Expert Focus: Supporting women’s labor force participation to boost U.S. economic growth and recovery

Posted on by Maria Monroe
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Equitable Growth is committed to building a community of scholars working to understand how inequality affects broadly shared growth and stability. To that end, we have created the monthly series, “Expert Focus.” This series highlights scholars in the Equitable Growth network and beyond who are at the frontier of social science research. We encourage you to learn more about both the researchers featured below and our broader network of experts.

This year’s Women’s History Month marks 1 year since many coronavirus lockdowns and stay-at-home policies were put in place across the United States. Amid the pandemic, women are experiencing higher rates of unemployment and are taking on more home responsibilities and heavier child care burdens than men. Working mothers also suffer from higher levels of stress and depressive symptoms as a result of the pandemic, particularly those facing income losses due to involuntary unemployment. The reality of the disproportionate impact of COVID-19 on women workers, and especially women workers of color, makes more glaring the gender disparities that were already rampant across the U.S. labor force prior to the coronavirus recession. Even though women are a critical driver of economic growth, U.S. women workers are paid less than their male counterparts, face motherhood penalties, are often pushed into low-wage jobs and industries, and bear the brunt of unpaid household labor.

This installment of Expert Focus highlights research and scholars examining women in the U.S. labor force and issues that inhibit their labor force participation, as well as those performing intersectional analyses and promoting ideas that target women in order to boost economic growth for all U.S. workers and their families. This research will be all the more important in the months and years to come, as policymakers navigate the recovery from the coronavirus recession—also known as the “shecession”—and women work to get back some of the hard-fought labor market gains that were lost over the past year.

Janet Currie

Princeton University

Janet Currie is the Henry Putnam professor of economics and public affairs at Princeton University, the co-director of Princeton’s Center for Health and Well-Being, and a former member of the Washington Center for Equitable Growth’s Steering Committee. Currie also co-directs the Program on Families and Children at the National Bureau of Economic Research. She is well-known for her work on child health and well-being, including research on the long-term positive effects of high-quality child care and early education and on the impact of prenatal healthcare on human capital development. She was an author of the National Academy of Science’s “A Roadmap to Reducing Child Poverty,” which shaped the design of the new child allowance included in the American Rescue Plan. Currie’s research on early childhood programs, and particularly their impact on children from disadvantaged households, continues to improve economists’ understanding of early childhood’s impact on the broader economy and on health and economic outcomes in adulthood. These programs also often increase women’s labor force participation, easing new parents’ return to work after the birth or adoption of a child.

Quote from Janet Currie on early childhood education

Claudia Goldin

Harvard University

Claudia Goldin is the Henry Lee professor of economics at Harvard University and the co-director of the National Bureau of Economic Research’s Gender in the Economy Study Group. She is best known for her work on women’s roles in the U.S. economy and their labor force participation, income inequality, and the gender pay gap. Goldin’s research covering more than 100 years of economic history highlights how women have been major players in the U.S. economy since the late 1800s and how their participation in the labor force changed over the years in response to various societal trends and influences. Through her historical studies tracking women’s evolving economic roles, she has shown how earnings differences by gender are not largely due to productivity or educational differences between men and women, but rather are a reflection of the high costs of workplace flexibility and work-family balance for working parents, particularly mothers. Her recently completed book, Career & Family: Women’s Century-Long Journey toward Equity, will be published by Princeton University Press in fall 2021.

Quote from Claudia Goldin on women in the economy

Janelle Jones

U.S. Department of Labor

Janelle Jones is the chief economist at the U.S. Department of Labor, the first Black woman to hold that position. She is a labor economist and well-known for her work on racial inequality, unemployment, unions, and intersectional structural barriers to economic and labor force participation. In 2020, along with Grace Western and Kendra Bozarth, Jones authored an issue brief advocating for policies that center Black women in U.S. policymaking and politics. This “Black Women Best” approach not only works to dismantle systematic racism and sexism that is built into U.S. institutions, but also boosts the economy more broadly and ensures widespread prosperity and growth. Prior to joining the Biden administration, she spent more than a decade researching racial disparities in the labor market. In 2015, Jones was awarded an Equitable Growth doctoral grant for her research into intergenerational wealth transfers and racial wealth divides.

