Congress needs distribution analyses to make informed, equitable policy choices, and the CBO FAIR Scoring Act would deliver it

Posted on by Emilie Openchowski
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Before voting on legislation, members of Congress usually receive a cost estimate, or score, for that legislation from the Congressional Budget Office. This score provides nonpartisan CBO analysts’ best estimate of how the legislation will affect the federal budget deficit.

A cost estimate is useful information for legislators, but it represents only one side of the equation. Costs are incurred to deliver benefits, yet members of Congress rarely receive analysis to assess who will benefit from bills and by how much. Currently, without any requirement for this type of analysis, members of Congress all too often must vote on legislation with formal analysis of the costs but with only informal or no analysis of the benefits.

Today, Reps. Ro Khanna (D-CA) and Dean Phillips (D-MN) in the U.S. House of Representatives and Sens. Elizabeth Warren (D-MA) and Michael Bennet (D-CO) in the Senate introduced the CBO FAIR Scoring Act. The proposed law would represent a major step forward for the legislative process by directing the Congressional Budget Office to prepare distribution analyses by race and income for all legislation with substantial budgetary effects. In short, these analyses would provide members of Congress with CBO analysts’ best estimate of how the legislation would affect different groups of people—critical information for evaluating who would benefit. (See Figure 1.)

Figure 1

Median household wealth by race/ethnicity of respondent, 1989–2019

The need for a better understanding of how legislation would affect different groups of people is apparent in the high levels of inequality in the United States. In 2019, prior to the onset of the coronavirus pandemic, the median wealth of White families was $188,200, while the median wealth of Black families was only $24,100 and the median wealth of Hispanic families only $36,100. Families in the top 1 percent of the income distribution accounted for 20 percent of income, and families in the top 1 percent of the wealth distribution accounted for 33 percent of all wealth.

The coronavirus pandemic exacerbated, and was itself exacerbated by, these disparities. Job losses, for example, were concentrated among lower-wage workers. Unemployment rates for Black workers and for Hispanic workers remain consistently higher than unemployment rates for White workers since the onset of the pandemic more than a year ago.

If enacted, the CBO FAIR Scoring Act would ensure that members of Congress receive the distribution analyses they need to make informed policy choices in light of these economic disparities. It would clarify which bills would reduce economic disparities and which bills would increase them. And it would serve as an independent check on policymakers’ sometimes-inaccurate claims about who their policies would benefit.

Specific instances where distribution analysis would be useful in legislation

The laws that Congress already passed in response to the ongoing pandemic highlight the importance of this requirement. When the Coronavirus Aid, Relief, and Economic Security, or CARES, Act, passed in March 2020, the Congressional Budget Office estimated its cost at $1.7 trillion and produced subsequent reports of the detailed breakdowns of those costs by program. But where did the money go? Who benefited from this legislation? The Congressional Budget Office has not answered that question in a comprehensive fashion.

In a notable exception, however, the Joint Committee on Taxation produced a distribution analysis of a single provision of the law—a relaxation of limits on the tax deductibility of certain business losses. The analysis’ finding that this provision delivered significant financial benefits almost exclusively to the richest Americans drew substantial attention and confirmed the interest in distribution analysis among legislators and the public. (See Figure 2.)

Figure 2

Distribution analysis of the tax benefit of the $86 billion CARES Act business loss limitation suspension, by income group

Congress frequently revises legislation because of CBO cost estimates or designs bills to fit certain spending goals with CBO estimates in mind. With more frequent distribution analyses, Congress could also fine-tune legislation in response to the distribution analyses. Congress may want to revise a bill if an official CBO analysis shows that it would widen racial income gaps, or if almost all benefits accrue to the rich, as in the above example.

For instance, President Joe Biden and Senate Democrats are currently proposing a bill that will include massive investments in the U.S. economy, but media coverage of the bill overwhelmingly focuses on its costs, rather than its contents and benefits. The bill will include an extension of the recently enacted Child Tax Credit expansion, or child allowance, which delivers monthly checks of $250 to $300 per child to most families in the United States. Outside analyses show this will lower child poverty by nearly 50 percent, but Congress’ official scorekeeper may only analyze the costs of the bill, not its benefits, depriving Congress of crucial information before they vote.

A requirement that the Congressional Budget Office conduct distribution analyses of all legislation with substantial budgetary effects would build on existing informal practice. Currently, distribution analyses are conducted only on a discretionary basis by the Congressional Budget Office and the congressional Joint Committee on Taxation. The most common application is for tax legislation. Indeed, the JCT provided Congress with a set of distribution analyses by income during consideration of the Tax Cuts and Jobs Act in 2017, and think tanks such as the Tax Policy Center regularly produce distribution analyses for tax proposals. (See Figure 3.)

Figure 3

Percent change in after-tax income from the Tax Cuts and Jobs Act in 2018, 2025, and 2027

Yet there is no requirement that distribution analyses be provided—and the lack of such a requirement is apparent in the inconsistency with which they are produced. The Congressional Budget Office prepared revised cost estimates for the Tax Cuts and Jobs Act in April 2018, for example, but it did not prepare revised distribution analyses when it did so.

Moreover, there is no tradition of providing distribution analyses by race by either the Congressional Budget Office or the Joint Committee on Taxation. The Institute on Taxation and Economic Policy, together with Prosperity Now, produced a distribution analysis by race for the Tax Cuts and Jobs Act, but no similar analysis has been produced by official scorekeepers.

Distribution analysis in academia

There is a long tradition of conducting distribution analysis in the tax context, yet it is underused in other contexts. Application of a distributional logic to these programs is on the rise in academic work, however. Recent research by economists Nathan Hendren and Ben Sprung-Keyser at Harvard University applied the same economic logic that underlies tax distribution analyses to a range of spending programs, from education and training programs to Unemployment Insurance—exactly the kinds of areas that rarely benefit from this lens in the policy process.

This recent academic research not only uses the techniques of distribution analysis to examine policy impacts for a wider array of programs, but also further clarifies why such analyses should be centered in the consideration of public policies.

The impact of legislation on the federal budget deficit can be measured in dollars and cents, but there is no single measure that captures the impact on all people affected. This academic work by Hendren and Sprung-Keyser highlights that the direct impact on people and families is an accurate measure of how it affects their well-being. Hendren’s prior work lays out in detail why these direct impacts answer this question. And Greg Leiserson, formerly of Equitable Growth, has formalized a similar logic in the specific case of the distribution analysis of tax legislation.

With policy impacts on people and families in hand, analysts must make choices about how to group and compare those impacts to illustrate what the legislation does in a more accessible way. And it is in that step where the need for a distributional perspective comes in.

The distribution analyses produced by the Congressional Budget Office and Joint Committee on Taxation in the past focused on different impacts by income, but the CBO FAIR Scoring Act requires distribution analyses both by income and by race. Thus, the analyses will not just report how legislation affects those at different income levels, but also how it affects Black families and families of Hispanic origin.

This aspect of the legislative proposal builds on prior research by Mehrsa Baradaran, a professor at University of California, Irvine School of Law, that proposes directing the Congressional Budget Office to assess how proposals would affect the racial wealth gap. And recent commentary from Andre Perry at The Brookings Institution and Darrick Hamilton, the director of the Institute for the Study of Race, Stratification and Political Economy at the New School, similarly argues that the White House Office of Management and Budget should develop a means for scoring proposals for racial equity.

Better information will deliver better results

Many inequalities in the United States are the result of policy choices. Just as we need to track who benefits from economic growth economywide—a measure Equitable Growth calls GDP 2.0—lawmakers need to be able to track who benefits from specific legislation they pass.

Public policies can exacerbate economic inequality, and they can reduce it, too. If members of Congress are to enact policies that foster broad-based growth rather than policies that deliver increased poverty and unequal growth, then it is essential that they receive analysis of the distributional impact of policies during the legislative process when it can inform their decision-making. Reps. Khanna and Phillips’ and Sens. Warren and Bennet’s CBO FAIR Scoring Act would require exactly that and would thus represent a dramatic improvement in the legislative process.

