Weekend reading: Quitting, low wages, racial inequality, and more

Posted on by Nick Bunker

This is a weekly post we publish on Fridays with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth has published this week and the second is work we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.

Equitable Growth round-up

Job-to-job mobility in the U.S. labor market has been on the decline for the past 15 years. Over that time period, the country’s population has also aged quite a bit as the Baby Boomers started retiring. But how much of the decline in quitting is due to demographics? Not much.

The Federal Reserve is certainly aware of racial inequality in the United States as well as other forms of inequality. But how much does that awareness count for unless the central bank conducts policy in an inequality-aware manner?

Walmart recently announced it’s closing more than 100 stores across the country, and not expanding stores it previously promised in the District of Columbia. Heather Boushey uses this occasion to point out that low wages aren’t always competitive.

Paid leave programs have support from presidential candidates on both sides of the aisle and have proven benefits for workers. And new research shows that businesses seem to like them as well. But why is that?

Links from around the web

Central bankers have long focused on just cyclical (short-run) changes in the economy. But monetary policymakers are increasingly focusing on a number of structural (long-run) changes. Gertjan Vlieghe, a member of the Bank of England’s Monetary Policy Committee, focuses on three trends: debt, demographics, and the distribution of income. [bank of england]

Real weekly earnings growth in the United States has picked up over the past two years after being flat for most of the recovery from the Great Recession. But what has driven this bump in earnings growth? Jared Bernstein decomposes it to find the sources. [on the economy]

U.S. cities with high levels of inequality also tend to be cities where low-income households spend more on rent. In other words, inequality is correlated with a lack of affordable housing. Emily Badger investigates what might explain this relationship. [wonkblog]

The return to additional capital investment—or, in economics terms, “the marginal product of capital”—seems to be on the decline in the United States since the 1960s. Does that mean we’re entering a period of secular stagnation? Or that the marginal product is returning to its old historical value? Dietz Vollrath looks at the data. [growth economics]

Business dynamism in the United States is also on the decline. Americans are less likely to start a company, and new firms are growing slower than in the past. Noah Smith reports on new research, however, that finds federal regulations aren’t the root of the problem. [bloomberg view]

Friday figure

Figure from “Demographics don’t explain the decline in quitting” by Nick Bunker and Kavya Vaghul.

Must-reads: January 22, 2016

Posted on by Brad DeLong

Must-read: Dietz Vollrath: “Beating a Dead Robotic Horse”

Posted on by Brad DeLong

Must-Read: Dietz Vollrath: Beating a Dead Robotic Horse: “People are not horses, they are apes…

…And apes are intelligent, creative, and social. The last one is very important, because it means we have a built-in demand for being around other people. A demand that we routinely pay to have supplied. We will always find ways to pay other people to interact with us. The horse agument, though, is a form of strong robo-pessimism. When I go after it, it makes it seem as if I have a real distinct difference from someone like Richard, a weak robo-pessimist. I don’t. I think I am a weak robo-optimist…

Must-read: Duncan Black: “Time To Increase Interest Rates!”

Posted on by Brad DeLong

Must-Read: And Duncan Black comes up with a very good phrase to describe what we think the Federal Reserve is doing based on what we think is its misspecified and erroneous view of the inflation process: “taking away the punchbowl before the DJ even shows up to the party”:

Duncan Black: Time To Increase Interest Rates!: “As I’ve said, I don’t think small upticks in interest rates by the Fed…

…will really destroy the economy. They just signal that the Fed will never let wages (for most of us) rise ever again. They’re taking away the punchbowl before the DJ even shows up to the party. Killing inflation is easy and you don’t have to pre-kill it. The best argument for Fed actions is that they need to increase rates so that they’ll be able to decrease them again if the economy sours. There’s a bit of an obvious problem with this reasoning. Exciting days at the dog track probably do get their attention. Wonder why that is.

Graph 5 Year 5 Year Forward Inflation Expectation Rate FRED St Louis Fed

How many FOMC members would have voted to raise interest rates back a month and a half ago if they had known that from then until now would say a 50 basis-point downward lurch in the 5-year ahead 5-year forward inflation breakeven? 4? 3? 2? 1? If they do not reverse that December rise at the next FOMC meeting, it seems as if something is wrong…

Must-read: Olivier Blanchard: “The US Phillips Curve: Back to the 60s?”

Posted on by Brad DeLong

Must-Read: Olivier Blanchard says that he and Paul Krugman differ not at all on the analytics but, rather, substantially on “tone”. When I read Olivier, I find his tone so measured and reasonable that casual and even more-attentive-than-casual readers are likely to completely miss the point.

When Olivier believes that the Federal Reserve did right to raise interest rates last month. But when he says “each of the last three conclusions presents challenges for the conduct of monetary policy”, what he means the conclusion I draw is: The Federal Reserve has made and is making three mistakes in its assessment of the relationship between inflation and unemployment:

  1. It believes that the relationship is tight, so that you can make policy by simply looking at the forecast without looking at asymmetric consequences in the tails of the distribution of future outcomes. But the relationship is not tight, but loose. It has always been loose.
  2. It believes that the gearing between unemployment and inflation is strong, so that minor falls of unemployment below the natural rate produce substantial increases in inflation even in the short run. But that gearing has not been strong since the early 1980s. It is weak.
  3. It believes that increases in inflation substantially and rapidly affect expectations of future inflation, so that we are never far from a wage-price spiral. But that gearing has not been strong since the late 1980s, if then. Inflation expectations are anchored.

