Page 53 – Equitable Growth

How inequities in U.S. taxation can perpetuate systemic racism

Posted on April 20, 2021April 21, 2021 by Maria Monroe

The history of discriminatory taxation in the United States is long and storied. Writing on county governments in his in 1901 study, “The Negro Landholder of Georgia,” scholar W.E.B. Du Bois noted that “in most cases there are no tax assessors, but a county tax receiver, who receives the sworn statements of property holders as to their estates. This gives rise to wholesale undervaluation, especially in the case of the rich, and to overvaluation in the case of the very small estates of the poor.”

Du Bois also noted, according to historian Andrew Kahrl in an email exchange with me, that this problem was even more pronounced in counties where tax assessors were elected officeholders. As a result of Black disfranchisement in Georgia, Du Bois found that elected assessors were somewhat accountable to poor White landowners but entirely unaccountable to Black landowners, resulting in favoritism toward White people that, in turn, forced Black landowners to shoulder a comparatively heavier tax burden.

Local property taxation

While this favoritism might be less overt today, property tax systems still place a heavier burden on Black and Latinx property owners than on White property owners. In a working paper for Equitable Growth’s Working Paper series, economists Carlos Fernando Avenancio-León at Indiana University, Bloomington and Troup Howard at the University of California, Berkeley find that all else being equal, homeowners of color end up paying a 10 percent to 13 percent higher tax rate, on average, within the same local property tax jurisdiction than White homeowners.

In other words, Black and Latinx residents receive a higher property tax bill than homes of a similar value, paying a higher property tax rate for the same set of public goods and services. For the median Black or Latinx homeowner in the United States, this can translate to an extra $300 to $400 annually in additional property taxes. In communities with a higher concentration of people of color, the extra tax burden can be several times as large.

Though property tax laws intend for a homeowner’s payments to be proportional to the market value of their home, Avenancio-León and Howard find that the administration of home assessments leads to racially disparate outcomes in two ways.

First, they explain that when market prices and property assessments diverge, it isn’t driven by attributes of the home itself, such as the number of bedrooms or size of the home. Rather, the difference arises from neighborhood-level amenities, such as public parks or schools, which affect market prices but are inadequately reflected in property tax assessments.

Due to high degrees of residential racial segregation in the United States, Black and Latinx residents live, on average, in different neighborhoods than White residents—even within a single taxing jurisdiction. Continuing discriminatory policies have propelled White residents to tend to live in neighborhoods where amenities push market prices up, and these same policies drive Black and Latinx residents to live, on average, in areas that push market prices down. Since these amenities are not properly taken into account for property tax assessments, White homeowners end up undertaxed and Black and Latinx homeowners end up overtaxed.

Second, homeowners are typically able to contest the property assessment through filing an appeal. Avenancio-León and Howard find this process increases racial disparities because Black and Latinx residents are less likely to appeal their assessment, less likely to succeed once they have filed an appeal, and, even after succeeding, receive a smaller reduction.

Other biases in property taxation are described by Emory University School of Law professor Dorothy Brown, whose book, The Whiteness of Wealth, examines the ways tax law is far from race neutral. She notes, for example, that interest paid on mortgages are tax deductible whereas there is not a comparable deduction for renters, who tend to be disproportionately Black. This entrenched homeownership disparity is not mere happenstance, but rather a result of explicitly racist government policies such as redlining and lax enforcement that led to the 2008 foreclosure crisis.

Further, systemic racism in housing results in the homes of White residents appreciating at a faster rate than the homes of Black residents. This suggests that the value of a White-owned home will quickly outpace its property assessments. The gains made during resale are mostly tax-free, adding to an ever-growing tax break for White homeowners. Conversely, Black homeowners are more likely to lose money in their housing investment, and there is no tax deduction for these losses.

Individual income taxes

In state and federal income taxes, the value of tax breaks tends to increase as household income rises. Since White taxpayers tend to have higher incomes than Black and Latinx taxpayers, this means that White families disproportionally benefit from tax carve-outs that shield their income from the higher rates they would otherwise face. (See Figure 1.)

Figure 1

Median wealth of U.S. households by race and ethnicity, 2016

As the Center on Budget and Policy Priorities explains, the largest individual income tax expenditures in 2019 were on the provision that allows households to exclude from taxable income the value of employer-provided health insurance, the lower rates at which capital gains are taxed relative to earned income, tax breaks on owner-occupied housing, and the exclusion for employer-based retirement plans. Those who have 401(k)s are disproportionately White, while Black people are far less likely to have jobs that provide retirement benefits, healthcare, and flexible spending accounts, all of which are heavily subsidized by the tax code.

The relative lack of taxation on wealth in the United States further entrenches racial inequity. Wealth is disproportionately owned by White families because of the legacy of discrimination and inherited wealth. Income from wealth is taxed at lower rates than income from work through a variety of tax preferences, such as the lower rates on capital gains and for owner-occupied housing.

Unlike with regular income, when an investor’s wealth increases and they therefore experience a gain in income, they can legally choose not to pay taxes on that capital gain. Instead, wealthy investors can wait, even until death, at which time that income can be passed on to heirs completely tax-free because of the stepped-up basis tax exemption.

Recent efforts to weaken the estate tax in the Tax Cuts and Jobs Act of 2017 doubled the amount of dynastic wealth that can be passed on tax-free to heirs. And due to the racial wealth gap and discriminatory lending practices, people of color are less likely to own businesses, another form of wealth. This means that the majority of state and local tax benefits given to businesses tend to benefit White households.

Carl Davis, Misha Hill, and Meg Wiehe of the Institute on Taxation and Economic Policy explain that sales and excise taxes, often put forward as an alternative to the taxation of wealth or income, are the most regressive type of taxes that states levy. Low-income households, which are disproportionately households of color, must spend a larger share of what they earn to make ends meet. This therefore means that a larger share of their income is subject to consumption taxes, compared to high-income households.

In contrast, higher-income households, which are predominately White, can set aside much of their income as savings, therefore significantly delaying or entirely avoiding paying sales and excise taxes. A previous ITEP report found that in Tennessee, for example, both Black and Latinx households face average effective sales and excise tax rates (5 percent of income) that are 22 percent higher than the rate faced by White households (3.9 percent). When states rely on sales and excise taxes for revenue, they are worsening racial disparities in the state by taxing people of color more heavily than White households.

Dorothy Brown further notes that the fiction of Black people taking services and not paying taxes is widespread. This racist ideology is the very backbone of austerity economics and must be challenged head-on.

The enduring legacy of inequitable taxation requires more research and thinking into these questions, so that policymakers can address the problem directly. Policymakers will need to contend with the contours of the tax code and the ways it perpetuates systemic racism. Policy choices throughout U.S. history have contributed to racial disparities. Now, there is an opportunity to begin to make policy choices that confront these disparities.

Measuring what matters: Zeroing in on Latina women to address persistent low Hispanic homeownership rates in the United States

Posted on April 19, 2021April 19, 2021 by Maria Monroe

A new report released today by UnidosUS highlights one of the reasons for the wealth divide between Hispanic* households and other households in the United States: low homeownership rates among single Latina women, compared to single White women. The report’s analysis also underscores some of the shortcomings in data collection and economic measurement of Latinx households more broadly, with the data often limited and sometimes misleading both about the broader Latinx population and specifically for Latina women.

Both the homeownership divide and the lack of measurable data are concerning. UnidosUS’s report uses data from a number of government surveys and other sources to report on wealth held by Latina women living in the United States. But it also notes that the existing data are insufficient: “The limitations of the sample sizes and data collection methods in federal surveys restrict disaggregated or detailed analysis of important racial and ethnic inequities at the national level.”

Adds Janet Murguía, president and CEO of UnidosUS: “If we don’t have the right data, we can’t address systemic inequities for Hispanic individuals and their families now and for future generations. Addressing this issue can help us build a stronger American society and a promise for economic, political, and social advancement for everyone.”

These weaknesses in our ability to assess the economic circumstances of demographic subpopulations in the United States impede economic policymaking. And they are a key reason the Biden administration has called for an Equitable Data Working Group that will investigate these kinds of gaps.

Although Hispanics are the fastest growing segment of the U.S. population, this group tends to face structural and systemic barriers to accessing homeownership. The Latino population tends to be negatively affected by structural racism, low incomes, and few financial resources to draw on, including no retirement savings, low or no savings in general, and less access to banking and financial services. These barriers to homeownership mean that Hispanics are less able to tap significant home-buying subsidies worth tens of billions of dollars annually.

A 2020 Equitable Growth issue brief explains the stark differences in homeownership among White families and Black and Hispanic families. As a group, Black and Hispanic families have homeownership rates that are often more than 15 percentage points lower than White Americans of a similar age. As the UnidosUS report shows, the raw numbers are even worse: Hispanic household homeownership lags behind White households by more than 25 percentage points. (See Figure 1.)