Myths about competition in the global economy harm humanity and our planet

Posted on by Maria Monroe
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Competition around the globe is facing a crisis today. Mega corporations benefit from neoliberal ideologies and lax enforcement of the antitrust laws. Growing market power among fewer and fewer firms harms workers, new firms, consumers, and, more broadly, most of humanity and our planet. A powerful clutch of corporate executives earn more money and gain more power while workers face worsening conditions, declining worker power, and reduced pay and benefits while communities around the world suffer from growing environmental crises.

These trends underpin a new book, Competition is Killing Us: How Big Business is Harming Our Society and Planet—and What To Do About It, by Michelle Meagher. She argues that antitrust laws in the developed economies and around the globe have done little to protect not just new competitive entrants but also vulnerable communities and our planet as a whole.

Meagher, a senior policy fellow at the University College London Centre for Law, Economics and Society and co-founder of the Balanced Economy Project, calls current antitrust and corporate laws “arcane spheres of regulation” that have failed to execute upon their responsibilities. Yet she believes that a reassignment of power and a redefinition of antitrust and corporate law are the keys to holding corporate power accountable.

Meagher outlines six myths about free markets, rooted in neoclassical economic thinking, and the importance of seeing past them to stop the harms that they inflict upon our planet. Those myths are that:

  • Free markets are competitive.
  • Companies compete by trying to best respond to the needs of society.
  • Corporate power is benign.
  • We already control corporate power with antitrust laws and regulations.
  • The law requires companies to maximize financial value for shareholders.
  • We are all shareholders, so we all benefit from corporate focus on shareholders’ interests.

Meagher argues that current markets in free market economies are not competitive. Modern research in competition supports her claim. As now evident in the beer, homebuilding, and agriculture industries, for example, consolidation of competitors prevents the entry of new firms, thus contributing to the persistence of monopoly and duopoly power. As a result of five decades of consolidation, the four largest biotech companies controlled 85 percent of the corn seed market in 2015, compared to only 50.5 percent in 1985.

Growing evidence supports the finding that consolidation across many industries is harmful. A recent study by the Federal Reserve shows that mergers and acquisitions lead to an increase in price mark-ups and present little evidence of effects on firm-level productivity. And a deeper dive into hospital merger data finds that hospital mergers neither reduced costs nor improved the quality of care provided. The research demonstrates that when large hospital groups merge and become the only healthcare provider and employers in a region, they are able to suppress employee wages—specifically high-skilled physician and nurses’ wages—below competitive rates, a practice known as monopsony power. Decreased quality of care, increased prices, and slower wage growth are all factors that contradict the needs of society.

Meagher disputes the myth that competition results in the fulfillment of society’s needs. Instead, competition often leads firms to exploit regulatory loopholes or externalities. She explains that in the name of competition, global companies will move production to areas with weaker environmental or labor protections. While that decision allows the company to increase its profits, it results in global environmental damage done in the name of such competition.

When corporate leaders prioritize shareholder profits, they often exploit what economists refer to as “externalities” to their benefit. One such externality is pollution. Recent research found that only 100 companies are responsible for 71 percent of global emissions, and just 20 companies are responsible for 55 percent of global single-use plastic waste. Discussing how the environment is a victim of free market competition, Meagher references the 2010 Deepwater Horizon oil rig explosion, an environmental tragedy that killed 11 people, caused the deaths of billions of marine life forms, and spewed 4.9 million barrels of petroleum into the Gulf of Mexico.

Indeed, investigations found that BP plc, owners of the Deepwater Horizon oil rig, resorted to unsafe construction practices after the projects exceeded their budget and timeline. BP’s eagerness to begin production drove them to compromise their workers and the environment for the sake of growing profits. To Meagher’s argument, environmental exploitation often occurs so firms can compete with one another, and as the past four decades have shown, our environment is not a benefactor of antitrust enforcement.

Meagher argues that the assumption that corporate power is benign and held in check by antitrust laws is rapidly proving to be false. Take Big Tech firms such as Alphabet Inc.’s Google unit, Facebook Inc., Amazon.com Inc., and Apple Inc. They have enjoyed decades of exponential growth, exclusivity, and influence in our socio-political environment because the courts have been unable to use existing antitrust laws to rein in their power. In return, new entrants face insurmountable barriers and workers maintain little to no power in the workplace.

Monopolistic firms argue that everyone, not just firm executives, are shareholders, and that consumers benefit from their power in the form of reduced prices and innovative products. But rising mark-ups, weakened privacy protections, and the prevalence of killer acquisitions indicate otherwise. In reality, shareholders who maintain seats on corporate boards benefit the most from consolidation and monopolistic power, while workers see declining wages and working conditions.

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Excessive heat harms U.S. workers unequally as the safety risks from climate change soar

By Michael Garvey,

July 19, 2021

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Evidence indicates that mergers directly suppress wage growth for hospital workers in the United States

By Raksha Kopparam,

February 26, 2019

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New research shows that reductions in air pollution have intergenerational consequences

By Jonathan Colmer, John Voorheis,

February 11, 2021

One of many cases in point: Despite rising market share, workers in the poultry processing industry experienced occupational illnesses at five times the frequency as other U.S. workers, and almost 75 percent of contract livestock growers live below the poverty line. Yet just this week, another acquisition in the already-uncompetitive U.S. agricultural industry is underway.

Meagher’s solution is simple: stakeholder antitrust and corporate law reform.

Minimum wage laws, pro-union laws, and wealth redistribution are valuable tools to combating unchecked corporate power, but without policies that put stakeholders above shareholders, Meagher says we are essentially “turning all the taps on full blast to fill up the bathtub without plugging the drain.” When stakeholders, consisting of firm employees, community residents, local governments, and the environment, are given a sliver of the power granted to shareholders, corporate power would effectively be used to serve the public interest rather than line the pockets of the few.

Addressing the role that power plays in free market competition and using corporate law to relay that power to stakeholders would allow policymakers to control and even curb some of the political and environmental externalities previously not considered. Participative antitrust, a term coined by Nobel laureate Jean Tirole, an economist at Toulouse 1 Capitole University, incorporates the voice of stakeholders in the development of regulative policies. Rather than fill the table with industry veterans and executives who would benefit from lax regulation, consumers, employees, suppliers, and other actors in the industry down the ladder should have a say in how new antitrust policies are built.

Additionally, Meagher suggests that corporate law can incentivize firm leaders to promote the environmental and social equities that society desires, forcing private-sector actors to consider the negative implications of their actions when competing. Broadening the scope of antitrust enforcement would require firms to address society’s needs, such as narrowed wealth gaps, environmental preservation, and worker safety, in order to compete.

In the United States, amid the coronavirus pandemic, for example, most households struggle to make ends meet due to layoffs and caretaking responsibilities while the net worth of the top 15 richest Americans has grown by almost $600 billion, or 70.85 percent. New research finds that high-temperature days result in a 6 percent to 15 percent increase in workplace injuries among some of the most vulnerable workers in our labor force, such as construction and agriculture workers.

Critics of this stakeholder theory believe that antitrust law is not the vehicle for environmental and societal remedies. One commissioner of the Federal Trade Commission, Noah J. Phillips, disputes the calls for stakeholder capitalism and the role antitrust laws play in regulating corporate power. He claims that while stakeholder goals, including stronger wages, reduced economic inequality, and environmental protections, are ideal, they do not fit into the definition of competition policy. Antitrust protects competition, and “healthy competition doesn’t always produce what is best for all stakeholders.”

While our current antitrust and corporate laws adhere to this doctrine, Meagher believes that we need to think about competition more broadly, not just about antitrust and the single mandate of seeking low prices. Expanding the scope of competition policy and corporate law can result in positive externalities such as environmental preservation and worker power.

Meagher brings up the example of B-Corps, firms that are legally bound to provide a positive impact on the environment, their stakeholders, and our society. While not perfect, these companies prioritize the public interest, from fair wages to net-zero emissions, over global growth and prove that corporations can generate profits and returns on investments while incorporating the voices of all actors. Even further, the presence of more than 2,500 B-Corps across various industries, from banking to textiles, proves that all industries are capable of serving stakeholders—it’s just a matter of corporations’ desire to do so. 