Why the Federal Reserve is working today as if the Phillips-Curve relationship is still what it was in the years around 1980 is a great mystery. But it is, I think–and I think Olivier thinks, though with his reasonable tone it is hard to tell–leading the Federal Reserve to place bad monetary-policy bets right now:

Olivier Blanchard: The US Phillips Curve: Back to the 60s?: “The US Phillips curve is alive…

…(I wish I could say “alive and well,” but it would be an overstatement: the relation has never been very tight.) Inflation expectations, however, have become steadily more anchored, leading to a relation between the unemployment rate and the level… rather than the change in in inflation… [that] resembles more the Phillips curve of the 1960s than the accelerationist Phillips curve of the later period. The slope of the Phillips curve… has substantially declined…. The standard error of the residual… is large…. Each of the last three conclusions presents challenges for the conduct of monetary policy…

Www piie com publications pb pb16 1 pdf Www piie com publications pb pb16 1 pdf Www piie com publications pb pb16 1 pdf

Must-read: Simon Wren-Lewis: “The Dead Hand of Austerity; Left and Right”

Posted on by Brad DeLong

Must-Read: There is an alternative branch of the quantum-mechanical wave-function multiverse in which we reality-based economists got behind the “safe asset shortage” view of our current malaise back in 2009. Savers, you see, love to hold safe assets. And in 2007-9 the private-sector financial intermediaries permanently broke saver trust in their ability to create and credibility to identify such safe assets. If, then, we seek to escape secular stagnation, the government must take of the task of providing safe assets for people to hold and then using the financing for useful and productive purposes. That could have been an effective counter-narrative to demands for austerity–not least because it appears to be a correct analysis…

Simon Wren-Lewis: The Dead Hand of Austerity; Left and Right: “Those who care to see know the real damage that austerity has had on people’s lives…

…The cost on the left could not be greater. Austerity and the reaction to it were central to Labour losing the election. The Conservatives managed to pin the blame for Osborne’s austerity on Labour, and as the recent Beckett report acknowledges (rather tellingly): ‘Whether implicitly or explicitly (opinion and evidence differ somewhat), it was decided not to concentrate on countering the myth…’ It was also central in the revolution of the ranks that happened subsequently. Austerity is a trap for the left as long as they refuse to challenge it. You cannot say that you will spend more doing worthwhile things, and when (inevitably) asked how you will pay for it try and change the subject. Voters may not be experts on economics, but they can sense weakness and vulnerability….

That dead hand… touches the reformist right… as [well]…. There were genuine hopes on all sides that Universal Credit (UC) might achieve the aim of simplifying the benefit system…. But as a result of austerity, and those cuts to tax credit that the Chancellor was forced to postpone, UC will now be seen as a way of cutting benefits and will be either extremely unpopular and/or be quickly killed…. The years of austerity will be seen as wasted years, when no new progress was achieved and plenty that had been achieved in the past setback. Recovery from recessions need not be like this, and indeed has not been like this in the past. They can be a time of renewal and reform…. In the UK that dead hand continues, seen or unseen, to dominate policy and debate. And with its architect set to become Prince Minister and large parts of the opposition still too timid to challenge it, it looks like another five wasted years lie ahead for us.

Must-reads: January 21, 2016

Posted on by Brad DeLong

Why employers might like paid leave programs

Posted on by Bridget Ansel

Paid leave, which allows workers to take time away from work for personal medical reasons or to care for family members, is increasingly popular among policymakers. In fact, presidential candidates from both major parties support the idea of paid leave, even if the mechanisms for funding and delivering paid leave differ quite a bit.

But while the idea itself is catching on, actual instances of paid leave programs in the United States are relatively rare among the states. So far, just three states have implemented comprehensive paid leave programs: California has had a program for more than a decade, with only New Jersey and Rhode Island joining the ranks relatively recently. (New York and Hawaii have more limited temporary disability insurance programs.) Looking at these states’ experiences can be instructive when thinking about what a federal policy might look like.

In a recently released report, four researchers—Ann Bartel of Columbia Business School; Maya Rossin-Slater of the University of California, Santa Barbara; Christopher Ruhm of the University of Virginia; and Jane Waldfogel of the Columbia School of Social Work—explore how the new paid leave program affects employers in Rhode Island, which in 2014 became the most recent state to implement a paid leave program. Called Temporary Caregiver Insurance, the program was an expansion of its already existing temporary disability insurance program. It gives workers in Rhode Island four weeks of paid leave and is financed by a payroll tax on employees. The payout is a certain percentage of workers’ pay, capped at $795 a week.

In short, Rhode Island decided to take a social-insurance-style approach to the program instead of one that would rely on individual employers to give their workers leave on their own. It’s like the difference between Social Security and the 401(k) system.