Figure 1

Homeownership, of course, is an important tool for intergenerational wealth transmission and upward mobility, so lower homeownership among Hispanic households has real consequences not just for this generation, but also for the next. UnidosUS’s report in particular finds significant gaps between single Latina women and single White women, with the gap increasing at older ages. (See Figure 2.)

Figure 2

Latina women tend to have higher levels of educational attainment than Latino men. Yet their incomes, wages, and earnings are lower, and they face more severe consequences from economic crises such as the current coronavirus recession.

At the same time, federal surveys often have inadequate sample sizes to support precise estimation of economic data, which prevents policymakers from understanding gaps in economic outcomes. Survey instruments are sometimes insufficient as well. The Survey of Consumer Finances, a survey run by the Federal Reserve that is often used to study homeownership, generally does not record the ethnicity of female spouses, making it impossible to estimate homeownership for married Latina women, unless one assumes that all Latino men married to a woman have Latina spouses.

A 2020 Equitable Growth Expert Focus installment about the effects of economic inequalities on Latinx populations highlighted Duke University sociologist Eduardo Bonilla Silva, who, in the most recent edition of his book Racism without Racists, explains how race and racism can be broken down by the personal, collective, and structural dimensions of racism. Indeed, Latinx communities, like Black Americans and other communities of color, often endure rampant discrimination when looking to rent or buy a home.

During the run up to the 2008 housing crisis, Latino and Black mortgage borrowers faced a different kind of discrimination. They were peddled expensive subprime loans by mortgage lenders and banks, and many subsequently lost wealth as a result of these practices because these homeowners faced more foreclosures on their homes, further fueling structural racism in the housing market.

As UnidosUS previously examined, the result of systemic racism in the housing market is that Latino families face high housing costs, whether renting or buying. More than half of Latino households spend more than 30 percent of their income on housing, and many fear eviction.

Homeownership is not the only area where Hispanic families are disadvantaged. In 2020, the American Society of Hispanic Economics Outlook reported on the negative impact the coronavirus recession had on Latina women’s labor market experiences in unemployment and labor force participation. Latinas share many of the labor force vulnerabilities of other marginal groups, such as Black women. When the labor market recovers, these groups are often left behind. And Latina women’s pay remains the lowest among all race and gender combinations.

A 2018 report by Equitable Growth’s Kate Bahn and Will McGrew finds that a significant part of this gap—more than half—may be attributable to discrimination based on race and gender. And the book La Crisis Boricua presents, in a chapter about gender, the fact that Puerto Rican women face lower pay and weaker labor force attachment, often because they have care responsibilities for family and children. These findings are briefly summarized in this Hunter College El Centro book presentation video.

To address the persistent and disproportionate negative effects of economic inequality on Latinos (U.S. born and immigrants) across generations, the federal government must disaggregate economic indicators and report on disparities that marginalized populations face. Reporting on economic growth that accounts for income is a start, but much more can be done to highlight the inequities faced by Latina women and other groups. Policymakers cannot address these inequities if they are invisible to policymakers and the public. Better data collection and reporting will help identify ways to advance strong, stable, and broad-based economic growth for all families in the United States.

*Equitable Growth uses the terms Hispanic and Latino depending on what the author or works cited has used, for consistency and alignment with the data collected.

Brad DeLong: Worthy reads on equitable growth, April 13-19, 2021

Posted on April 19, 2021April 19, 2021 by Maria Monroe

Worthy reads from Equitable Growth:

1. Susan Helper has plans for making outsourcing, offshoring, and other transformations that create very high-bandwidth links between firms in value chains win-win as opposed to win-lose: to have ringmaster firms find it more advantageous to partner with high-productivity firms to raise the surplus, rather than with firms able to find workers with little market power in order to redistribute the surplus. I think it will be very interesting and informative—well worth watching on May 3. Go to “Webinar: Transforming U.S. supply chains to create good jobs to learn how: “Large firms shifted from doing many activities in-house to buying goods and services from a complex web of other companies. Sometimes this restructuring can lead to innovation if supplier firms specialize in producing complex technologies or processes. But in other cases, firms outsource so they can offload production onto firms with weak bargaining power and thus little ability to compete except by aggressively holding down wages … [a] “low-road” mode … [whereas] high-road supply networks … benefit firms, workers, and consumers alike. High-road outsourcing, however, requires overcoming both market and network failures … [via] a set of policy proposals that directly address each of the reasons that outsourcing increases wage inequality.”

2. We economists often take too narrow a view of poverty and of societal well-being. Here Mark Rank provides an excellent remedy for that. And I think we at Equitable Growth are going to cross-examine him again soon. Read Alix Gould-Werth “In Conversation with Mark Rank,” in which they discuss: “How to usefully measure poverty in the United States. The actual causes of poverty. Poverty and race and ethnicity. Poverty and the broader U.S. macroeconomy. Myths about poverty and their consequences. Poverty and policymaking. Poverty and inequality in the United States.”

3. What my faction of economists thinks about the strong need for more public investment. Read Hilary Hoynes, Trevon Logan, Atif Mian, and William Spriggs, “More than 200 economists to Congress: Seize “historic opportunity to make long-overdue public investments” to boost economic growth” in which they argue: “Policymakers have an historic opportunity to make long-overdue public investments in physical and care infrastructure to boost economic growth and productivity. The share of our GDP invested in federally-funded research and development has fallen from around 2% in 1960 to just 0.6% today; this means less knowledge creation, fewer good jobs, and a harder time boosting employment in new sectors. Research—and common sense—tell us that this disinvestment is damaging for U.S. communities and our economy as older infrastructure depreciates and economic and social challenges go unaddressed … In addition to federal research, physical infrastructure needs must be addressed. The private sector alone is not capable of making the large-scale investments needed to address the overlapping structural challenges currently facing the country.”

Worthy reads not from Equitable Growth:

1. I really do not understand where and how those who are forecasting “overheating” in the U.S. economy over the next 12 months are getting their numbers for their estimates. Read my “I Do Not See “Overheating” This Year,” in which I write: “Yes, there will be some inflation—base effects and sectoral shifts and simply the speed of reopening will create bottlenecks in the system, and those with pricing power will take advantage. But—unless the coronavirus plague has done a lot more damage to the economic division of labor than I believe—it will not be because production and employment are in any manner above stable-inflation “potential.” Think of whatever inflation might happen as skid marks and burning rubber, rather than any form of boilover.”

2. The very smart Dan Wang on the complexities and contradictions of China in technology and organization, simultaneously more advanced and more retarded. Read “An interview with Dan Wang About China, the U.S., & Technology,” in which he observes: “China has become a lot more brutal … and … looks a lot more successful than I expected … things … getting worse, and … things … getting better, just depend[ing] on the particular segment … China is the world’s best place to manufacture so many different types of goods and they’re more or less doubling down a lot more on China as a major market and also as a producer … There are some areas of Chinese technological success, I would cite areas like solar panels, high-speed rail, mobile telephony equipment, so this is the 5G stuff that Huawei has become really good at. But if you take a look at a much bigger ticket items, things like semiconductors or aviation technologies, China has been a manifest failure.”

3. The extent to which the technocrats of the Trump administration failed to understand the difference between the structure of the world economy and the shadows cast by various forms of tax arbitrage is absolutely stunning. Never mind that the policies would not have been very likely to be successful if the world had been as they thought it. The world was simply not as they thought it was. Read Paul Krugman, “Why Was Trump’s Signature Policy Such a Flop?,” in which he writes: “The Tax Cuts and Jobs Act ended up having no visible effect at all on business investment …The corporate profits tax isn’t a tax on capital, it’s a tax on a particular aspect of corporate financial structure … Business investment isn’t that sensitive to the cost of capital, anyway … Corporations … [did not] move capital and jobs to lower-tax nations … it didn’t reverse capital flight because the capital flight never happened in the first place …The U.S. government gave up hundreds of billions of dollars to fix a nonexistent problem.”

4. It was very strange, the Obama administration. So many people who were very interested in accomplishing technocratic long-run policy goals, but not in doing the foundation work to make those accomplishments durable. Progress on rebalancing federal finances melted away the moment his second term ended, the Affordable Care Act barely survived, and those were the two most notable accomplishments. The Biden people seem aimed at a better reinforcing structure of policy, political credit, and societal support. Listen to Ezra Klein’s podcast, “The Best Explanation of Biden’s Thinking I’ve Heard,” in which he speaks with Brian Deese, the director of the National Economic Council: “I asked Deese to join me on the podcast to talk about how his economic policymaking and thinking have changed since 2009.”