Quote from Janelle Jones and co-authors on systemic exclusions and building back better

Kristen Harknett

University of California, San Francisco

Kristen Harknett is an associate professor of sociology at the University of California, San Francisco. Her research interests lie in schedule stability, worker health and well-being, and job quality. Together with sociologist Daniel Schneider, Harknett built what is now one of the largest sources of data on work scheduling, household economic security, and the health and well-being of hourly workers and their families, with reports from more than 84,000 workers around the country. This work reveals the health and well-being consequences of so-called precarious work—which typically includes jobs with low and/or stagnant wages and schedule instability and uncertainty—for workers and their families, from psychological distress to poor sleep quality and unhappiness. In 2015, Harknett and Schneider received an Equitable Growth grant to study the relationship between rising economic inequality and family insecurity.

Daniel Schneider

Harvard University

Daniel Schneider is a professor of public policy at Harvard University’s Kennedy School of Government and co-director, with Kristen Harknett, of The Shift Project at Harvard, studying scheduling practices and worker well-being in the retail and service industry. Though his work with Harknett does not focus exclusively on women, these low-wage, highly unstable jobs tend to be filled by women and workers of color thanks, in part, to occupational segregation. Schneider and Harknett’s work is particularly important today amid the coronavirus recession, when many low-wage occupations face increased health risks due to the pandemic. Schneider and Harknett—both vocal advocates for these workers during the coronavirus outbreak—are urging policymakers and employers to address various aspects of precarious work—from access to and awareness of  paid family and medical leave and personal protective equipment to more predictable scheduling—in order to provide better conditions and protections for these front-line workers.

Quote from Daniel Schneider and Kristen Harknett on shift workers and racial disparities

Linh Tô

Boston University

Linh Tô is an assistant professor of economics at Boston University. Her research focus is on labor, public, and behavioral economics, often using quasi-experimental methods and administrative datasets, as well as experimental methods, to understand labor market outcomes and decisions, with a focus on the economics of gender. In 2017, she was awarded an Equitable Growth doctoral grant for her research on the impact of childbirth and parental leave policies on job match quality and the gender wage gap. Tô’s research on paid parental leave highlights the importance of paid leave for working mothers’ labor force participation, leave-taking, and earnings differentials upon their return to work, as well as the design of paid leave programs, particularly considering the growing gender disparities in the workforce and in labor force participation amid the coronavirus recession.

Quote from Linh To on paid leave benefits

Equitable Growth is building a network of experts across disciplines and at various stages in their career who can exchange ideas and ensure that research on inequality and broadly shared growth is relevant, accessible, and informative to both the policymaking process and future research agendas. Explore the ways you can connect with our network or take advantage of the support we offer here.

Brad DeLong: Worthy reads on equitable growth, March 23-29, 2021

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

1. This is truly excellent. Brand new from Daniel Reck, Max Risch, & Gabriel Zucman, “Tax evasion at the top of the U.S. income distribution & how to fight it,” in which they write: “How much taxes do high-income Americans evade? And what kinds of evasion tactics do they use? … In collaboration with researchers at the U.S. Internal Revenue Service, we show that American taxpayers with incomes in the top 1 percent are much more sophisticated than the other 99 percent at tax evasion. As a result, conventional estimates significantly underestimate the income and taxes evaded by the rich. Our findings point to several key steps that policymakers could take to combat widespread tax evasion by the very top income earners in the United States. First and foremost is the need for greater fiscal support for the IRS. Second, the IRS and Congress can target the ways in which the rich hide their incomes and obscure their actual tax obligations via so-called pass-through businesses and hidden offshore accounts.”

2. How should U.S. economic policy be shaped over the next 4 to 8 years for equitable growth and inclusive prosperity? The Washington Center for Equitable Growth is re-launching our research happy-hour conversations. I always found this to be an extremely excellent series. And it looks like the relaunch will be definitely up to par. Here are the details: “Research on Tap: Investing in an Equitable Future: April 6, 2021, 3:00 – 4:30 p.m. EDT: Join the Washington Center for Equitable Growth and the Groundwork Collaborative for the relaunch of our popular event series Research on Tap, a space for drinks, dialogue, and debate. In this installment, we’ll discuss the role of increasing investments and revenues to address the underlying structural inequalities laid bare by the coronavirus recession and advance a sustained economic recovery that puts the United States on a path to strong, stable, and broadly shared growth … Featuring a fireside Firechat with Cecilia E. Rouse.” 