The researchers surveyed employers before and after the implementation of the Temporary Caregiver Insurance program and found that it really doesn’t affect the employers much, at least according to their survey responses. For the most part, employers feel pretty positive about the program: 61 percent of employers said they were either “strongly in favor” or “somewhat in favor” of it.

(The authors note their sample size isn’t particularly large, but their results are very much in line with studies of California’s much bigger program.)

Why would employers like such a program? When economists, analysts, and policymakers talk about the economic ramifications of paid leave programs, they usually talk about the potential benefits for labor force growth. A robust paid leave program might be able to boost the U.S. labor force participation rate—which has been on the decline since 2000—by allowing workers time to temporarily step back from the labor force instead of dropping out entirely.

Stronger labor force attachment also helps employers. Turnover can be quite costly for employers, with the cost of replacing a worker registering at somewhere around 20 percent of their annual salary. So it could be quite beneficial for employers if workers come back to the job after a temporary leave. Of course, the Temporary Caregiver Insurance program doesn’t require employers to administer the benefits (as they do with employer-sponsored paid leave programs), but rather leaves that to the state government. (I’m sure employers appreciate having one less HR process to run.)

To be fair, this is just the experience of one state of only three that have implemented paid leave programs. But their positive experiences, along with those of other countries with similar programs, show the large potential for the concept in the United States.

(AP Photo/Ben Margot)

Always-low wages aren’t always competitive

Posted on by David Hudson
A worker pushes shopping carts in front of a Wal-Mart store in La Habra, California. (AP Photo/Jae C. Hong, File)

Wal-Mart Stores Inc. announced late last week that it will close 154 of its stores nationwide, sparing the District of Columbia (where I live) yet also disclosing that the discount retailer will not be expanding as promised in the city. The decision to close about 3 percent of its stores nationwide means as many as 10,000 workers in the United States could lose their jobs, according to The New York Times. The move also means that Washington, D.C. will not see the creation of scores of new jobs in parts of town that desperately need new employment opportunities.

It’s been a tough year for Walmart as competition from online retailers has hit its bottom line. But instead of focusing on the failure of Walmart’s business model—and its management—local leaders are using the company’s announcement as an opportunity to focus on driving down benefits for workers.

Take the District of Columbia. Although Walmart isn’t closing any stores in D.C., its representatives told Mayor Muriel Bowser that the company will not move forward with two Supercenters planned for east of the Anacostia River—one in Skyland Town Center in Southeast, and the other in Capitol Gateway Marketplace in Northeast.

Not following through on these two stores violates a “handshake” agreement that former Mayor Vincent Gray made with Walmart in 2013. Having Walmart operate in the District was contentious from the start. Many were concerned about the company’s employment practices, including its low wages, limited benefits, unpredictable schedules, and anti-union policies. Gray negotiated that in order for Walmart to become a retailer in the District, the company had to build at least two stores in Washington’s poorest neighborhoods.

While Walmart got what it wanted, the District did not. Walmart got to open stores in up-and-coming, gentrifying parts of our city. They opened one near Union Station, one in the Brightwood neighborhood along Georgia Avenue, and a third in the Fort Totten neighborhood. But residents of the neighborhoods who needed access to a large grocery store and new jobs the most have been left out. Further, the District had already committed $90 million to make the Skyland development possible and spent resources working through the District’s permit process.

But that’s not the story that Councilmember Jack Evans told The Washington Post. Evans, who represents Ward 2 where I live, was in the meeting with the Mayor and the Walmart officials. While Walmart’s public statements were about the tough times in retail, Evans said Walmart’s change of plans in D.C. were because of the District’s rising minimum wages and the potential that the District City Council will vote for a paid family and medical leave bill this session.

In fact, Walmart was very explicit about its reasoning. It is losing customers to online retailers and hasn’t figured out a sound strategy to compete with the likes of Amazon. The company added that it also has had problems figuring out how to compete in urban markets like the District of Columbia. Walmart built its success on large, suburban locations, but hasn’t been able to dominate urban markets in the same way. In 2011, it began a strategy of creating smaller “Express Stores” that the company hoped would appeal to urban consumers. But Friday’s announcement included an end to those urban small stores, too.

Councilmember Evans should not be encouraging his colleagues to temper their support for reducing economic inequality and strengthening families living in Washington, D.C. Instead, this is an opportunity to point out that a firm’s bottom line isn’t just about labor market policy. Good economics isn’t just the short-term corporate bottom line but rather a vibrant economy where families are economically secure, good jobs are available, and firms are innovative and constantly adjusting their business models to meet long-term objectives. Always-low wages are simply not a path to consistently strong firm performance or strong, sustainable economic growth.

The District of Columbia should support policies that create living wages and give workers the time and income support they need when they have to be away from work because they have a new child or a family member has a serious illness. Ideas such as the paid family leave bill before the D.C. Council would be one such step forward that would both reduce inequality and support working families as well as strengthen our economy. Walmart’s failure to adjust its business strategies is its problem, not that of the citizens of the District of Columbia.

Heather Boushey is Executive Director and Chief Economist at the Washington Center for Equitable Growth.