Meagher concludes her book by reaffirming that our current policies fail to prevent uncontrollable power. In order to revitalize competition for a modern global economy, we must ask ourselves how antitrust law can become more meaningful. On the transformation of private entities, she makes the powerful statement that “the options for doing less harm and more good are limited only by corporate imaginations.”

For more on Michelle Meagher’s work, see the latest installment of the In Conversation series, featuring Meagher and Michael Kades, Equitable Growth’s director of markets and competition policy, in which they discuss the effects of monopoly power on the economy, environment, and society and how Meagher’s new works aim to develop the solutions.

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JOLTS Day Graphs: June 2021 Edition

Posted on by Carmen Sanchezcumming

Every month the U.S. Bureau of Labor Statistics releases data on hiring, firing, and other labor market flows from the Job Openings and Labor Turnover Survey, better known as JOLTS. Today, the BLS released the latest data for June 2021. This report doesn’t get as much attention as the monthly Employment Situation Report, but it contains useful information about the state of the U.S. labor market. Below are a few key graphs using data from the report.

The quits rate rose to 2.7 percent in June as 3.9 million workers quit their jobs.

Quits as a percent of total U.S. employment, 2001-2021. Recessions are shaded.

The vacancy yield increased slightly in June but remained low, as job openings reached a series high of 10.1 million and hires rose to 6.7 million.

U.S. total nonfarm hires per total nonfarm job openings, 2001-2021. Recessions are shaded.

The job openings rate increased to 6.5 percent in June, with job openings remaining particularly elevated for the manufacturing industry and for leisure and hospitality, but low for the financial activities sector.

Job openings by selected major U.S. industry, indexed to job openings in February 2020

The ratio of unemployed workers to job openings decreased to 0.9 in June, approaching pre-coronavirus recession levels.

U.S. unemployed workers per total nonfarm job opening, 2001-2020. Recessions are shaded.

With a slight increase in the unemployment rate and the job openings rate rising to a series high, the Beveridge Curve continues to move in atypical territory, compared to previous business cycles.

The relationship between the U.S. unemployment rate and the job openings rate, 2001-2020

Brad DeLong: Worthy reads on equitable growth, August 3-9, 2021

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

1. Getting social insurance to people who need it during the coronavirus pandemic also entails getting a lot of extra resources to people who really do not need it. Why? Precisely because the income support infrastructure in the United States is so weak. We could have done the income support job much more cheaply and fairly amid the pandemic. Not that I regret the effort. I do not regret it at all. But continuous improvement is the watchword. And there is a huge amount that we could have done beforehand, and that we could do now, to improve our nation’s social infrastructure. Read Liz Hipple and Alix Gould-Werth, “Weak income support infrastructure harms U.S. workers and their families & constrains economic growth,” in which they write: “People in the United States access income support from a wide range of programs. … Many people who need this support are blocked from accessing it. During the COVID-19 crisis, the existing income support infrastructure has been wholly insufficient. … What is it, precisely, that stops people from accessing income supports? … Eligibility rules are too strict. Benefits are too hard to access even when people are eligible. Benefits amounts are too low. … These weaknesses in our nation’s income support system prevent the U.S. economy from reaching its full potential through lowered labor force participation, a weakened macroeconomy during economic recessions, and underinvestment in the human capital of the next generation of workers.”

Worthy reads not from Equitable Growth:

1. The Washington Center for Equitable Growth is co-hosting EconCon 2021, to be held on October 6 and 7. Register now. This has been among the very top events that I have attended. Highly recommended—and they have a very interesting virtual platform this year. Here are some of the details: “Building an Economy that Works for All of Us: A virtual conference where you will hear from and connect with experts, organizers, and advocates shaping our economy. Now more than ever, we need once-in-a-generation policy changes and transformative investments in our communities. And they are possible if we can marshal the political will to enact needed policy change. Come connect, learn, and share what it will take for us to build an economy that works for all of us! EconCon is co-hosted by Center for American Progress, Center for Popular Democracy, Community Change, Dēmos, Economic Policy Institute, Economic Security Project, Groundwork Collaborative, Omidyar Network, Roosevelt Institute, and Washington Center for Equitable Growth.”

Posted in Uncategorized

Weekend reading: Income support programs in the United States edition

Posted on by Maria Monroe

This is a post we publish each Friday with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth published this week and the second is relevant and interesting articles 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

The coronavirus pandemic and resulting recession led to an unprecedented level of government investment in income support programs in the United States, from emergency Unemployment Insurance to an expanded Child Tax Credit, among others. These programs provide necessary support for U.S. households and workers but have long been underfunded, leading many of those who need this aid unable or prevented from accessing it. Liz Hipple (now at the Joint Economic Committee) and Alix Gould-Werth explain the three main barriers to these programs: eligibility rules that are too strict, benefits that are too hard to access even for those eligible, and benefit levels that are too low. These weaknesses, they write, reduce labor force participation, weaken the macroeconomy during recessions, and result in underinvestment in the next generation of workers—not to mention that most American adults will face a personal need for income support at some point in their lives. Comparing overly complex income support programs such as Temporary Assistance for Needy Families with Social Security and Medicare, Hipple and Gould-Werth show that income supports can be easily accessible to broad swathes of the population, and that the programs that are harder to access are intentionally so because of structural racism and discrimination in U.S. institutions and systems.

Tuesday, August 3 was Black Women’s Equal Pay Day, which recognizes that Black women in the United States have to work from the start of January 2020 through August 2, 2021 to earn as much as White men earned in 2020 alone. Equitable Growth pulled together a list of recent research on pay disparities that Black women face in the U.S. economy and the implications of this persistent income inequality. The scholars behind the research listed include our incoming President and CEO Michelle Holder, among others. For more about Black Women’s Equal Pay Day and how to address the economic inequalities that it marks, Kate Bahn and Carmen Sanchez Cumming’s piece from 2020 provides some answers.

The U.S. Bureau of Labor Statistics today released new data on the U.S. labor market during the month of July. Bahn and Sanchez Cumming put together five graphics highlighting important trends in the data. They then analyze the data in more detail, particularly the trends in employment in the construction sector.

The National Bureau of Economic Research is now more than halfway through its summer institute, an annual 3-week conference featuring discussions and paper presentations on specific subfields of economics, including measuring poverty, the costs of climate change, and systemic discrimination among large employers. Equitable Growth compiled a list of paper abstracts that caught our attention throughout the third and final week, including research from our grantee network and members of our Steering Committee and Research Advisory Board. For highlights from the first week of the NBER Summer Institute 2021, click here. For coverage of the second week, click here.

Links from around the web

Today’s employment numbers are encouraging, writes Neil Irwin in The New York Times’ The Upshot blog. This job market growth hasn’t been seen in the past three recessions and appears to reflect a rapidly healing economy. Irwin runs through the numbers and explains why, in almost all categories, this month’s report indicates a positive trend. Irwin then details the implications of the gains—namely, that despite the complaints from business owners about labor shortages, Americans are getting back to work.

New data from the Bureau of Labor Statistics show that working mothers spent the equivalent of a full-time job on child care in 2020 during the coronavirus pandemic—while also working at the same time. In fact, the data show that moms of young children spent an average of 8 hours per day on child care and 6 hours working, writes The 19th’s Chabeli Carrazana, and fathers spent around 5 hours on child care while working 8-hour days. This isn’t altogether surprising, Carrazana continues, considering that women often take on the majority of household responsibilities and that hundreds of thousands of women left the labor force last year to care for their children in the wake of school and day care closures. The lack of options for child care combined with the pandemic’s outsize impact on female-dominated industries such as hospitality and care are what led to the first so-called “shecession” in the United States, Carrazana explains, and even with recent gains in the labor market, there’s still a long road to full recovery for women workers.

Millions of Americans—almost 20 percent of adults, more than 60 percent of whom are women—provide unpaid and informal care to their loved ones with physical or mental health needs in the United States. Many of these family caregivers have been left behind amid the pandemic, without access to much-needed supports. Vox’s Katherine Harmon Courage describes the findings of a recent survey showing widespread and alarming rates of anxiety, depression, and other mental health issues. She tells the story of caregivers who have had to manage the challenges of not only caring for their family members but also nursing home outbreaks and other care disruptions—and the toll it has taken on their mental health. Courage provides several options for policymakers to raise awareness about the difficulties family caregivers are facing and provide support for these vital players in the U.S. economy. The United States truly can’t afford to neglect caregivers, she writes, because there is “neither the budget nor the professional labor force to replace them.”