3. Read this press release, “Equitable Growth Responds to Passage of American Rescue Plan,” which reads in part; “Biden yesterday signed the American Rescue Plan, which provides $1.9 trillion in critical public health investments to fight COVID–19, support struggling families, and grant aid to states, localities, tribes, and territories. The Washington Center for Equitable Growth commends Congress and the president for passing a federal rescue package that meets the scale of the problem and for taking steps to put our nation on a path to recovery that is strong, stable, and broadly shared. In particular, the plan provides a third round of critical relief checks in response to the coronavirus recession and extends enhanced Unemployment Insurance, ensuring workers who have lost their jobs or had their hours cut will continue receiving the supplemental $300 per week through September 6. Research supported by Equitable Growth shows that robust UI benefits and direct stimulus, scaled to meet economic needs, can help mitigate hardship for individuals and families while also boosting the wider economy, preventing a more severe downturn. Also notable is the law’s commitment to invest so that our nation emerges from the coronavirus recession stronger, more resilient, and more equitable. Key investments include: Nearly $100 billion to combat the public health crisis … $350 billion in funding for state and local governments … More than $100 billion to expand and improve the Child Tax Credit and Earned Income Tax Credit … $130 billion to help schools reopen safely and $45 billion for child care relief … $12 billion for nutritional assistance … But while the investments made in the American Rescue Plan are at an appropriate scale given current conditions, a growing body of research highlights the ongoing structural reforms that are necessary to address the underlying racial, climate, and economic crises laid all the more bare by the coronavirus pandemic.”

Worthy reads not from Equitable Growth:

1. The useful part of macroeconomic theory have always been very, very small. The fact that we now recognize that is progress, of a sort. Read Noah Smith, “The Return of the Macro Wars,” in which he writes: “Everyone quietly stopped believing in the usefulness of academic macro theory. Macro profs are still out there doing their jobs … With folks like Emi Nakamura, Jon Steinsson, Yuriy Gorodnichenko, and Ivan Werning on the job, the field of macro theory is chock full of top talent … But … macro theory is just really, really hard …. The financial crisis and the Great Recession really exposed the fact that macro theory wasn’t ready for prime time. When I gave a talk at the bank of England in 2013, the central bankers there lamented how little usable insight and advice their complex academia-derived models had offered in a crunch … Macro theory is going to remain confined to the ivory tower for a while. In the meantime … heuristics, rules of thumb, and simple calculations … are the order of the day.”

2. No, the United States is not yet close to exceeding its debt capacity. And refusing to run up the national debt to finance the war against global warming carries with it much, much greater risks than does doing so. Read Peter Orszag, “Joe Biden’s climate bill deserves bold fiscal support,” in which he writes: ‘Finally, and perhaps most crucially, the nature of the underlying risks is fundamentally different … Government policy alone is clearly insufficient to bend down the carbon emissions curve. Innovation and changes in business and private activity must do a lot of the work. Yet if we are to have any chance of meeting the 2050 goal of net zero emissions, we can’t afford to miss this moment on the policy front. Climate change is irreversible; the world will never be the same. But fiscal risk is not and, if a fiscal crisis were to arise, we would still have options available. Over the next few months, the US is going to choose between these two. In this unusual moment, the priority should be protecting the globe rather than the budget.”

3. Dani Rodrik tries to make peace among and find common ground for economists, sociologists, ethnographers, and so forth. I agree with Dani that an exclusive focus on “internal validity” does not get us nearly took where we need to be. But I have a different view of where the low-hanging fruit is. I think it lives in using reduced forms and correlations to constrain. I think it lives in using reduced forms and correlations to constrain our set of possible scenarios about how the world might be. We need to recognize more that even where we cannot conclusively fix either a supply or demand curve we can say intelligent things about how the data correlations constrain their possible positions. Read Dani Rodrik, “How Economists and Non-Economists Can Get Along,” in which he writes: “Other sleights of hand … cause economists problems … “identification”… that answer[s] either a narrower or a somewhat different version of the question … randomized social experiments … may not apply to other regions or countries … variation across space may not yield the correct answer to a question that is essentially about changes over time … Economists’ research can rarely substitute for more complete works of synthesis … Judgment necessarily plays a larger role … which in turn leaves greater room for dispute … Nevertheless, such work is essential. Economists would not even know where to start without the work of historians, ethnographers, and other social scientists who provide rich narratives of phenomena and hypothesize about possible causes, but do not claim causal certainty.”