Weekend reading: Public investments in care infrastructure edition

Posted on April 16, 2021April 16, 2021 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

Many Americans do not have the caregiving support they need in order to physically return to an office or workplace once the coronavirus pandemic wanes. This was an issue long before the onset of the pandemic and subsequent recession, but the past year only deepened the existing cracks in our nation’s care infrastructure. As policymakers consider President Joe Biden’s American Jobs Plan and forthcoming American Families Plan—his multipart investment proposal for boosting infrastructure and creating good jobs—Equitable Growth released a factsheet on U.S. care infrastructure and what the research says about its impact on the U.S. economy. It highlights recent studies on the state of the care economy, how undervalued caregiving is in the United States, and the impact that public investment in care infrastructure can have on economic growth, labor force participation (particularly among women and workers of color), and worker well-being. This research shows that policymakers must consider investments in both care and physical infrastructure in order to jumpstart the economic recovery from the coronavirus recession and support workers who are currently being forced to choose between receiving a paycheck and caring for loved ones or themselves.

There was a time in recent U.S. history in which care was part of infrastructure: the World War II era. Sam Abbott details the Lanham Act, which was passed in response to women’s increased labor force participation amid the war effort of the early to mid-1940s. This law was not, by definition, a child care bill, but nonetheless created government-funded child care centers in more than 650 communities with defense industries across the United States in order to support mothers on the factory lines and fathers on the front lines of battle. Regardless of income, families could send their children to Lanham Act centers for $11 per day (adjusting for inflation). These centers closed down in 1946, but research on the few years they were open reveals both short- and long-term benefits for women’s attachment to the labor force and for their children’s education and employment outcomes years later. This has important implications now, Abbott explains, as policymakers consider investments in both physical and care infrastructure to ensure an equitable post-pandemic economy.

Recently, Equitable Growth relaunched our Research on Tap series, with a virtual event focused on investing in an equitable future co-hosted by the Groundwork Collaborative. The event kicked off with a conversation between Cecilia Rouse, the chair of the White House Council of Economic Advisers, and reporter Tracy Jan from The Washington Post, followed by a discussion on the need for structural changes among a panel of economic and social policy experts. The panel included Jhumpa Bhattacharya, vice president of programs and strategy at the Insight Center for Community Economic Development; Joelle Gamble, a special assistant to the president for economic policy on the White House National Economic Council; and Saule Omarova, a Cornell University law professor; and was moderated by Equitable Growth’s Policy Director Amanda Fischer. The event centered on the idea that markets alone cannot address the large structural challenges facing the country, including climate change, systemic racism and discrimination, and the lack of a 21st century care infrastructure. Instead, government must work together with the private sector to find solutions to these complex issues. Read our recap of the event to find out more about the policy ideas and reforms discussed that would ensure a stronger, more equitable future economy than the one with which the United States entered the pandemic.

In the latest installment of Equitable Growth in Conversation, Alix Gould-Werth speaks with Mark Rank, the Herbert S. Hadley professor of social welfare at Washington University in St. Louis, where he studies issues of poverty, inequality, and social justice in the United States. Their conversation touches upon different aspects of poverty in the United States, from how to usefully measure it and the actual causes of it, to poverty myths and their consequences. One important finding of Rank’s research that comes up is that the nearly 60 percent of Americans between the ages of 20 and 75 will experience at least 1 year in poverty, and three-quarters of Americans will experience either poverty or near-poverty in their lifetimes. Rank and Gould-Werth also discuss the intersections of poverty with race, inequality, the macroeconomy, and policymaking in the United States. Their conversation is a fascinating preview of next week’s Equitable Growth virtual event featuring Rank, Equitable Growth Presents: Dispelling Poverty Myths and Expanding Income Support.

Climate change is an incredibly complex policy issue, one that does not have a simple solution. But a policy workshop last year looked at the promises and challenges of carbon pricing as a path forward for reducing carbon dioxide and other greenhouse gas pollution in the United States. Gernot Wagner details the discussions at the conference, including how to price carbon, how to spend the revenues that may accrue from this policy, ways to foster innovation in this sector, and aligning carbon pricing policies with other measures that regulate emissions and fuel use. He also explains the political hurdles that could stand in the way of carbon pricing regulations, reviews the states and regions that have already been successful in implementing carbon pricing policies, and summarizes key recommendations that came out of the policy workshop for the Biden administration.

Links from around the web

There is a mountain of evidence that early childhood education and child care programs are beneficial not only for working parents and their children but also for the broader economy. So why is this industry so convoluted, unaffordable, and inaccessible to so many families? Vox’s Anne Helen Petersen proposes a straightforward solution: Make caring for children a good job with a livable wage, and make child care free and accessible for families. In 2019, the average early childhood worker was paid $11.65 per hour, or $24,230 per year—hardly enough to pay the bills, let alone save up or afford an emergency expense—yet the cost of sending a child to day care is increasingly out of reach for low- and middle-income families. This, Petersen writes, is the hallmark of a broken system. The first step toward fixing it involves changing the broader public’s thinking around caregiving work to that of a public good, much like we think of sanitation or libraries: essential to a functioning society, with no limits—financial, educational, geographic, or otherwise—on who can access it. Petersen explains how policymakers can go about this, and also looks at why it hasn’t been done thus far.

The American Rescue Plan’s extension and expansion of the child allowance is expected to cut child poverty in half—a significant achievement, considering that poverty leads to worse educational, health, and employment outcomes for children later in life. New research also looks at how poverty affects brain development among babies and young children, finding that those raised in poverty have subtle brain differences than their better-off peers, writes Alla Katsnelson in The New York Times’ The Upshot. The study examines whether reducing poverty itself can promote healthy brain development, studying the impact of providing families with cash payments that are comparable in size to those in the American Rescue Plan on future outcomes for children. Though it’s unclear what the policy implications will be, if any can be discerned at all, it could be an important insight into the role poverty plays in both individual lives and in future economic circumstances.

Though unionization efforts at an Amazon.com Inc. warehouse failed last week, the experience was illuminating, writes The New York Times’ Paul Krugman, highlighting the “continuing effectiveness of the tactics employers have repeatedly used to defeat organizing efforts.” But workers and labor advocates should not give up, Krugman continues. The United States needs unions in order to counteract expanding economic inequality and wage stagnation in this country—history itself shows the role unions play in ensuring an equitable economy for U.S. workers. Policy decisions in the 1980s reduced the size and scope of union membership, to disastrous effect for workers and their families, with more severe impacts than globalization and automation in lowering wages in the United States. Krugman explains how restoring the power and strength of unions would go a long way to boosting wages and reducing wage disparities among the U.S. workforce—and would work to level the political playing field as well.

The field of economics has a diversity problem—this is an undeniable fact. Indeed, this week, top policymakers at the Federal Reserve acknowledged and lamented that Black and Hispanic people are severely underrepresented among economists, reducing the effectiveness of policy decisions by limiting the perspectives that contribute. AP’s Christopher Rugaber covers the webinar, sponsored by the 12 regional Fed banks, in which top officials and experts, alongside leading economists and press, addressed the issue of diversity in economics. The Fed itself has an issue with diversity, with most leading policymakers being White males with a business background—an issue that was highlighted by a recent Brookings Institution report.

Friday figure

Estimated new jobs in the United States, by education level, per $1 million of spending

Figure is from Equitable Growth’s “Factsheet: What does the research say about care infrastructure?”

Factsheet: What does the research say about care infrastructure?

Posted on April 15, 2021April 15, 2021 by Maria Monroe

The United States is emerging from the greatest health, economic, and caregiving crises in a century. Many policymakers are looking for ways to jumpstart the economy and, recognizing the tie between infrastructure and economic growth, have turned their sights on investments in U.S. physical and care infrastructure.

What does the research say about care infrastructure?Download

In March 2021, President Joe Biden proposed the American Jobs Plan and American Families Plan, a multipart proposal that would boost federal spending on the nation’s care and physical infrastructure. (See textbox for details.) Investments of this kind could help the U.S. economy recover from the coronavirus recession and lead toward sustainable, broad-based economic growth in the future.

Care infrastructure in the American Jobs Plan and American Families Plan

The American Jobs Plan includes significant investments in the nation’s care infrastructure, including:

$400 billion to expand home- and community-based services to help people who are elderly or have a physical or intellectual disability stay in their homes and avoid unnecessary institutionalization
$25 billion to upgrade existing child care facilities and increase the supply of child care in communities with limited access

The American Families Plan has yet to be formally released, but President Biden supports the following care infrastructure investments:

Twelve weeks of federally funded paid family and medical leave with an additional 7 days of paid sick leave
Additional child care subsidies administered on a sliding scale, so that low- to middle-income families pay no more than 7 percent of their income on child care
Expanded early care and education options, including universal pre-Kindergarten for all 3- to 4-year-olds and child care options for parents who work nontraditional hours

Care infrastructure includes the policies, resources, and services necessary to help U.S. families meet their caregiving needs. Specifically, care infrastructure describes high-quality, accessible, and affordable child care; paid family and medical leave; and home- and community-based services and support.

This factsheet presents some of the research and evidence on America’s care infrastructure as it relates to families’ caregiving needs, the care workforce, and U.S. economic growth.