Friday figure

Rate of recipiency of Unemployment Insurance benefits by state, May 2020

Figure is from Equitable Growth’s “Weak income support infrastructure harms U.S. workers and their families and constrains economic growth,” by Liz Hipple and Alix Gould-Werth.

July Jobs report: Job growth ramps up, but the construction sector struggles

Posted on by Maria Monroe
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The recovery in the labor market continued to pick-up steam as the U.S. economy added 943,000 jobs last month, according to the most recent Employment Situation Summary released today by the U.S. Department of Labor’s Bureau of Labor Statistics. The unemployment rate fell from 5.9 percent in June to 5.4 percent in July and the share of the U.S. population ages 25 to 54 with a job—a measure known as the prime-age employment-to-population ratio—climbed from 77.2 percent to 77.8 percent.

These indicators reflect that last month was a very strong one for the U.S. economy, yet the labor market has not fully recovered and millions of workers continue to experience the economic pain brought about by the coronavirus pandemic. The prime-age employment-to-population ratio, for instance, continues to be 2.6 percentage points below its February 2020 level. While the labor force participation rate rose slightly with respect to the previous month, at 61.7 percent it is at the same level it was in August 2020.      

This most recent U.S. labor market data show that across race and ethnicity the unemployment rate for Black workers fell 1 percentage point between mid-June and mid-July, although at 8.2 percent, it continues to be higher than for any other major racial or ethnic group and the labor force participation rate of Black workers declined in July. The jobless rate for Latinx workers is at 6.6 percent, for Asian American workers at 5.3 percent, and for White workers at 5.2 percent.

By race, ethnicity, and gender, the latest data show that among workers 20 years of age or older, employment continues to be down the most for women of color. In July 700,000 fewer Black women and 594,000 fewer Latina women had a job than in February 2020—a decline of 6.9 percent and 5 percent, respectively. (See Figure 1.)

Figure 1

Percent change in U.S. employment for workers 20-years-old and over with respect to February 2020, by race, gender, and ethnicity

Across industries, July’s employment gains were led by the leisure and hospitality sector, which added 380,000 jobs. Government, education and health services, and professional and business services also saw important gains, creating 240,000, 87,000, and 60,000 jobs, respectively.

But while many industries experienced robust job growth in the past few months, construction is one of the two major sectors to have actually experienced declines in net employment this summer, though the sector did add 11,000 workers in July. An incomplete and uncertain recovery in the industry is likely to be particularly tough on Latinx workers, who represent 30 percent of the construction workforce despite accounting for less than 18 percent of all U.S. workers. Between mid-April and mid-July the construction industry shed 18,000 jobs—significantly more than the 1,400 jobs lost in the utilities sector. (See Figure 2.)

Figure 2

Net change in U.S. employment (in thousands) by industry, May 2021-July 2021

What is slowing down job growth in the construction industry? Part of the answer is that despite a hot housing market, supply chain disruptions and rising cost of key materials are putting the brakes on new construction, especially in the non-residential sector. According to a recent survey by the Federal Reserve Bank of Minneapolis, big price increases for important inputs such as wood, steel, and aluminum are the major factors driving uncertainty and dampening demand for future projects.

In addition—and despite reports of so-called labor shortages by employers and industry associations—demand for construction workers does not appear to be unusually high. The latest available data show that while in the overall economy there is now about one job opening for every unemployed worker, there are almost 2 unemployed construction workers for every unfilled construction position.   

The construction industry fared better during the coronavirus recession than in previous downturns, but long-term challenges remain

Employment in goods-producing sectors such as construction tends to be especially sensitive to fluctuations in the business cycle. The reason is that during downturns, a slowdown in economic activity translates into reduced demand for new construction projects, creating a negative feedback loop in which uncertainty further depresses investment and puts workers at risk of losing their jobs.

The coronavirus recession, however, hit service-providing industries much harder, and job losses in construction have been less severe than in the last economic crisis. During the Great Recession of 2007–2009 and the housing market crash of 2008–2011, the construction industry lost 2.3 million jobs from the peak of employment in mid-2006 to the trough of employment in early 2011. While the economy-wide peak-to-trough job losses were much greater during the coronavirus recession than during the Great Recession and its aftermath, the drop in construction employment was not as dramatic. (See Figure 3.)

Figure 3

Percent of employment losses in the construction industry relative to peak employment

Yet changes brought about by the pandemic could drive long-term disruptions to the industry. A Bureau of Labor Statistics analysis estimates that if a shift to telework lowers demand for new office space, job growth in the construction sector will slow down in the coming decade. Weak employment growth in this sector would reduce opportunities for what a team of researchers at The Brookings Institution call “skyway occupations”—jobs that have relatively low barriers of entry, often do not require a college degree, offer opportunities for career advancement, and which can act as stairways for better, higher-paying jobs.

The construction sector is an example of the ways in which the coronavirus crisis made already precarious work even more insecure

The construction industry pays above-average wages, its workers are slightly more likely than the average U.S. worker to be a part of a union, and the sector can be a source of jobs that offer a pathway to upward occupational mobility. Yet the current health and economic crises also highlight the many ways in which construction workers face precarious working conditions.

Workers in big occupations within the industry such as construction laborers are among the most likely to experience injuries and illnesses at work. A study by researchers at the University of California, San Francisco finds that workers in this occupation also are among the most exposed to the coronavirus. Latinx workers, who represent a large share of the industry’s workers, have higher injury and fatality rates than the overall workforce. And climate change and excessive heat are making construction work even more dangerous.

That foreign-born workers are also overrepresented in the industry means that some of the workers more likely to need employment protections such as paid sick leave are also among the least likely to access those benefits. Illegal misclassification of workers as independent contractors and unpredictable gaps in work also reduce construction workers’ earnings and reduce their economic security. According to a report by the Workers Defense Project on the working conditions of construction workers in the South and Southwest, a whopping 55 percent of workers do not have access to workers’ compensation and 53 percent reported that they do not have access to employer provided health insurance.

Research also shows that construction saw an especially large increase in minimum wage violations during the Great Recession. The research points to the need to have an effective enforcement of labor protections always, and especially during downturns such as the coronavirus recession.  

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Excessive heat harms U.S. workers unequally as the safety risks from climate change soar

By Michael Garvey,

July 19, 2021

Coronavirus Recession

Why workers are engaging in collective action across the United States in response to the coronavirus crisis

By Kate Bahn, Alexander Hertel-Fernandez, Carmen Sanchez Cumming,

May 1, 2020

Boosting Wages

Strategic enforcement and co-enforcement of U.S. labor standards are needed to protect workers through the coronavirus recession

By Janice Fine, Daniel Galvin, Jenn Round, Hana Shepherd,

January 14, 2021

In addition, Latinx workers, Black workers, women workers, and self-employed construction workers all experienced disproportionate employment declines at the onset of the recession—more evidence that even within industries, already vulnerable workers have been more exposed to the economic pain brought about by the coronavirus crisis.

Per the latest Employment Situation Summary, the U.S. economy continues to be 5.7 million jobs down compared to February 2020 at the start of the coronavirus recession. After months of robust but uneven job gains, economic policy priorities for rebuilding the U.S. economy must center job quality. Policymakers have coalesced around the need for physical as well as care infrastructure, but the workers who will build the country’s much-needed roads, schools, hospitals and  other care facilities, and homes often face increasingly dangerous working conditions and little economic security. To meet the construction needs of the present and future, construction workers need strong and enforced labor standards and robust unions.

Perhaps most immediately, they need access to workplace benefits, including health insurance and sick leave, as they continue to work in an ongoing pandemic. Ensuring construction workers are fairly compensated and do their jobs under safe working conditions will both promote the creation of good-quality opportunities, job security, and boost economic growth.