4. This is a remarkably superb piece of work. And a great deal of it comes as a considerable surprise to me. Why is labor-side hysteresis not a bigger thing? How do I reconcile the fact that productivity-side hysteresis is a very big thing with what I think I know about technological progress during the boom of the 1930s? Big questions that I need to grapple with. Read Òscar Jordà, Sanjay R. Singh,  and Alan M. Taylor, “The Long-Run Effects of Monetary Policy,” in which they write: “Does monetary policy have persistent effects on the productive capacity of the economy? Yes, we find that such effects are economically and statistically significant and last for over a decade based on: (1) identification of exogenous monetary policy fluctuations using the trilemma of international finance; (2) merged data from two new international historical cross-country databases reaching back to the nineteenth century; and (3) econometric methods robust to long-horizon inconsistent estimates. Notably, the capital stock and total factor productivity (TFP) exhibit strong hysteresis, whereas labor does not; and money is non-neutral for a much longer period of time than is customarily assumed. We show that a New Keynesian model with endogenous TFP growth can reconcile these empirical findings.”


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Weekend reading: Addressing income inequality to spur economic growth edition

Posted on by Maria Monroe

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

Equitable Growth round-up

The American Rescue Plan features a variety of much-needed supports for American workers and their families to navigate the coronavirus recession and boost the economy to ensure broad-based recovery. One such support program is the expanded Child Tax Credit. Liz Hipple explains the changes made to the child allowance and how they will help more households. She then offers evidence and data from research on how other income support programs, such as the Supplemental Nutrition Assistance Program and the Earned Income Tax Credit, boost individual families’ well-being, as well as the overall economy. These income support programs work to reduce income inequality by supplementing families’ bottom lines so they can invest some of their household budget in their children’s human capital development. This not only helps families and children directly receiving these benefits, Hipple writes, but also ends up paying economywide dividends in the future as these children have greater educational achievement, are more productive and healthier workers, and earn higher wages—thus paying more in taxes. Hipple concludes by urging Congress to make these CTC extensions permanent in order to ensure both short-term and long-lasting economic boons.

As news reports reveal the astonishing levels of wealth accumulated by billionaires during the coronavirus recession—steadily widening the income inequality that was already rampant in the U.S. economy—Daniel Reck, Max Risch, and Gabriel Zucman and their co-authors study the tax evasion tactics of the richest Americans. They find that the top 1 percent of income earners is much more sophisticated than the other 99 percent at tax evasion, and thus that conventional estimates seriously underestimate the level of tax evasion by the wealthy. Their study also reveals the main strategies the rich use to obscure and hide their income, including pass-through businesses and offshore bank accounts. The authors argue that policymakers can fight widespread tax evasion by both addressing these tactics in particular and also by increasing the funding available to the IRS to make tax enforcement more efficient and effective. These actions, the co-authors estimate, could yield $175 billion in currently uncollected taxes per year—more than enough to make permanent and expand further the child allowance extensions in the American Rescue Plan that Liz Hipple writes about.

Another way to address income inequality in the United States is to revamp pay-setting processes across the U.S. economy. In a new installment of Equitable Growth in Conversation, Kate Bahn talks to professor of sociology Jake Rosenfeld about what determines workers’ pay, how that impacts economic inequality, and policies that can support U.S. workers and decrease income disparities. They also touch upon the role of worker power and unions in the pay-setting process and how our traditional understanding of the determinants of salaries is misguided. They close their conversation with a discussion of the importance of interdisciplinary research on advancing our understanding of these dynamics and challenges.

Brad DeLong’s latest Worthy Reads column highlights recent must-read content from Equitable Growth and across the internet.

Links from around the web

Improving the U.S. child care industry is essential to the economic recovery from the coronavirus pandemic—and this is no small task as there are many issues involved. The Lily’s Anne Branigin details how high-quality child care has long been unaffordable or inaccessible to many U.S. families, while emphasizing the role of child care as a behind-the-scenes support for the whole economy, making it possible for parents to hold jobs and be productive. At the same time, child care workers are often low-wage employees who do not receive benefits such as access to health insurance or retirement plans. These dynamics only worsened amid the pandemic, Branigin continues. Many mothers and fathers (though more often mothers) were forced to leave the labor force in order to care for their children as schools and daycare centers closed or went virtual. And child care providers struggled to stay open and implement health standards—not to mention keep their workers safe. The industry received some emergency funding in the American Rescue Plan, but advocates argue it is not nearly enough to truly make headway on these challenges. Rather, they say, addressing the child care crisis ought to be treated the same way policymakers treat shoring up physical infrastructure in the United States—meaning major government investments will be necessary.