The current state of U.S. care infrastructure

Caregiving is an important component of the economy. Research suggests that adequate care infrastructure can promote labor force participation, particularly among women; boost the human capital of care recipients; and support broad-based macroeconomic growth. Yet the evidence also suggests that U.S. care infrastructure is in need of greater investment, and current caregiving policies and resources may not be sufficient for the nation’s caregiving needs. For example:

Child care costs more than in-state public college in 30 states, and more than half of all families live in so-called child care deserts, where the supply of licensed child care slots is insufficient for the number of children in that area. Despite these high prices, child care providers run on razor-thin profit margins, making them particularly vulnerable to changes in macroeconomic trends. Meanwhile, the median wage for a child care worker is only $25,460 per year.¹
The U.S. Department of Health and Human Services estimates that today’s seniors will incur an average of $137,800 in future long-term services and supports costs, half of which will be financed out of pocket—an unaffordable amount for many. And while COVID-19 outbreaks were particularly devastating to nursing home residents, waitlists for home- and community-based services through Medicaid waivers remain long. In 2018, more than 800,000 Americans were on such a waitlist—approximately 45 percent of the total population already receiving these services.²
For workers living in the 44 states that do not currently have an active paid family and medical leave system, finding time to focus on caregiving can be a challenge. Only 20 percent of private-sector workers access paid family leave through their employers, and 44 percent of U.S. workers do not even qualify for unpaid leave through the Family and Medical Leave Act, or FMLA.³

The COVID-19 pandemic and recession exposed preexisting flaws in the nation’s care infrastructure and further weakened an already-fragile system. Employment in the child care and home-health sectors remains depressed, suggesting the care economy could struggle to meet demand as the nation reopens, blunting the economic recovery. (See Figure 1.)

Figure 1

All home-health and child day care employees, in thousands, March 2019-March 2021

Insufficient care infrastructure constrains the U.S. economy and worker well-being

Paid caregivers earn less than workers in noncare jobs with comparable skills, employment characteristics, and demographics. Research demonstrates that professionals in the caregiving industry receive wages that are 20 percent lower than comparable professionals in other industries. Managers face a similar 14 percent penalty. These penalties translate to higher turnover, lower consumer spending, a smaller tax base, and reduced economic security than if care workers were valued the same as comparable noncare employees.⁴
Turnover and disruptions in paid caregiving arrangements are burdensome for family caregivers. Recent research finds that the COVID-19 pandemic disrupted more than half of family caregiving arrangements. Family caregivers who face a caregiving disruption demonstrate increased anxiety and depression, and are 13.9 percentage points more likely to also experience permanent job separation or furloughs during the pandemic, compared with noncaregivers.⁵
Informal caregiving may constrain the economy through lost productivity, wages, and benefits. In data collected by Gallup Inc., 24 percent of family caregivers report that caregiving keeps them from working more, and 30 percent report missing 6 or more days of work in the prior year due to caregiving duties. These productivity losses are estimated to cost the U.S. economy more than $25 billion per year. A 2011 study by the Metlife Mature Market Institute estimates that aggregate cost to the U.S. economy from lost wages, pensions, and Social Security benefits for these family caregivers is nearly $3 trillion.⁶
Caregiving concerns may have driven millions of women out of the workforce in the COVID-19 pandemic. Research shows that caregiving concerns contributed to more than 2.3 million women exiting the labor force between February 2020 and February 2021. By March 2021, the labor force participation rate for women was 56.1 percent, the lowest rate since May 1988. The gap between men’s and women’s labor force participation widened in communities where school closures exacerbated caregiving needs. Time out of the workforce has long-term implications: Research shows that 13 percent of the gender pay gap can be ascribed to time spent outside of the labor force caring for others.⁷

Investments in care infrastructure boost economic growth, labor force participation, and worker well-being

Investments in care infrastructure have the potential to create twice as many new jobs as investments in physical infrastructure alone. In the wake of the Great Recession a decade ago, researchers estimate that investment in early childhood development and home-based healthcare could have created 23.5 new jobs per $1 million spent, compared to 11.1 jobs from physical infrastructure investments. Approximately 85 percent of new jobs from both care and physical infrastructure investments would reach workers with lower levels of educational attainment.⁸ (See Figure 2.)

Figure 2

Spending in the care economy would strengthen women’s employment and reduce the gender employment gap. An analysis of care spending in seven OECD countries, including the United States, estimates that an investment in the care economy equal to 2 percent of Gross Domestic Product would raise the employment rate for U.S. women and men by 8.2 percentage points and 4 percentage points, respectively. This would reduce the gender employment divide by 4.2 percentage points.⁹
Accessible and affordable child care can facilitate labor force participation and support economic growth. Research shows that parents’ labor force participation increases when child care is more affordable and accessible. In one study, a 100-slot increase in the supply of child care in a community is estimated to raise women’s labor force participation for the entire community by 0.3 percentage points. Conversely, every $100 increase in the price of child care is associated with a 3.7 percentage point decrease in that neighborhood’s labor force participation rate among women.¹⁰
- Meanwhile, high-quality early care and education can lead to long-term improvements in a child’s human capital. Children in high-quality programs demonstrate better education, economic, health, and social outcomes and fewer negative outcomes—such as involvement in the criminal justice system. These high-quality programs can help pay for themselves, generating up to a 13 percent return on investment per-child, per-year.¹¹
Much of the research evidence shows paid leave has a range of positive outcomes for caregivers and care recipients. A growing body of research suggests that paid parental leave can improve a range of childhood outcomes, including infant mortality, low birth weight, preterm birth, breastfeeding rates, and pediatric head trauma, as well as later-in-life outcomes, including lower rates of attention deficit disorder and obesity. Additionally, evidence from California suggests paid caregiving leave can reduce nursing home occupancy among the elderly patients, likely due to enhanced access to family caregivers. And while research on paid medical leave is still comparatively scant, research on related programs indicates such leave can lead to positive health and economic outcomes, as employees have more time and resources to focus on their own well-being.¹²
- Paid leave may also improve labor market outcomes for caregivers. The bulk of the research finds positive associations between paid leave and women’s labor force participation, though the relationship remains nuanced. Evidence from California indicates that under the state’s paid leave law, new mothers are 18 percentage points more likely to be working the year after the birth of their child, compared to mothers without paid leave access. Recent research corroborates these findings, indicating an approximately 20 percent increase in the probability of labor force participation during the year of a child’s birth. This increase remains significant up to 5 years later.¹³
Patients transitioning from institutions to lower-cost home- and community-based services experience better quality of life and fewer unmet needs. Research shows that patients who transition from institutional care to home-based care express greater life satisfaction (66 percent compared to 83 percent) and fewer unmet care needs (18.3 percent compared to 7.6 percent), compared to their time in institutions. In the same analysis, patients transitioning from nursing home facilities demonstrate 18 percent to 24 percent declines in healthcare spending in their first year in home- and community-based care.¹⁴
- Home-based care may be particularly valuable for patients without access to family caregivers. Research demonstrates that higher levels of state home-health spending is associated with a significant reduction in the risk of nursing home admission among childless patients.¹⁵

Conclusion

Inefficiencies in the nation’s current care infrastructure—paid family and medical leave, child care, and home-based services and supports—constrain economic growth, and leave families and businesses vulnerable to unexpected health and caregiving shocks. Caregiving work is undervalued, and many U.S. workers across the economy face a financial penalty for engaging in care work, which can lead to high turnover and caregiving instability. When care workers are not available or not affordable, family members take on new caregiving responsibilities, exacerbating work-life challenges. If family caregivers cannot resolve these challenges, then many are forced out of the workforce—costing the economy trillions of dollars in lost productivity and compensation.

Alternatively, research suggests that investments in care infrastructure could create significantly more new jobs than investments in physical infrastructure alone, boosting GDP growth and reducing the gender employment divide. Research on the individual components of the care economy likewise support further investment.

Accessible, affordable, and high-quality child care is associated with employment gains for parents in the short term and human capital improvements for children in the long term. Likewise, a preponderance of the evidence on paid leave indicates positive labor market outcomes for caregivers and health and well-being outcomes for care recipients. Finally, patients who transition out of institution-based long-term care report better quality of life, fewer unmet care needs, and lower healthcare costs.

Altogether, the bulk of the research and evidence suggests investments in care infrastructure are a promising tool to boost U.S. economic growth, productivity, and well-being. Policymakers looking to jumpstart the U.S. economic recovery from the coronavirus recession, ensure broad-based future economic growth, and provide much-needed support to U.S. workers and their families must prioritize investment in both physical and care infrastructure.

Policy workshop addressed promises and challenges of using carbon pricing to combat climate change

Posted on April 15, 2021March 30, 2023 by Maria Monroe

Climate change might be the world’s most complex public policy problem. It is more global, more long-term, more irreversible, and more uncertain than most other policy challenges and probably unique in the combination of all four factors. Given this daunting mix, it is all too tempting to look for a simple fix.

Economists have long pointed to carbon pricing as just such a fix: Increase the price of carbon emissions and watch emissions decline. The theory is indeed compelling. In fact, it is based on the one and only law in all of economics—as the price of something goes up, the quantity demanded goes down.