Equitable Growth’s Jobs Day Graphs: July 2021 Report Edition

Posted on by Carmen Sanchezcumming

On August 6, the U.S. Bureau of Labor Statistics released new data on the U.S. labor market during the month of July. Below are five graphs compiled by Equitable Growth staff highlighting important trends in the data.

Prime-age employment rates increased to 77.8 percent in July from 77.2 percent in June, reflecting significant employment growth over the month.

Share of 25- to 54-year-olds who are employed, 2007-2021. Recessions are shaded.

Black and Latinx unemployment rates declined by 1.0 and 0.8 percentage points in July, larger than the decline for both White and Asian American workers, but are still at an elevated level.

U.S. unemployment rate by race, 200-2021. Recessions are shaded

Unemployment fell for workers of all education levels, but partially reflecting a decrease in labor force participation among high school graduates and workers with some college education.

Unemployment rate by U.S. educational attainment, 2019-2020. Recessions are shaded.

Employment growth continues to be led by leisure and hospitality, which lost the most jobs in the pandemic, but there were also strong gains in education, likely reflecting disrupted patterns of seasonal hiring during the recession.

As unemployment declined overall, an increasing proportion of unemployed workers have either voluntarily left their jobs or are reentering the labor force.

Percent of all unemployed workers in the United States by reason for unemployment, 2019-2021. The coronavirus recession began in February 2021 and ended April 2021.

Posted in Uncategorized

Weak income support infrastructure harms U.S. workers and their families and constrains economic growth

Posted on by Maria Monroe
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Overview

The coronavirus public health emergency and resulting economic recession brought into stark relief the engrained problems with the system of income support for U.S. workers and their families. People in the United States access income support from a wide range of programs, including Social Security, Unemployment Insurance, the Earned Income Tax Credit, and the Temporary Assistance to Needy Families program, to name a few.

Weak income support infrastructure harms U.S. workers and their families and constrains economic growthDownload

Despite the number of programs that make up our income support system, many people who need this support are blocked from accessing it. During the COVID-19 crisis, the existing income support infrastructure has been wholly insufficient for providing relief to those who needed it.1 And while the pandemic-specific income supports delivered through the Coronavirus Aid, Relief, and Economic Security, or CARES, Act and related programs successfully blunted some of the worst pain of the pandemic, they also failed to deliver for all who needed income support due to sustained underinvestment in these key income support programs over the past half-century.2

The coronavirus health and economic crisis is being felt widely by millions of U.S. workers and their families, yet people across the country face crises of their own every day no matter the broader economic or public health outlook. Whether it’s a personal or national crisis, the inability to access income support programs to weather unexpected storms has serious consequences, especially for many workers of color, women, and their families. Indeed, the coronavirus recession exposed already deep inequalities in access to income supports along lines of race and gender.3

What is it, precisely, that stops people from accessing income supports? There are three main barriers:

  • Eligibility rules are too strict.
  • Benefits are too hard to access even when people are eligible.
  • Benefits amounts are too low.

No matter one’s place in the income distribution at any given time, these weaknesses in our nation’s income support system prevent the U.S. economy from reaching its full potential through lowered labor force participation, a weakened macroeconomy during economic recessions, and underinvestment in the human capital of the next generation of workers. What’s more, all of us are likely to face a personal need for income support at some point over the course of our lives.

So, let’s examine the challenges confronting the United States’ system of income supports. Then, we will turn to examining why these are problems both for our economy at large and ourselves as individuals.

Problems with our current system of income support

We define income supports as those programs that transfer cash to households (including both social insurance programs that make transfers based on past earnings among other criteria, social welfare programs that make transfers based on current income and wealth levels among other criteria, as well as income transfers made through the tax system) and in-kind transfer programs that relieve pressure on household budgets and effectively provide income support (for example, when households receive food or housing support they no longer need to spend their limited income on food and housing and can instead use that cash to cover other needs). Together these distinct types of programs create our nation’s system of income supports. Let’s examine the challenges confronting our income support system across each of the three criteria mentioned before: eligibility, accessibility, and adequacy.

Eligibility rules are too strict

Despite fallacious stereotypes about profligacy in income support programs, it is actually intentionally quite hard to access them in the first place.4 Eligibility criteria typically screen out many people based on their family status, asset levels, age, or ability status. Simply by getting married, maintaining a modest “rainy day” fund, or keeping a reliable car, a person can lose eligibility for an income support program.5

Additionally, to access many income support programs, a person must be employed—despite the fact that lacking income may be the factor that is preventing a person from maintaining employment.6 If a person cannot afford transportation or child care, for example, it can be difficult to stay employed.  

Since the 1990s, changes to our income support system have only further tied eligibility to work requirements, with the replacement of Aid to Families with Dependent Children with the Temporary Assistance for Needy Families program and the creation of the Earned Income Tax Credit. Even the Supplemental Nutrition Assistance Program, or SNAP, colloquially known as food stamps, has work requirements.7

While many people with inadequate incomes are indeed active participants in the labor force, others may have caretaking obligations, health challenges, or face discouragement in the search for employment situations that are safe.8 When workers hit a moment in their lives when they are unable to be in the labor force, this may actually be the time they need income support the most.

Benefits are too hard to access

But even among people who meet all the eligibility requirements for income support, the rate at which they access those benefits remains low.

The low proportion of eligible people accessing UI benefits provides a salient example of how systems and processes that are out of date or purposefully difficult to navigate keep people from accessing the income support they need and are eligible for.9 In the spring of 2020, an unprecedented number of workers were laid off as a result of the coronavirus recession and applied for Unemployment Insurance. More than 1 in 7 American workers applied for income support through the UI program.10

Yet poorly designed systems for applying for benefits, from understaffed phone lines to arcane websites, meant that millions of workers waited weeks to get the payments they were eligible for, if they got them at all. 11States make choices about whether to invest resources in improving system accessibility, and racism appears to shape these choices. Rates of UI access are low in states with a greater share of Black workers.12 (See Figure 1.)

Figure 1

Rate of recipiency of Unemployment Insurance benefits by state, May 2020

Many headlines highlighted the difficulty faced by workers who lost their jobs through no fault of their own in accessing Unemployment Insurance during the early days of the pandemic, but this is not the only example of the challenges of claiming income support for which one is eligible. In all public health and economic contexts, people struggle to travel to Social Security Administration field offices to complete disability applications, complete the paperwork necessary to recertify for the Supplemental Nutrition Assistance Program, and correctly document their work participation to remain eligible for the Temporary Assistance for Needy Families program.13

The many difficulties people eligible for income support face is a policy choice, not an inevitability of bureaucratic programs.14 There are examples of income support programs with high take-up rates, such as the Earned Income Tax Credit and Social Security. The EITC has a nearly 80 percent take-up rate, and 97 percent of elderly Americans receive Social Security benefits.15 

A key reason for the high take-up rates for these two income support programs is the lack of red tape. Filing one’s taxes once a year and submitting an initial application are all that is required to receive these sources of income support. In stark contrast to programs with lower take-up rates, such as Unemployment Insurance and Temporary Assistance for Needy Families, there is no regular ongoing process that people have to go through to prove their eligibility. Indeed, the relative absence of bureaucratic hurdles associated with claiming tax credits is a factor that influenced Congress’ recent passage of legislation that provides income support to children delivered through through periodic payments of a fully refundable Child Tax Credit during 2021.16

Benefit amounts are too low

Even people who surmount the obstacles of meeting eligibility requirements and navigate the process required to gain access to income support find that the income is insufficient to help meet their basic needs. The maximum monthly amount that a family of four with no income receives from the Supplemental Nutrition Assistance Program is $680, or $5.48 per person per day.17 Families with any income at all receive less than this.

Despite being a social insurance program, Unemployment Insurance also doesn’t begin to provide enough income to make up for the wages lost when a job is lost.18 Indeed, in no state are regular UI benefits sufficient to cover a person’s basic needs of housing, food, child care, transportation, healthcare, taxes, and other necessities such as clothing and school supplies.19 (See Figure 2.)