Though topline numbers clearly show how large—and growing—the disparities are between Black and White families’ wealth and income in the United States, these numbers have other, less-discussed consequences. Lynnette Khalfani-Cox writes for Vox that those Black households able to achieve a certain level of wealth face higher barriers than White households to growing that wealth. Longstanding discrimination limited Black families’ reliance on social safety net programs and access to wealth-building opportunities. And systemic inequality inhibited Black intergenerational mobility such that better-off Black families frequently relied on financial support from other family members who have not reached the same standard of living or have high levels of debt. This so-called Black tax—“the obligations of first-in-the-family college graduates, professionals, or others who ‘make it’ to assist their family members,” explains Khalfani-Cox—has implications on economic mobility and opportunity. The Black tax reduces overall wealth among Black families and their ability to save, invest, and grow their money, undoubtedly contributing to racial wealth disparities in the United States both now and in the future.  

Friday figure

Number of tax filers where auditors do and do not detect that foreign bank account reports, or FBAR, are required, for first-time filers and among offshore voluntary disclosure program participants, or OVDP

Figure is from Equitable Growth’s “Tax evasion at the top of the U.S. income distribution and how to fight it,” by Daniel Reck, Max Risch, and Gabriel Zucman.

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

Posted on by Emilie Openchowski
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One feature of the newly enacted American Rescue Plan that got less attention in the lead up to its passage than the more headline-grabbing $1,400 economic impact payments are the reforms to the Child Tax Credit. The legislation dramatically expands and improves the CTC, making it fully refundable and increasing its value to as much as $300 per child per month. The changes, particularly if they are made permanent, will be some of the most profound changes made to the social safety net in decades, with far-reaching positive effects not only for individual families but also overall economic mobility and growth.

Not only will families benefit from this money in the short term as they navigate the coronavirus recession and recovery, but all of society will also reap the economywide benefits the child allowance will bring in the future. It will dramatically reduce childhood poverty and improve children’s chances of upward intergenerational mobility, increasing both their future earnings and the corresponding tax revenue that will be collected on it. Economists, other social scientists, and policymakers alike already know from research into other, similar income support programs, such as the Earned Income Tax Credit and the Supplemental Nutrition Assistance Program, that increasing the economic resources that families have helps them make investments in their children’s human capital development, which, in turn, improves children’s school performance and completion and boosts their future earnings.

A 2018 study finds that an extra $1,000 in the Earned Income Tax Credit increases the probabilities of children graduating high school by 1.3 percent, completing college by 4.2 percent, and being employed as a young adult by 1 percent, and grows their earnings by 2.2 percent. Other recent research finds that a $1,000 tax credit increases children’s math and reading scores by 6 percent to 9 percent of a standard deviation. These are just two examples of the extensive body of research into the positive effects of the EITC on children’s human capital, with future benefits of higher earnings accruing both to the beneficiaries, as well as the wider economy in the form of increased tax revenue on those higher earnings.

Research on the Supplemental Nutrition Assistance Program likewise shows that more money for families leads to better long-term outcomes both for children, as well as society as a whole. One study on the expansion of the food stamps program, now known as SNAP, finds the children whose families receive income support from the program grow up to lead healthier, more productive lives. And new, cutting-edge research by Martha Bailey at the University of California, Los Angeles, Hilary Hoynes at UC Berkeley, Maya Rossin-Slater at Stanford University, and Reed Walker at UC Berkeley finds that “children with access to greater economic resources before age five experience an increase of 6 percent of a standard deviation in their adult human capital, 3 percent of a standard deviation in their adult economic self-sufficiency, 8 percent of a standard deviation in the quality of their adult neighborhoods, 0.4 percentage-point increase in longevity, and a 0.5 percentage-point decrease in likelihood of being incarcerated.”