The practice, alas, is not quite as simple. For one, there are other market failures and hurdles to overcome in transforming the world’s economies from their current high-carbon, low-efficiency path toward a low-carbon, high-efficiency one. Second, politics. Despite the ample warnings and evidence we have been receiving for decades, the United States and others have taken only modest steps to reducing carbon dioxide and other greenhouse gases that contribute to climate change.

To help provide a path forward for policymakers, Jesse Jenkins of Princeton University, Leah Stokes of the University of California, Santa Barbara, and I convened a virtual workshop of academic and policy experts in March 2020 to discuss the current state of policy in the United States and around the world. The discussions addressed such challenges as how to:

Price carbon and establish a politically viable regimen to significantly reduce its use
Allocate any revenues that might accrue from a carbon pricing policy, including addressing effects on low-income households and communities, as well as those economically dependent on the production or use of fossil fuels
Make such policies fit in with measures that regulate emissions and fuel use
Foster low-carbon innovation

The participants included economists, political scientists, energy and innovation experts, lawyers, and leaders and experts from government agencies, nongovernmental organizations, foundations, and advocacy groups. More than 70 individuals gathered online to help make the workshop a success.

The convening was made possible by financial support from the William and Flora Hewlett Foundation, the Alfred P. Sloan Foundation, the Washington Center for Equitable Growth, and the Niskanen Center, and it was hosted and facilitated by New York University’s Robert F. Wagner Graduate School of Public Service. The resulting workshop report summarizes the discussions and conclusions of the participants. I summarize these results below.

Carbon Pricing and Innovation in a World of Political Constraints Download

Carbon pricing

Carbon pricing can be one of many effective tools available for harnessing market forces to reduce the use of carbon-based fuels, drive innovation, and spur the adoption of clean energy technologies. Carbon pricing can be deployed through taxes or through a cap-and-trade system that limits overall greenhouse gas emissions from factories, utilities, and other facilities, and permits owners to buy and sell the ability to emit greenhouse gases within that overall limit, thus establishing a price for each ton emitted.

Political constraints, however, have made carbon pricing a difficult proposition in the United States and elsewhere for policymakers seeking to set either carbon taxes or cap-and-trade limits at levels sufficient to have a meaningful impact on emissions.

Carbon taxes are a direct means of both reducing the use of fuels that emit greenhouse gases and raising revenues to ameliorate the impact on low-income households—through such measures as “carbon dividends”—and invest in such initiatives as clean energy and mass transit. But while the public is supportive of some versions of a carbon tax, voters have a history of rejecting them at the polls when given the chance, often due to significant opposition from the fossil fuel industry.

The use of revenues can affect a policy’s effectiveness and political feasibility. Dedicating some of or all revenues toward clean energy projects, research and development, and such infrastructure investments as smart grids and mass transit not only contributes to decarbonization but also increases public support. But the use of revenue to ameliorate the inequitable distribution of the costs and risks of climate change across households, firms, and regions can help address the issues of fairness and environmental justice.

This can be achieved by, say, rebating some revenues in the form of income tax cuts for low-income families or providing support for businesses or regions that are heavily energy-dependent, or even addressing other spending needs. These revenue uses are not mutually exclusive. A hybrid approach can balance competing imperatives.

The most significant political problem facing measures that raise the price of carbon to reduce its use is that the organized interests that face the concentrated costs imposed by those measures marshal resources to weaken or defeat them. Moreover, in countries with high economic inequality, such as the United States, carbon taxes can result in an unequal tax burden if they are not accompanied by complementary policies to assist low-income households. The societal benefits of reduced carbon emissions—the goal of these measures—are well-recognized by the public, but they also are diffuse and often delayed.

The political challenges facing carbon pricing policies lead to significantly weakened versions, but they also point to a broader approach. Public opinion research shows the highest support for indirect measures of establishing a price, such as clean energy standards and investments in energy research and development. Advocates for standards combined with investments in clean energy argue that these policies can more effectively achieve the desired, popular outcomes and that they are more politically achievable. Meanwhile, when regulations do not produce revenue, they leave less room to address the potential regressive impact of those measures through benefits for affected populations. Advocates argue that using revenues from the existing progressive tax system can help to assuage those concerns.

Addressing environmental justice also needs to be a key component of climate mitigation measures. Communities of color are burdened not only by their disproportionate proximity to sources of air and water pollution, but also by the disproportionate impact they experience from such climate change phenomena as natural disasters, increasing heat waves, and rising sea levels.

Solutions have the same potential. For instance, if polluting facilities located in these communities have the option of maintaining or even increasing emissions at those facilities by purchasing allowances or paying a tax, then communities could see their disproportionate exposure maintained or increased. Likewise, these communities can suffer the regressive effects of a carbon tax if revenues are not used to ameliorate the distributive impact. So, another question policymakers face is how mechanisms can be designed to support environmental justice.

Some states and countries have achieved significant results with pricing mechanisms

Policies to reduce carbon emissions typically show trade-offs among efficacy, economic cost-effectiveness, and political feasibility. While existing carbon pricing policies do reduce emissions, they often do so slowly because those policies rarely set a sufficiently high price. If they do impel polluters to reduce emissions, public backlash or interest group pressure might cause them to be weakened or repealed outright.

A number of other countries and U.S. states have established carbon pricing policies. Around 15 percent of global carbon emissions are subject to carbon pricing. The most significant example is the European Union Emissions Trading System, the world’s largest carbon pricing program, limiting carbon emissions from more than 11,000 power plants, industrial facilities, and other large emitters. Yet the EU’s significant success in reducing emissions to date might be more attributable to other policy measures, such as sectoral efficiency programs, clean energy targets, and direct subsidies for solar photovoltaics and other low-carbon energy sources on the one hand and research and development on the other.

California’s system is the most significant in the United States. Its emissions trading system caps around 85 percent of all greenhouse gasses generated in the state. Here, too, the cap-and-trade system is embedded in a comprehensive suite of other policies, including discrete sectoral strategies; direct subsidies for renewable energy, public transit and zero-emission vehicles; environmental restoration; and more sustainable agriculture. The carbon price established by the emissions trading system can play an effective supporting role. Recent legislation further weakened the system.

Another important U.S. pricing system is the Regional Greenhouse Gas Initiative, a partnership of 11 Northeast and mid-Atlantic states that regulates emissions from power plants under an emissions cap. While emissions have decreased since the program got under way in 2008, this is likely due to factors unrelated to the initiative, as the carbon price set under the agreement is far too low to have a significant impact. The revenue raised, in contrast, has been put to good use to subsidize the deployment of low-carbon technologies and energy efficiency measures.

Others have made progress toward reducing greenhouse gas emissions. In Washington state, improvements have come primarily through a series of sectoral measures such as clean energy and efficiency standards. Washington’s Clean Air Rule, issued in 2016 by Gov. Jay Inslee, effectively instituted a cap-and-trade system, but court challenges have prevented it from being fully implemented. In addition, 2016 and 2018 statewide ballot initiatives to impose a carbon tax were both defeated, in good part due to stiff opposition from the fossil fuel industry, though lukewarm support and outright skepticism from environmentalists also played a role.

Canada offers a wide variety of examples, as the national government set broad targets for carbon taxes but permitted provinces to establish their own policies, with a federal backstop available when they failed to follow through or to sustain a program. British Columbia has a particularly effective carbon tax, while Alberta tried several approaches, including establishing a carbon price, incentives for renewable energy, regulation of methane, and a phaseout of coal. But ultimately, the province repealed the measures it had taken and thus is now subject to the plan established at the national level.

Other countries have had mixed political results. Australia repealed a carbon tax in 2016, 2 years after it was approved. Sweden has had a carbon tax since 1991 that has significantly reduced emissions. Others, such as Norway, have similar explicit carbon taxes, while a French carbon tax law had been struck down by the highest court. China has also been experimenting with local and regional carbon pricing systems.

Setting the social cost of carbon

A critical issue in setting climate policy is the level of ambition. There, the social cost of carbon is an important yardstick. The United States measures the social cost of carbon based on the monetary damages linked to one ton of carbon dioxide emitted into the atmosphere. Importantly, calculating the social cost of carbon alone does not imply that carbon pricing is the only “correct” policy instrument, but the metric is an important yardstick. It is, thus, is a critical element informing regulatory decisions.

With the Biden administration preparing to seek significant climate-related legislation and advance an extensive regulatory agenda, an important first step was President Joe Biden’s Inauguration Day executive order that calls for restoration of the process for determining the official social cost of carbon. The Obama administration started this process, which was then significantly weakened during the Trump administration.

The Biden executive order reestablished the Interagency Working Group on the Social Cost of Greenhouse Gases, which is co-chaired by three White House agencies and includes a number of other agencies and departments throughout government. The panel will spend this coming year reviewing the latest evidence and scientific and economic thinking to produce a new calculation that forms the backbone of regulatory policy and actions going forward.