Figure 2

Monthly shortfall between state average UI benefits and state average budget expenses, 2020

The income support provided by the Temporary Assistance to Needy Families program leaves a family of three below half of the poverty line in almost every state and is time-limited, as its name suggests.20 Racism also shapes the level of support this program provides: States with a greater share of Black residents provide lower levels of income support through the Temporary Assistance to Needy Families program than states with fewer Black residents.21

Figure 3

Maximum TANF benefits for family of three as a percent of the poverty line, by state, 2020

A weak system of income support harms the entire U.S. economy

A weak system of income support harms individual workers and their families, who, at some point in their lives, experience the vicissitudes of life without adequate income. This weak system also harms the overall strength and growth potential of the U.S. economy.

During recessions, for example, income support acts as an “automatic stabilizer.”22 This means the use of income support programs, such as Unemployment Insurance and SNAP, increases during recessions as workers are laid off and apply for them to help replace their lost incomes.  

This kind of income support not only helps those individual workers and their families in need, but also ensures people are still able to purchase goods and services during an economic downturn, which softens the aggregate impact of recessions on the economy.23 Indeed, increased government spending on Unemployment Insurance during the Great Recession of 2007–2009 boosted overall Gross Domestic Product: For every $1 spent on extending UI benefits, we saw an additional $1.61 in economic activity.24

Other income support programs, including the Temporary Assistance for Needy Families program, could also play this important countercyclical role, but policymakers have so eroded the program’s effectiveness that TANF income support does not respond swiftly when a recession hits.25 When any of these programs are difficult to access or have low benefit amounts, their efficacy as automatic stabilizers is blunted.

Another way a strong income support system strengthens the economy is via its positive impacts on U.S. labor market outcomes. Research shows that access to paid leave, child care support, and EITC income support all increase women’s labor force participation rates.26

Another example comes from the UI system, which research shows improves workers’ “job matching.”27 This means that with more time, people are able to find jobs that are a better match for their skills. This doesn’t just benefit individual workers in terms of higher earnings. Better job matching also benefits the whole economy in the form of increased efficiency, productivity, and higher revenue on those higher earnings.

Weaknesses in our current system of income support also hurt the human capital development of workers, as well as the children of workers.28 This means the economic consequences of a weak system of income support aren’t just felt in the present but also extend into the future. An extensive body of research spanning decades shows the importance of childhood environments for human capital development.29

Human capital plays a crucial role in determining future education and earnings outcomes. Underinvesting in children’s human capital development today means less-educated and lower-earning workers in the future, which depresses the economy’s potential growth. 

New research shows how widespread the economic benefits of just a single income support program—specifically, SNAP—can be.30 Hilary Hoynes, an economist at the University of California, Berkeley, and her co-authors find that children with early access to food assistance grew up to be better-educated and have healthier, longer, and more productive lives. This economically benefits all of us in the form of higher tax revenue, lower future expenditures on income support programs, and lower expenditure on the criminal justice system.

Our nation needs a strong system of income support because nearly everyone will need it at some point in their lives

The issues discussed above with eligibility requirements, access difficulty, and income adequacy are all examples of how our current system of income support is failing to meet the needs of so many people in the United States. Such inadequacies are not abstract issues. While a common perception is that only a small proportion of U.S. residents have unmet need for income support, evidence shows that the vast majority of people in the United States are at risk of a change in income that would lead them to experience poverty for 1 to 2 years.31

Nearly everyone at some point in their lives will experience an unmet need for income support. Contrary to racist portrayals of who actually uses and benefits from income support programs, the experience of poverty is actually something that the majority of people in the United States will face in their lifetimes.32

Research by Mark Rank at Washington University in St. Louis and Thomas Hirschl at Cornell University finds that between the ages of 25 and 60, 54 percent of U.S. residents will experience poverty or near poverty at least once.33 Further, 61.8 percent of U.S. residents will spend a year below the 20th percentile of the income distribution, and 42.1 percent will spend a year below the 10th percentile. (See Figure 4.)

Figure 4

Cumulative percentage of American adults experience poverty and extreme poverty by age

Another way to think about this is through the construct of risk. Americans have a 54 percent chance of experiencing poverty at least once during adulthood. This is more than the chance of having appendicitis or getting divorced over the course of a lifetime.34

As economists Jesse Rothstein at UC Berkeley and Sandra Black at Columbia University argue, it is inefficient to have families self-insure against unpredictable risks they cannot reasonably calculate for themselves, such as the chances of losing a job or sufficiently saving for retirement.35 Either way, many families are not in a position to set aside substantial savings in case they experience a dip in income that pushes them under the poverty line.36

Even if families were in such a position, Black and Rothstein explain, “The federal government can provide social insurance protections at a much lower overall cost, and by removing major risks from families’ own balance sheets, enable families to stretch their market earnings further.” This kind of social infrastructure also allows for increased consumption overall.

Because most people will need income support at some point in their lives, and despite all the barriers our current system of income support puts up to accessing support, nearly all people in the United States will access income support programs at some point over the course of their lives. Analysis by the Urban Institute finds that in any given month, nearly 1 in 5 people benefit from SNAP, Supplemental Security Income, TANF, public or subsidized housing, the Women, Infants, and Children, or WIC, program, or the Child Care and Development Fund.37

Boosting Wages

Public investments in social insurance, education, and child care can overcome market failures to promote family and economic well-being

By Sandra Black, Jesse Rothstein,

January 14, 2021

Coronavirus Recession

Fool Me Once: Investing in Unemployment Insurance systems to avoid the mistakes of the Great Recession during COVID-19

By Alix Gould-Werth,

April 30, 2020

post

Planning for the next recession by reforming U.S. automatic stabilizers

By Alyssa Fisher,

May 16, 2019

In addition, analysis by the White House Council of Economic Advisers found that over the 32-year period from 1978 to 2010, more than one-third of all people received support from one of just three of these income supports: the Supplemental Nutrition Assistance Program, the Temporary Assistance for Needy Families and its predecessor programs, or Supplemental Security Income.38 Taking into account additional income support and social infrastructure programs such as school lunches, WIC, or disability insurance, among others, the percentage rises to nearly half of all households. This doesn’t mean that support levels are adequate or that workers and their families will receive income support every time they need it. But it does illustrate the breadth of people that need income support at some point in their lives.

Indeed, the U.S. Treasury Department recently found that when you consider Medicare and Social Security, nearly every single U.S. household receives some form of income support.39 This is an especially important example to keep in mind because, unlike most income support programs, Medicare and Social Security are the two components of our social infrastructure that are easiest to access when needed. Eligibility for Medicare is automatic at age 65 and may not even require a separate enrollment process for people already receiving Social Security.40 Similarly, Social Security’s nearly universal design and eligibility requirements mean that almost every member of the U.S. population will receive its benefits at some point. This makes Social Security the largest anti-poverty program in the United States.41 

As the Medicare and Social Security case studies show, it is possible to design an income support system that easily reaches broad swathes of the population. So why do some programs reach so few people? This is an intentional policy choice, informed by our racist history as well as our racist present.42 To prevent Black people in the United States, as well as other people of color, from accessing income support programs we restrict their availability.43 Policymakers make this choice despite the overwhelming evidence that nearly every person in the United States will at some point in time need a strong income support system, regardless of the racial group to which they claim membership.

Conclusion

The U.S. system of income support is inadequate to support U.S. workers and their families. This is an issue because it constrains and limits the overall strength of the U.S. economy, unnecessarily deepening recessions, depressing labor force participation, and harming future growth potential by underinvesting in the human capital of the next generation of workers. The problem is also personal: At some point, everyone will need some form of income support, whether it is to weather a job loss or illness or to be assured of a secure retirement.

By broadening eligibility, increasing the level of income support, and removing barriers to access, policymakers can strengthen these systems of income support in ways that will both help everyone weather the inevitable vicissitudes of life with less undue suffering, as well as strengthen the overall U.S. economy in ways that will pay dividends for all of us.

NBER Summer Institute 2021 Round-up: Week 3

Posted on by Maria Monroe
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On July 12, the National Bureau of Economic Research kicked off its summer institute, an annual 3-week conference featuring discussions and paper presentations on specific subfields of economics, including measuring poverty, the costs of climate change, and systemic discrimination among large employers. This year’s NBER event is being held virtually due to the coronavirus pandemic and is being livestreamed on YouTube.

