growth lagged that of Whites. While lower unemployment rates and the increased transition of workers from unemployment to employment is correlated with rising wages, this effect is through the correlation of job-to-job transitions on wages that increase as the labor; the actual mechanism is the increase in job-to-job transitions. But the minimum wage is important as a reservation wage and because increases in the minimum wage cause wage compression within firms create wage pressures on job-to-job transitions. But these pressures have different results by race because of differences in job-to-job transitions and because differences between minimum wage increases occur by race; Black workers disproportionately live where minimum wages have not increased. This paper decomposes those different effects.
Rachel M.B. Atkins, New York University; Lisa Cook, Michigan State University and National Bureau of Economic Research; Robert Seamans, New York University
Abstract: We assess the role of FinTech firms in loans made through the Paycheck Protection Program. The PPP, created by the U.S. government as a response to the coronavirus pandemic, provides loans to small businesses so they can keep employees on their payroll. We argue that FinTech firms’ reliance on technology rather than relationship-banking approaches used by traditional banks helps to address discrimination in lending, at least in part. Using newly released data on the PPP, we find support for our arguments: While Black-owned businesses received loans that were approximately 50 percent lower than observationally similar White-owned businesses, the effect disappears when FinTechs are allowed to provide loans.
Abstract: The dominant model of discrimination is to assume either barriers to entry, based on pre-market factors like schooling or distance to job locations, or discrimination in the market is viewed as client-, owner-, or worker-based discrimination. But the case of locomotive firemen in the late 19th and early 20th centuries, as the importance of the railroad grew, presents a more complex model of race and labor market discrimination. In the U.S. South, Blacks played a dominant role because the job of fireman on a steam locomotive was dirty and dangerous and was a servant role to the locomotive’s engineer. Their numbers were too large for White workers, seeking to exclude Blacks, for White railroad owners to agree to their exclusion. However, outside the South, Blacks were effectively barred from the job. This paper explores this complex setting and shows its relevance to understanding discrimination effects.
Yi Geng, District of Columbia Government; Daniel Muhammad, District of Columbia Government; Bradley Hardy, American University
Abstract: On May 6, 2008, Washington, DC passed the Pre-K Enhancement and Expansion Act of 2008 to provide all 3- and 4-year-olds in Washington universal access to high-quality pre-Kindergarten education. By school year 2018–19, around 80 percent of eligible children in Washington were served in a public pre-K program. While the primary goal of universal pre-K program is to invest in the human capital of children that low-income parents are unable to provide, the program is also justified by increasing low-income family pay and maternal labor supply. Using administrative data from the IRS and the District of Columbia, we designed a study to analyze the impact of the DC universal pre-K program on the labor supply of unmarried working mothers using a different-in-differences framework. Our results show that after the establishment of universal pre-K in Washington, single parents tended to work less before the child was eligible for the universal pre-K program and recover to pre-policy when the child was eligible for the program, when compared with earnings before the implementation of the universal pre-K policy and controlling other factors. This seems to imply that the city’s universal pre-K program produced income effects that significantly affected the labor supply for single parents in Washington with younger children eligible for universal pre-K program.
Robert Fairlie, University of California, Santa Cruz; Frank M. Fossen, University of Nevada, Reno
Abstract: Was the $278 billion reboot of the $800 billion Paycheck Protection Program disbursed equitably to minority communities? This paper provides the first analysis of how PPP funds were disbursed to minority communities in the third and final round of the program, which was specifically targeted to underserved and disadvantaged communities. Using administrative microdata on the universe of PPP loans, we find a strong positive relationship between PPP flows, as measured by the number of loans per employer business or loan amounts per employee, and the minority share of the population or businesses in the third round. In contrast, the relationship was negative in the first round of 2020 and less positive in the second round of 2020. We find a stronger positive relationship between minority share and loan numbers or amounts to employer businesses for first draw loans than second draw loans in 2021. The patterns are similar for loan numbers and amounts to nonemployer businesses but with a similarly strong positive relationship with minority share for both first draw and second draw loans. In comparison, in 2020, there was a negative relationship with minority share in the first round and a much weaker positive relationship in the second round. The restarted PPP program that ran from January to May 2021 appears to have been disbursed to minority communities as intended.
Thomas H. Byrne, Boston University; Robynn Cox, University of Southern California; Jamein Cunningham, Cornell University; Benjamin F. Henwood, University of Southern California; Anthony W. Orlando, California State Polytechnic University, Pomona
Abstract: We explore the extent to which income inequality influences crime, police contact, and police-related fatalities. Recent research has shown that income inequality is associated with increases in police expenditures; however, this increase could be a desire to deal with the social ills typically correlated with rising inequality. We combine information on inequality and crime to examine the relationship between inequality and public safety outcomes. Using an instrumental variables approach, we find evidence that income inequality is associated with increases in police expenditures, reaffirming previous research from Boustan et. al (2013). However, counter to the prevailing literature, we find that inequality is negatively related to homicide victimization, crime, arrests, and police killings of civilians.
Harrison Hong, Columbia University; Neng Wang, Columbia University; Jiangmin Xu, Peking University; Jinqiang Yang, Shanghai University of Finance and Economics
Abstract: Heat waves—periods of extreme heat spanning several days—damage regional productivity and are becoming more frequent in the age of climate change. We model their implications for welfare using a continuous-time growth model. The discrete arrival of heat waves leads to downward jumps in regional productivity. Firms can install cooling capital (e.g., air conditioners, refrigeration) which mitigate the fat-tail damage to productivity conditioned on the arrival of a heatwave. We apply our model to U.S. counties from 1960 to 2020. Our model can match regional economic moments, frequency of heatwave arrivals, and conditional loss distributions. We then use our model to generate regional estimates of capital formation, economic growth, and household welfare based on projected heat wave trends across counties.
Karl David Boulware, Wesleyan University; Kenneth N. Kuttner, Williams College
Abstract: A well-established fact is that Blacks (and other historically disadvantaged groups) are disproportionately affected by recessions. However, the reasons for this are not well-understood. The goal of this paper is to measure the high sensitivity of Black unemployment to macro conditions using a unified time series (error correction) framework. We also explore the possible role of occupational mix in contributing to Black workers high employment “beta”. We find that Black (un)employment is much more cyclical than White, which explains why the racial “gap” widens during recessions and narrows during expansions. Moreover, the “catchup” is especially rapid during high-pressure labor markets, and the excess cyclicality of Black unemployment cannot be explained by occupational stratification.
report
working paper
Equitable Recovery