In the meantime, the group has reestablished, on an interim basis, the social cost of carbon of around $50 per ton, originally set in the Obama administration, reversing the Trump administration’s changes. This was, in fact, the first of eight recommendations that eight of us made to the Biden administration following an October 2020 workshop, which was part of the same series as the March 2020 convening.

Lessons and key recommendations

Carbon pricing is one of many necessary tools for designing effective and equitable climate policy. Others include establishing specific sectoral limits on emissions, investments in clean energy and emissions-reducing infrastructure, and measures to reduce the impact of pollution on disadvantaged and marginalized communities. Pricing policies such as carbon taxes or cap-and-trade systems might play an important role with these other measures in an overall system, but they cannot and should not stand on their own.

Centering the challenge of setting equitable climate policy on nonpricing policies can minimize the problem of front-loaded household and business costs overshadowing the benefits of emissions reductions. This policy approach can both reduce carbon emissions significantly and survive the political wars that are never-ending. The evidence of the climate crisis is well-established, and experience with the science, economics, and politics of potential solutions is expanding. Convenings such as this carbon pricing workshop can help bridge disciplinary silos on the one hand, and the gap between academia and political practice on the other.

Investing in an equitable future

Posted on April 14, 2021April 23, 2021 by Emilie Openchowski

The United States faces four converging and overlapping challenges—a public health crisis and resulting economic one, a reckoning over structural racism, and the worsening effects of climate change—all of which require substantially greater public investment to overcome. Indeed, a growing body of research finds that declining public investment is damaging to U.S. communities and the overall strength of the economy because older infrastructure depreciates, and economic and social challenges go unaddressed.

The debate over the size and reach of recently proposed investments to restore and transform the U.S. economy is shaped, in part, by the nation’s weak and unequal recovery from the Great Recession more than a decade ago. There is ample evidence that the inadequacy of the recovery legislation enacted in 2009 and in later years contributed to slow employment growth, stagnant wages, and the long-term scarring experienced by many workers during the 2010s despite record-long economic expansion, and that concerns about federal budget deficits and U.S. debt levels are overblown.

Having learned these lessons from the past recession, Congress, in March 2021, passed the $1.9 trillion American Rescue Plan Act, which provided targeted support to those hit hardest by the coronavirus recession. Legislators will soon begin working on the next relief package: the $2.3 trillion American Jobs Plan, which directs large, targeted investments to infrastructure and clean energy, and a third, soon-to-be-announced plan to support families. But already, there are voices in Congress and elsewhere claiming that these measures are too big and far-reaching, that the United States cannot afford these investments, and that they would inappropriately increase the size and scope of government.

To elevate research about the need for increased public investment, the Washington Center for Equitable Growth and the Groundwork Collaborative hosted a virtual event on April 6 titled “Investing in an equitable future.” The webinar, a relaunch of Equitable Growth’s Research on Tap series, featured Cecilia Rouse, the chair of the White House Council of Economic Advisers, who was interviewed by Washington Post reporter Tracy Jan, as well as a discussion on the need for structural changes among a panel of economic and social policy experts—Jhumpa Bhattacharya, vice president of programs and strategy at the Insight Center for Community Economic Development; Joelle Gamble, a special assistant to the president for economic policy on the White House National Economic Council; and Saule Omarova, a Cornell University law professor—that was moderated by Equitable Growth’s Policy Director Amanda Fischer.

The speakers explained that markets and the private sector are ill-equipped on their own to make the kind of investments needed to address long-term challenges and produce strong, broadly shared economic growth. They agreed that there were fundamental structural problems before the pandemic caused by massive income, wealth, and racial inequality, even if topline economic indicators, such as the overall employment numbers, suggested the U.S. economy was strong. The goal of policymakers, they said, should not be to return to the pre-pandemic economy but to build a stronger, more equitable future in which prosperity is broadly shared.

Genuine recovery means transformation, not a return to March 2020

For the short term, Rouse drew a contrast between recovering from the Great Recession and the coronavirus downturn. “The Great Recession was caused by a problem in our financial market,” she said. “It had a true economic cause … This recession was caused by a public health emergency … We had to basically power down the economy … This time, fundamentally we’ll be able to come back more quickly.”

She then pointed to the inequality in the economy that existed despite the fact that the economy was generally healthy before the pandemic. This “inequality baseline … was exacerbated by the pandemic … On many dimensions, this crisis … for many of us, was what I would call an inconvenience … and for others, it’s been completely devastating.”

As she explained, addressing this disparity is key to full economic recovery: “We recognize that there are those who have really been harmed by this pandemic, and we believe that you need some assistance,” she said. “We are committed to keeping in place some of that assistance for the lowest-wage workers, those who are the least advantaged in our society … Improving our safety net is one way in which we as a society will come out of this better.”

Moreover, she said, policies such as the American Jobs Plan are designed “to ensure that investments in infrastructure are widely shared.” The bulk of the jobs created, she said, will be for workers without a college degree, who are disproportionately workers of color. She said that there also needs to be a focus on providing training for workers who do not have the necessary skills.

“We can be investing in the workforce at the same time that we’re investing in our economy and in the economic infrastructure,” she said. “We want to try to have not just any old jobs through these investments but we’re looking for the high-value-added jobs, those jobs that actually will pay well, that provide better economic security for the workers.”

Rouse also called for the federal government to invest more in its statistical agencies in order to improve data collection. She emphasized the importance of being able to increase sample sizes in order to better understand the impact of economic trends and federal programs on people up and down the income ladder and across racial and ethnic groups, including Black Americans, Native Americans, and subgroups of Asian Americans.

Joelle Gamble made clear that there is still much work to be done to achieve economic recovery, despite some bright spots. “We are at an important inflection point,” she said, noting that the number of jobs in the U.S. economy is approximately 4 million below the high point prior to the pandemic, and dramatic disparities continue. There is significantly higher unemployment for people of color, and the wide gap between Black and White unemployment persists.

Pointing to numerous long-term structural problems in the U.S. economy, Gamble said, “We have to think broadly about what it means to actually have an economic recovery. It means we have to think broadly about what it means to invest in infrastructure, and broadly about what communities in which this country has perennially underinvested—people of color, women, tribal communities—need to be able to be a part of ongoing economic growth.”

She then asked, “Was February 2020 actually the baseline we want to get back to? Is that sufficient for saying we have an equitable economy and that we have an equitable recovery? I would say no. There’s been a disconnect for decades between wage growth and productivity growth.”

This recession has the added challenge of being, as Gamble termed it, “a female recession.” During the worst of the downturn, women’s labor force participation rate hit a 30-year low, in part because the jobs that were lost were disproportionately held by women, and many women were forced out of the labor market due to caregiving responsibilities.

She cited what she views as three lessons from the past economic recovery. First, there are significant risks from “going too small” in terms of a fiscal response by the federal government, including scarring effects on those who face prolonged unemployment. Second, equity in a recovery is not guaranteed, and if policymakers do not focus on it, the recovery can exacerbate inequality. This is one reason that there must be active investment in quality, good-paying, union jobs, as well as strong labor standards, including in sectors such as the care economy. Third, to improve U.S. competitiveness, there should be a focus on transformational infrastructure projects, as well as “shovel-ready” ones.

Saule Omarova emphasized the importance of not relying only on large one-time appropriations of federal funds. She said that investments and policies need to be ongoing, and they need to represent structural, institutional change. Amanda Fischer noted, as an example, that Equitable Growth has focused on the need to strengthen automatic stabilizers, such as Unemployment Insurance, to combat a recession by triggering significant increases when data indicate a recession has likely begun and establishing off-trigger mechanisms that ensure increases remain in place as long as they are needed.

Care work is infrastructure

Participants addressed the contention of some opponents of the American Jobs Plan that care work should not be included in the bill because, they claim, it is not “infrastructure,” as currently conceived. “I beg to differ,” Rouse said. “I can’t go to work if I don’t have someone who’s taking care of my parents or my children.” Moreover, she added, “That workforce, which is largely female and women of color, is really poorly paid.” Part of the care work funding, she said, seeks to ensure that they are paid better and have better-quality jobs.

Bhattacharya said that infrastructure is “the things that we need to uphold a healthy, sustainable society and economy … We have traditionally divorced care from the conversation about infrastructure and the conversation about public goods.”

Citing a forthcoming Insight Center report that calculates the rapidly rising costs of child care in California, she blamed costs on overreliance on the private sector. “Child care is enormously expensive,” she said, “because we have no public infrastructure to back it up.”

Bhattacharya contrasted workers with jobs that pay enough to afford these costs with those who do not. “If you’re working a minimum wage job or even a middle-wage job, it is really hard to show up at work and be present and do what you need to do constantly stressing about child care.”

She noted that these workers are disproportionately women of color. “When we’re talking about creating an equitable infrastructure, an equitable economy or society,” she added, “we have to bring care into the conversation and consider it a public good.” Bhattacharya also noted that care work has historically been devalued, largely because it has traditionally been performed by women and people of color. This work has always been underpaid, she added, due to the intersecting challenges of misogyny and structural racism.