We’re excited to see Equitable Growth’s grantee network, Steering Committee, and Research Advisory Board and their research well-represented throughout the program. Below are abstracts (in no particular order) of some of the papers that caught the attention of Equitable Growth staff during the third and final week of the conference. Click here for a round-up from week 1, and here for the week 2 round-up.

“New Frontiers: The Origins and Content of New Work, 1940–2018”
David Autor, Massachusetts Institute of Technology, NBER, Equitable Growth grantee
Anna Salomons, Utrecht University, IZA, Equitable Growth grantee
Bryan Seegmiller, Massachusetts Institute of Technology, Equitable Growth grantee

Abstract: Recent theory stresses the role of new job types (“new work”) in counterbalancing the erosive effect of task-displacing automation on labor demand. Drawing on a novel inventory of eight decades of new job titles linked to U.S. census microdata, we estimate that the majority of contemporary employment is found in new job tasks added since 1940, but that the locus of new task creation has shifted—from middle-paid production and clerical occupations in the first four post-WWII decades, to high-paid professional and, secondarily, low-paid services since 1980. We hypothesize that new tasks emerge in occupations where new innovations complement their outputs (“augmentation”) or market size expands, while conversely, employment contracts in occupations where innovations substitute for labor inputs (“automation”) or market size contracts. Leveraging proxies for output-augmenting and task-automating innovations built from a century of patent data and harnessing occupational demand shifts stemming from trade and demographic shocks, we show that new occupational tasks emerge in response to both positive demand shifts and augmenting innovations, but not in response to negative demand shifts or automation innovations. We document that the flow of both augmentation and automation innovations is positively correlated across occupations, yet these two faces of innovation have strongly countervailing relationships with occupational labor demand.

Note: This research was funded in part by Equitable Growth.

“Systemic Discrimination Among Large U.S. Employers”
Patrick M. Kline, University of California, Berkeley, Equitable Growth grantee
Evan K. Rose, University of Chicago
Christopher R. Walters, University of California, Berkeley

Abstract: We study the results of a massive nationwide correspondence experiment sending more than 83,000 fictitious applications with randomized characteristics to geographically dispersed jobs posted by 108 of the largest U.S. employers. Distinctively Black names reduce the probability of employer contact by 2.1 percentage points, relative to distinctively White names. The magnitude of this racial gap in contact rates differs substantially across firms, exhibiting a between-company standard deviation of 1.9 percentage points. Despite an insignificant average gap in contact rates between male and female applicants, we find a between-company standard deviation in gender contact gaps of 2.7 percentage points, revealing that some firms favor male applicants while others favor women. Company-specific racial contact gaps are temporally and spatially persistent, and negatively correlated with firm profitability, federal contractor status, and a measure of recruiting centralization. Discrimination exhibits little geographical dispersion, but two-digit industry explains roughly half of the cross-firm variation in both racial and gender contact gaps. Contact gaps are highly concentrated in particular companies, with firms in the top quintile of racial discrimination responsible for nearly half of lost contacts to Black applicants in the experiment. Controlling false discovery rates to the 5 percent level, 23 individual companies are found to discriminate against Black applicants. Our findings establish that systemic illegal discrimination is concentrated among a select set of large employers, many of which can be identified with high confidence using large-scale inference methods.

“Economic impacts of tipping points in the climate system”
Simon Dietz, London School of Economics and Political Science
James Rising, University of Delaware
Thomas Stoerk, London School of Economics and Political Science
Gernot Wagner, New York University, Equitable Growth grantee

Abstract: Climate scientists have long emphasized the importance of climate tipping points like thawing permafrost, ice sheet disintegration, and changes in atmospheric circulation. Yet, save for a few fragmented studies, climate economics has either ignored them, or represented them in highly stylized ways. We provide unified estimates of the economic impacts of all eight climate tipping points covered in the economic literature so far, using a meta-analytic integrated assessment model, or IAM, with a modular structure. The model includes national-level climate damages from rising temperatures and sea levels for 180 countries, calibrated on detailed econometric evidence and simulation 1 modelling. Collectively, climate tipping points increase the social cost of carbon, or SCC, by around 25 percent in our main specification. The distribution is positively skewed, however. We estimate an approximately 10 percent chance of climate tipping points more than doubling the SCC. Accordingly, climate tipping points increase global economic risk. A spatial analysis shows that they increase economic losses almost everywhere. The tipping points with the largest effects are dissociation of ocean methane hydrates and thawing permafrost. Most of our numbers are probable underestimates, given some tipping points, tipping point interactions, and impact channels have not been covered in the literature so far, but our method of structural meta-analysis means that future modelling of climate tipping points can be integrated with relative ease, and we present a reduced-form tipping points damage function that could be incorporated in other IAMs.

“Collective Bargaining, the Minimum Wage, and the Racial Earnings Gap: Evidence from Brazil”
Ellora Derenoncourt, Princeton University, Equitable Growth grantee
François Gerard, Queen Mary University of London
Lorenzo Lagos, Brown University
Claire Montialoux, University of California, Berkeley, Equitable Growth grantee

Abstract: This paper studies how a national minimum wage and firm- and sector-specific wage floors affect racial earnings disparities. Our context is the Brazilian economy, characterized by persistently high racial disparities, a tradition of extensive sectoral bargaining, and the availability of detailed labor force surveys and administrative matched employer-employee data with information on race. We first analyze the effect of the large increase in the minimum wage that occurred between 1999 and 2009. Using a variety of research designs and identification strategies, we obtain three main findings. First, the increase in the minimum wage erased the racial earnings gap up to the 10th percentile of the national wage distribution and up to the 30th percentile in the poorest region, the Northeast. Second, there is no evidence of a significant reallocation of workers from the formal sector to the informal sector. This can be explained by the fact that the minimum wage is de facto binding in the informal sector (with the exception of agriculture, domestic workers, and the self-employed). Third, we do not find evidence of significant disemployment effects, or of Whites-non-Whites labor-labor substitution. As a result, the minimum wage increases of the 2000s led to a large decline in the economywide racial income gap in Brazil. The second part of the paper studies the effect of negotiated firm- and sector-specific wage floors. Our preliminary results suggest a more nuanced picture. First, within firms, non-White workers appear slightly more likely to be in occupations not covered by a wage floor. Second, we find significant dynamic effects of the introduction of wage floors on the composition of the workforce, with a growing employment share in occupations not covered by wage floors in subsequent years. Taken together, these results suggest that comprehensive and uniform labor standards such as the minimum wage may be among the most powerful labor market institutions to reduce racial earnings disparities.

Note: This abstract is from an earlier version of this paper. For updated details, please click here.

“The Signaling Role of Parental Leave”
Linh T. Tô, Boston University, Equitable Growth grantee

Abstract: This paper evaluates the hypothesis that, in setting wages, firms respond to costly signals by workers when such costs are informative of their values to the firms. For workers who become mothers, uncertainty about their future values can influence firms’ decisions to distribute career and promotion opportunities. Consequently, workers may forgo paid parental leave even when there is no human capital depreciation associated with taking leave. I build a signaling model with a continuous choice of leave period when such choice is restricted due to the maximum allowed paid leave duration. Using administrative data from Denmark and a parental leave policy extending the maximum allowed duration of parental leave, I show how a leave extension affects wages, hours, and promotion opportunities for workers whose signaling ability changes with the extension. In contrast to human capital theory, an individual can take longer leave but gain in wages when the larger choice set allows more workers to signal their type. The paper provides evidence of the labor market consequences of parental leave-taking due to signaling and the importance of asymmetric information in shaping parental leave choice.

Note: This abstract has been updated; we previously included an earlier version.