Reforming the financial system to steer investments equitably

Omarova focused on the need for greater federal involvement in the financial system to ensure that the benefits of infrastructure and other investments are equitably distributed. “You cannot divorce … the structural imbalances in the financial system from the broad structural imbalances in the economy,” she said. “The two are just two sides of the same coin.”

“We really need to focus more specifically and concretely on how we can change the financial system,” she added, “because the financial system is that key link that connects the big plans President [Joe] Biden … puts out on the one hand and what actually will happen in the years to come. Will those people that we care about the most actually get the benefits of these great plans and great investments? What we need to focus on is the structure of the financial system, those channels that allocate capital to specific uses.”

Omarova described the financial system as a public-private structure, in which the private sector generally makes decisions about the uses of capital while the federal government is supposed to back it up, providing the regulation and discipline when markets need correction, as well as the broader infrastructure of society that enable the system to operate.

“That system was working okay until 40 to 50 years ago, when it started falling apart,” she said. Now, “Wall Street, the financial sector, is not really allocating financial flows … to productive economic enterprise. It doesn’t care all that much about what actual companies and the real economy are getting. Instead, they would rather channel incredible amounts of private capital into speculative trading.”

She continued, “The government, on the other hand, has been gradually and quite dramatically exiting from controlling the background economic conditions … And without that public perspective constantly guiding private markets … our government basically lost its institutional muscle as an economic actor, and now we’re living through the results of it, because private actors … don’t have that view of the economy as a whole … We need public actors … with long time horizons, focused on public benefits and public resources to … channel resources” into areas of public need, such as clean public transit, housing, and a clean environment, particularly in disadvantaged communities.

Gamble amplified this point, noting that public-sector investment complements private-sector investment. Rather than it “crowding out” the private sector, it can “de-risk opportunities” for critical investments by private funds, particularly those representing nonprofit institutions, such as pension funds and university endowments. The public and private sectors, she said, are both critical to U.S. competitiveness.

Omarova called for a National Infrastructure Authority to become part of a “three-legged stool” along with the Federal Reserve and the U.S. Department of the Treasury to manage the process of guiding capital to public purposes. The authority would “step into the financial markets … competing with those types of investors that channel capital away from disadvantaged communities, away from job creation in the United States, toward speculative investments … but do it in a thoughtful, and comprehensive, and programmatic way.”

Now is the time to go big

Bhattacharya perhaps best captured the spirit of the webinar. “Any economy that has such vast stratification of wealth and income … and race and gender is not a healthy economy,” she said. “This is a space where we can start talking about shared prosperity and design an economic structure that allows for shared prosperity … Dream big. Now is the time to do it. If we don’t, we’re just going to be in the same boat 5 years from now, 10 years from now.”

More than 200 scholars call on Congress to support ‘robust and sustained investment’

During the event, Fischer announced that more than 200 prominent U.S. scholars have signed a statement urging Congress to prioritize “robust and sustained investment in physical and care infrastructure along with science and technology” in the infrastructure legislation currently under debate. Emphasizing that “the private sector alone is not capable of making the large-scale investments needed to address the overlapping structural challenges facing the country,” they urged “a clear break from the recent history of declining public investment.”

In addition to the leaders of the effort—Hilary Hoynes of the University of California, Berkeley, Trevon Logan of The Ohio State University, Atif Mian of Princeton University, and William Spriggs of Howard University—the signers included former Federal Reserve Board Vice Chair Alan Blinder of Princeton University, former Secretary of Labor Robert Reich of the University of California, Berkeley, and former Chair of the Council of Economic Advisors and Director of the National Economic Council Laura Tyson of the University of California, Berkeley.

In Conversation with Mark Rank

Posted on April 14, 2021July 1, 2021 by Maria Monroe

Roads, bridges, bottles, and blocks: Rethinking infrastructure for the post-pandemic U.S. economy

Posted on April 12, 2021April 15, 2021 by Emilie Openchowski

When the COVID-19 pandemic eventually wanes and economic conditions improve, many Americans will be able to safely resume familiar activities that have been curtailed amid the health and economic crises. For many, particularly those who are unemployed, underemployed, or telecommuting, this will mean physically going back to a workplace. But after more than a year of layoffs, school and daycare closures, and new as well as preexisting caregiving responsibilities, many Americans do not have the support they need to return to work.

For one thing, not everyone is sharing in the recovery. While the aggregate data may indicate a strengthening economy, women’s labor force participation is at a 33-year low. Job losses among Black and Latina women—who comprise a significant portion of the care workforce—have been particularly stark. Meanwhile, caregiving concerns due to the pandemic continue to disproportionately keep women from work. (See Figure 1.)

Figure 1

Share of U.S. population 18-64 years old not working in the previous 7 days due to caregiving or their employer being affected by the coronavirus pandemic, by gender

Policymakers looking to jumpstart the U.S. economy are expressing renewed interest in the nation’s infrastructure because economic growth and infrastructure are inherently linked. Spending on infrastructure creates good-paying jobs for workers across the wage spectrum. Roads and bridges help employees travel safely to work and allow producers to ship their goods to customers. Electrical grids keep the lights on, and all the various tubes and servers that power the internet keep office workers connected.

To fully recover from the coronavirus pandemic and recession, however, Congress must also address the care economy in any forthcoming infrastructure legislation. Care infrastructure is just as important as physical infrastructure in boosting the U.S. economy and ensuring strong, stable, and broad-based growth. If there is no one to watch children or to care for a sick relative at home while parents are at work, then workers—especially women workers, who take on the majority of home caregiving responsibilities—will remain trapped in the work-life conflict that has come to exemplify the pandemic economy. Without infrastructure that covers the care economy, roads and bridges will remain unbuilt, workers will continue to be stretched too thin, and the recovery from the coronavirus recession will stall.

The American Rescue Plan makes an important down payment on the care infrastructure needed to reduce the spread of the coronavirus and right the economy. Flexible aid to child care providers will help stabilize a precarious market, and the extension of tax credits to cover COVID-related paid leave ensures that this critical public health tool remains accessible to participating businesses.

Even with the passage of this historic legislation, however, there are longstanding structural deficiencies in the nation’s care economy that require a longer-term fix. Fortunately, history and research tell us that investing in our care infrastructure is not only possible, but also has potential for economic benefits that will last for decades to come.

When care was infrastructure: World War II and the Lanham Act

Including “care” as a type of infrastructure may sound unusual to our modern ears, but it was a concept well-understood in the 1940s. Among women whose husbands were in the U.S. armed forces, labor force participation rates shot up from 15.6 percent in 1940 to 52.5 percent in 1944. In preparing the armed forces and production lines to respond to World War II, Congress also mobilized an army of caregivers to support this wartime realignment of the economy. With fathers off at war and mothers off to the factory line, child care became a matter of national importance.

The public response, according to historian William M. Tuttle Jr.’s review of 1940s child care policy, was a mix of moral panic and uncertainty in the country’s ability to meet this need. In response to these concerns, advocates and organizers engaged in practical, grassroots planning to address the child care crisis, including calls for a national nursery school system. In the following years, as Tuttle Jr. describes, the country embarked on a bold public and private expansion of care infrastructure to support mothers involved in the war effort.

In many respects, the child care system that emerged in the 1940s looked like the patchwork system of today. Most mothers relied on informal caregiving from family members, and private care centers opened across the country, often operated by firms engaged in wartime production seeking to attract new female workers. By 1942, the Children’s Bureau (now under the jurisdiction of the U.S. Department of Health and Human Services) began issuing local grants for Extended School Services, which used communities’ existing infrastructure to provide afternoon care for school-age children.

But the federal government’s boldest action—and the biggest departure from today’s child care system—was a short-lived experiment with universal, federally funded child care centers. Using funds from the Defense Housing and Community Facilities and Services Act of 1940—popularly known as the Lanham Act—the U.S. government funded care centers in more than 650 communities with defense industries across the country.

It is important to note that the Lanham Act was not designed as a child care bill. It was a public works initiative intended to help localities shore up the housing and infrastructure needs of communities engaged in the national defense. The federal government, however, understood that parents could not productively contribute to the war effort if they did not have someone to care for their children. Policymakers recognized that child care is as important as a roof overhead or a road connecting homes to factories and responded accordingly. Families were eligible to send their children to these Lanham Act centers, regardless of income, for a small fee. Adjusting for inflation, the cost to families was less than $11 per day.

Of course, not every child who needed care had access to a Lanham Act center, and centers were only available for a short time, from 1943 to 1946. When soldiers, sailors, and marines returned home from the war, many reclaimed their old jobs and women were pushed out of the workforce—and the perceived need for universal, accessible child care went with them. This perception would prove untrue in the ensuing decades, which were marked by rising labor force participation among women.

Despite the limitations of the program, however, a 2013 study identified both short- and long-term benefits. Using U.S. census data, Arizona State University researcher Chris Herbst found that communities with access to high levels of Lanham center funding were associated with greater labor force participation for women and improved education and employment outcomes for their children in the decades following the war.

The lessons from the U.S. wartime commitment to the care economy are threefold. First, it is politically and economically possible to develop a care infrastructure that supports capital infrastructure. Second, a solid care infrastructure supports short-term labor force gains and long-term human capital developments. And lastly, letting the care infrastructure fade with the crisis—as policymakers did at the end of World War II—only undoes these gains and ensures families remain trapped in a work-life conflict for decades longer than necessary.

Nearly 50 years after the end of the war, historian Tuttle Jr. closed his review of child care policy in the 1940s with this critique: “The tragedy of the Second World War experience is how little carry-over value it had in the decades since 1945, even in the face of the country’s mounting need for child care.”

Policymakers responding to the COVID-19 pandemic and recession have similarly demonstrated necessary support for the care economy and income-support programs in the midst of the crisis. Whether their support carries over to the post-pandemic economy will have important implications for the speed of the economic recovery, as well as the economic security of workers for years to come.

Building the infrastructure of an equitable post-pandemic U.S. economy

Cracks in the nation’s care infrastructure worsened the economic toll of the coronavirus pandemic and recession, particularly among women. More than 2.3 million women exited the labor force in 2020, and many who remained were less productive and overworked. Even as the economy continues to reopen, women are not rejoining the labor force at the same rate as their male counterparts. Among the civilian workforce, women’s labor force participation in February 2021 remains 3.7 percent below the pre-pandemic rate in February 2020, compared to a 2.8 percent decline for male workers. (See Figure 2.)

Figure 2

Percent change in labor force participation from 1 year ago, by gender, February 2020-February 2021

Research confirms what many families already know: Caregiving responsibilities are major contributors to women’s exit from the workforce. Though the American Rescue Plan makes a significant step toward improving and modernizing the nation’s care infrastructure, policymakers must do more to facilitate parents’ return to the workforce and to create a permanent network of care supports that help families manage work-life conflicts and prepare the next generation of workers. This means significant and creative investments in the child care marketplace and the long-overdue guarantee of paid family and medical leave for workers with their own health needs or caregiving responsibilities.

Such an investment in our nation’s care economy makes good economic sense. Indeed, investments in care can generate more economic activity and twice as many jobs as investments in physical infrastructure alone. Research shows that accessible and affordable child care can improve parents’ labor force participation. Similarly, the bulk of the research evidence suggests paid family and medical leave has positive effects on labor force participation and workers’ health and economic security. More parents and family members working means higher household incomes, increased consumer spending, and a larger tax base to help pay for these infrastructure investments.

Caregiving plays a significant role in the nation’s economy, as it did during World War II. At its core, the original Lanham Act was an infrastructure bill designed to improve the nation’s internal war-making capacity, but it had far-reaching effects that bolstered the country’s care infrastructure and supported the wartime effort by supporting working parents.

Currently, Congress and the White House are eyeing their own infrastructure package to guide spending for the post-pandemic economy. Infrastructure spending can be a valuable stabilizer for an economy in recession, but it should not be limited to roads and bridges. If child care and paid leave are not readily available when the pandemic subsides, then the U.S. economy could be constrained for years to come.

These policies comprise the infrastructure that supports the human capital powering the rest of our nation’s economic activities. Investing in care infrastructure will provide families and businesses with the tools needed to reduce the spread and impact of the coronavirus and emerge from the current recession to a more healthy, productive, and equitable economy.

Brad DeLong: Worthy reads on equitable growth, April 6-12 2021

Posted on April 12, 2021April 12, 2021 by Maria Monroe

Worthy reads from Equitable Growth:

1. This was an excellent hour-and-a-half event. These “Research on Tap” events have been some of the best that we have done here at Equitable Growth. And this, I think, was an especially good show. You will profit enormously from watching and listening to “Research on Tap: Investing in an Equitable Future.”

2. Very interesting evidence that those of us who have been seeing a low rather than a high multiplier as governing the effect of direct-transfer fiscal expansion this winter and spring are likely to be correct. Thus I now see it as more likely that fears of an explosion of inflation of any kind this year is simply whistling past the graveyard. Read Carmen Sanchez Cumming and Raksha Kopparam, “What the U.S. Census Household Pulse Survey reveals about the first year of the coronavirus recession, in six charts,” in which they write: “Eight months after the CARES Act was enacted, a second $600 Economic Impact Payment was sent to most U.S. households. By this time, multiple waves of coronavirus cases damaged employment opportunities and the general livelihood of many U.S. workers and their families. One of the results was more debt: Approximately 30 percent of adults reported having increased credit card debt, taking out loans, or asking for financial help from friends and family between June and December 2020. When the $600 stimulus payments arrived, households across all races and income groups—but especially Black, Latinx, and low-income households—used this money to begin paying off the debt they had accumulated rather than spending it on household expenses. The disparities in use of the two stimulus payments highlight the importance of providing timely relief.”

3. There was a substantial infrastructure gap before the coming of the Great Recession of 2007–2009. Since then, it has been an absolute disaster as far as public investment in America is concerned. And we are now greatly poorer for it. Read Equitable Growth, “More than 200 Economists to Congress: Seize “historic opportunity to make long-overdue public investments” to boost economic growth,” a statement from more than 200 economists, led by Hilary Hoynes, Trevon Logan, Atif Mian, and William Spriggs.

Worthy reads not from Equitable Growth:

1. Alexis de Tocqueville said that one of the things that made America great was that while people pursued self interest, they pursued self interest “rightly understood. The chairman and chief executive of JP Morgan Chase & Co., Jamie Dimon, argues that JP Morgan Chase should and does pursue shareholder value maximization “rightly understood.” Read his “Chairman & CEO Letter to Shareholders: Annual Report 2020,” in which he writes: “We should not be buttonholed by the debate about whether there are “fiduciary” reasons to think of “shareholder value” narrowly and to the exclusion of those who work at the company, our clients and communities … To a good company, its reputation is everything. That reputation is earned day in and day out with every interaction with customers and communities. This is not to say that companies (and people) do not make mistakes—of course they do. Often a reputation is earned by how you deal with those mistakes. While all businesses are different, there are some fundamentals … Banks, in particular, have to be rigorous about standards. Unlike many companies that will simply sell you a product if you can pay for it, banks must necessarily turn customers down or enforce rules that a customer may not like (for example, covenants). This makes open and transparent dealings even more important … We must always strive, particularly in tough times, to earn the trust of our customers and communities…. If you live in a small town and run a corner bakery, it is very easy to understand the value of being a responsible community citizen. Most businesses on “Main Street” keep the sidewalk in front of their store clean so people don’t slip and fall … A bakery or a restaurant will often donate surplus food at the end of the day to a local homeless shelter … Doing their part to make the community a better place is both the moral thing to do and a driver of better commercial outcomes for the town.”

2. History does not repeat, but it does rhyme. Bill Janeway attempts to drill down and draw the lessons for today from the fact that Roosevelt’s New Deal was so extraordinarily successful. Read Bill Janeway, “Lessons from the first New Deal for the Next One,” in which he writes: “FDR’s New Deal … was complicated and conflicted … Successive experiments … characterized the New Deal … [and] illustrate the conflicts—even contradictions—that … result from improvising policy responses to crisis … FDR’s New Deal encompassed three strategic missions: recovery … reform of particular aspects … and regime change in the fundamental structure of the American political economy … Today: The immediate strategic priority facing the Biden Administration embodies no conflict: to accelerate Recovery from the pandemic in order to Restore economic prosperity … Measures such as expanded child and earned income tax credits may be formally time limited, but they suggest this Administration knows how to exploit crisis for progressive ends, very much in the spirit of the second phase of FDR’s New Deal.”

3. The past year has been marked by both bold policy successes and extraordinary, horrible, and pitiful policy failures—one of which continues today with the failure of global coordination of vaccine production and distribution. History will, I think, judge—and not kindly. Read Monica de Bolle, Maurice Obstfeld, and Adam S. Posen, “Economic Policy for a Pandemic age,” in which they write: “A year ago, there were 132,492 confirmed cases of COVID-19 and 4,917 deaths worldwide … Now … The world lost 8.3 percent of a year’s combined income, with the distribution of economic losses mapping largely to where the infection was least controlled, and the poorest in each country suffering the most for the failures of the Group of Twenty (G20) governments … Cooperative forward-looking policy action will materially improve our chances of truly escaping today’s plague and making future plagues less costly … Nowhere are the policy implications of the pandemic age more evident than in the area of vaccine distribution … The comparatively good experience in East Asia and the Pacific shows what may be possible … Where the leaders failed even to attempt significant collective action, notably in vaccine production and distribution, lives and livelihoods were indeed unnecessarily lost. Agreements on transparent common standards of behavior, all governments pulling in the same direction or forswearing the same bad actions simultaneously, matter.”

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