“Legal Representation in Disability Claims”
Hilary Hoynes, University of California, Berkeley, NBER, Equitable Growth Steering Committee member
Nicole Maestas, Harvard University, NBER
Alexander Strand, Social Security Administration

Abstract: Legal representatives play a large and growing role in the Social Security Disability Insurance adjudication process, earning fees totaling $1.2 billion in 2019. Long ubiquitous in appellate hearings, disability representatives—including attorneys and nonattorneys—have begun appearing more frequently at the beginning of cases, during the initial review. This development has raised questions about the motives of disability law firms, which are sometimes perceived to prioritize their own interests in response to incentives in the fee structure set by the Social Security Administration. At the same time, these concerns have revealed just how little is understood about the value of legal representation for claimants in disability cases. We comprehensively investigate the impact of legal representation on case outcomes when representatives are engaged from the initial stage. Our analysis is made possible by new administrative data identifying representatives appointed to disability claims at the initial and appellate levels. To address selection into representation, we instrument for initial representation using geographic and temporal variation in disability law firm market shares in the closely related but distinct appellate market. Among applicants on the margin of obtaining representation at the initial level, representation improves case outcomes and administrative efficiency across several metrics. Legal representation increases the probability of initial award by 23 percentage points, reduces the probability of appeal by 60 points, and induces no detectable change in the ultimate probability of award (including appeals). This pattern indicates that legal representation in the initial stage leads to earlier disability awards to individuals who would otherwise be awarded benefits only on appeal. Furthermore, by securing earlier awards and discouraging unsupported appeals, representation reduces total case processing time by nearly 1 year. Our analysis explores several mechanisms.

“The Economic Geography of Global Warming”
José-Luis Cruz, Princeton University
Esteban Rossi-Hansberg, University of Chicago

Abstract: Global warming is a worldwide and protracted phenomenon with heterogeneous local economic effects. In order to evaluate the aggregate and local economic consequences of higher temperatures, we propose a dynamic economic assessment model of the world economy with high spatial resolution. Our model features a number of mechanisms through which individuals can adapt to global warming, including costly trade and migration, and local technological innovations and natality rates. We quantify the model at a 1 degree × 1 degree resolution and estimate damage functions that determine the impact of temperature changes on a region’s fundamental productivity and amenities depending on local temperatures. Our baseline results show welfare losses as large as 19 percent in parts of Africa and Latin America but also high heterogeneity across locations, with northern regions in Siberia, Canada, and Alaska experiencing gains. Our results indicate large uncertainty about average welfare effects and point to migration and, to a lesser extent, innovation as important adaptation mechanisms. We use the model to assess the impact of carbon taxes, abatement technologies, and clean energy subsidies. Carbon taxes delay consumption of fossil fuels and help flatten the temperature curve but are much more effective when an abatement technology is forthcoming.

“Firms and Unemployment Insurance Take-Up”
Marta Lachowska, W.E. Upjohn Institute for Employment Research, Equitable Growth grantee
Isaac Sorkin, Stanford University, NBER
Stephen A. Woodbury, Michigan State University, W.E. Upjohn Institute, Equitable Growth grantee

Abstract: This paper uses administrative data from Washington state to quantify the role of employers in the incomplete take-up of Unemployment Insurance, or UI. Consistent with previous literature, we find that nearly half of the workers who appear to be UI-eligible do not claim UI. Moreover, we also find a steep income gradient in claiming. Distinctively, we find substantial dispersion in both firm-level UI claim rates and appeals (of UI claims) rates. Firm-level claim and appeals rates are negatively correlated, which is consistent with a deterrent effect of firms’ appeals on workers’ claiming. We also find that claims and appeals rates are tightly related to workers’ pre-separation wage rates, and that firm fixed effects explain a large share of the income gradient in take-up and appeals. We show that if firms with below-median firm effects in claims rates had the median claims rate, then take-up would increase by about 6 percentage points. We estimate a simple model of experience rating and claims, and use it to discuss some targeting properties of UI and find the changes in experience rating that would achieve similar increases in take-up.  

“Pollution and acquisition: Emissions and distributional effects of mergers”
Irene Jacqz, Harvard University, Iowa State University

Abstract: I estimate the effect of corporate acquisitions on facility-level toxic air pollution and its firm-level distribution. I use event study designs that exploit variation in the timing of acquisition among target facilities, since acquisition is endogenous to the operation and emissions of polluting facilities. I find emissions fall dramatically in the years after an acquisition among Toxic Release Inventory-reporting facilities in the United States for the period 2001–2019 and suggest changes in plant-level operations drive observed decreases. I also find evidence of increased inequality in emissions among target plants after acquisition and shifts in pollution toward less-advantaged neighborhoods. These findings suggest consolidation in sectors with negative externalities may reduce levels of the externality but increase inequality in its exposure.

“The Intergenerational Transmission of Employers and the Earnings of Young Workers”
Matthew Staiger, University of Maryland, former Equitable Growth Dissertation Scholar

Abstract: This paper investigates how the earnings of young workers are affected by the intergenerational transmission of employers, which refers to individuals working for the same employer as a parent. My analysis of survey and administrative data from the United States indicates that 7 percent of young workers find their first stable job at the same employer as a parent. Using an instrumental variables strategy that exploits exogenous variation in the availability of jobs at the parent’s employer, I estimate that working for the same employer as a parent increases initial earnings by 31 percent. The earnings benefits are attributable to parents providing access to higher-paying employers. Individuals with higher-earning parents are more likely to work for the employer of their parent and experience greater earnings benefits conditional on doing so. Thus, the intergenerational transmission of employers amplifies the extent to which earnings persist from one generation to the next. Specifically, the elasticity of the initial earnings of an individual with respect to the earnings of their parents would be 10 percent lower if no one worked for the employer of a parent.

“Worker Beliefs About Rents and Outside Options”
Simon Jäger, Massachusetts Institute of Technology, Equitable Growth grantee
Christopher Roth,University of Cologne
Nina Roussille, London School of Economics and Political Science
Benjamin Schoefer, University of California,Berkeley, Equitable Growth grantee

Abstract: We measure workers’ beliefs about rents and outside options in a representative sample of German workers and compare these beliefs with proxies for actual outside options. While subjective worker rents are large—14 percent of salary, on average—they do not stem from workers’ subjective wage premia at their current firm, but are entirely derived from nonwage amenities. When comparing workers’ subjective outside options against objective measures of pay premia from matched employer-employee data, we find that many workers mistakenly believe their current wage is representative of the external labor market—objectively low-paid (high-paid) workers are overpessimistic (overoptimistic) about their outside options. If workers had correct beliefs about outside options, 13 percent of jobs would not be viable at current wages, concentrated in the low-wage segment of the labor market. Finally, we show that in an equilibrium model, misinformation about outside options gives employers monopsony power.

“What Drives Prescription Opioid Abuse? Evidence from Migration”
Amy Finkelstein, Massachusetts Institute of Technology, NBER, Equitable Growth grantee
Matthew Gentzkow, Stanford University, NBER
Dean Li, Massachusetts Institute of Technology
Heidi Williams, Stanford University, NBER, Equitable Growth grantee

Abstract: We investigate the role of person- and place-specific factors in the opioid epidemic by developing and estimating a dynamic model of prescription opioid abuse. We estimate the model using the relationship between cross-state migration and prescription opioid abuse among adults receiving federal disability insurance from 2006 to 2015. Event studies suggest that moving to a state with a 3.5 percentage point higher rate of opioid abuse (roughly the difference between the 20th and 80th percentile states) increases the probability of abuse by 1 percentage point on-impact, followed by an additional increase of 0.3 percentage points per subsequent year. Model estimates imply large place effects in both the likelihood of transitioning to addiction and the availability of prescription opioids to the addicted. Equalizing place-based factors would have reduced the geographic variation in opioid abuse by about 50 percent over our 10-year study period. Reducing place effects on addiction transitions to the 25th percentile would have twice the impact on opioid abuse after 10 years as the analogous reduction in place effects on availability to addicts, though the comparison is reversed in the first few years.

“The Great Migration and Educational Opportunity”
Cavit Baran, Princeton University
Eric Chyn, Dartmouth College, NBER, Equitable Growth grantee

Abstract: This paper studies the impact of the Great Migration on children. We use the complete count 1940 census to estimate selection-corrected place effects on education for children of Black migrants. On average, Black children gained 0.8 years of schooling (12 percent) by moving from the South to North. Many counties that had the strongest positive impacts on children during the 1940s offer relatively poor opportunities for Black youth today. Opportunities for Black children were greater in places with more schooling investment, stronger labor market opportunities for Black adults, more social capital, and less crime.

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