These long-term improvements in individuals’ human capital and well-being demonstrate that not only do families benefit in the immediate term from being able to afford the food they need to survive, and children personally grow up to lead healthier and more productive lives, but the entire economy also benefits from having fewer people incarcerated or receiving income support later on and having more people working for higher wages and correspondingly paying more taxes. It is because of these positive, long-term economic benefits that the Bailey and her co-authors note that public investments in income support programs such as SNAP actually could be seen as paying for themselves in the long run.

These studies also show why concerns being raised about the employment effects of a child allowance that is not conditioned on parents’ engagement with the labor market are not only misplaced but short-sighted. First, such concerns ignore research from other countries such as Canada that have child allowances and have not seen work effects as a result of the policy.

Second, the research findings noted above on the positive effects of income support programs on children’s future employment and earnings demonstrate that any concerns about work effects in the present must be weighed against positive work effects in the future. The short-sighted focus solely on the present-day effects of providing income supports to families ignores the extensive body of research that finds that when families have more money to support their children in the present, those children grow up to be healthier, more productive, and earn more money, with spillover benefits for the entire economy.

Research into positive, long-term benefits of the Earned Income Tax Credit and the Supplemental Nutrition Assistance Program is directly translatable to the benefits we can expect to see from the new child allowance. Economic research clearly demonstrates that an investment in families today is an investment in their future economic mobility, as well as in broad-based, stable economic growth. Making the newly enacted child allowance permanent will pay dividends for all Americans far into the future.

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Tax evasion at the top of the U.S. income distribution and how to fight it

Posted on by Maria Monroe
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Effective tax enforcement at the very top of the U.S. income distribution requires a more comprehensive approach.

How much taxes do high-income Americans evade? And what kinds of evasion tactics do they use? These questions are important for tax enforcement policies and the measurement of income inequality in the United States. Answering them can improve tax enforcement policy and the fairness of federal fiscal policies more broadly, a key priority as policymakers attempt to build a more equitable economy in the wake of the coronavirus pandemic.

In a new study conducted in collaboration with researchers at the U.S. Internal Revenue Service, we show that American taxpayers with incomes in the top 1 percent are much more sophisticated than the other 99 percent at tax evasion. As a result, conventional estimates significantly underestimate the income and taxes evaded by the rich.1

Our findings point to several key steps that policymakers could take to combat widespread tax evasion by the very top income earners in the United States. First and foremost is the need for greater fiscal support for the IRS. Second, the IRS and Congress can target the ways in which the rich hide their incomes and obscure their actual tax obligations via so-called pass-through businesses and hidden offshore accounts.

Random audits and the tax gap

The IRS estimates that about 16 percent of all federal taxes go unpaid. A 16 percent tax gap means that $1 out of every $6 of taxes that should legally be paid is not paid. The IRS estimates that about 60 percent of the tax gap comes from underreporting of income on individuals’ tax returns. Conventionally, researchers at the agency and academics estimate this part of the tax gap with data from random audits. Most IRS audits are, of course, not random. The IRS generally prioritizes tax returns that it expects, based on a variety of factors, to be noncompliant. But to estimate the size of tax evasion and study its nature, the IRS also audits a number of returns randomly.

Our research shows that random audits may paint an accurate picture of the tax gap for 99 percent of taxpayers, but not for the top 1 percent. According to random audit data, all groups of the population underreport about 4 percent to 5 percent of their income on average. The only exception is the very top of the income distribution. Within the top 0.1 percent—taxpayers with income of more than $1.7 million—detected tax evasion falls to extremely low levels.

Interpreted naively, these data suggest that high-income people evade little when paying taxes. But substantial evidence from other sources of data, and many headlines that readers might recall, suggest that high-income tax evasion is far from minimal. Our new research provides concrete evidence that at least two types of tax evasion are quantitatively significant at the top of the U.S. income distribution and typically not detected through random audits.

What random audits miss

One type of tax evasion missed by random audits involves concealed offshore wealth.

Starting in 2008 and culminating in the Foreign Accounts Tax Compliance Act of 2010, the IRS conducted an ambitious initiative to crack down on offshore tax evasion. As documented in a prior study, this initiative led tens of thousands of U.S. taxpayers to disclose previously hidden offshore assets, such as bank accounts in Switzerland, either in the context of the IRS “Offshore Voluntary Disclosure Program” or by wealthy U.S. individuals filing Foreign Bank Account Reports for the first time around the time of the crackdown in 2009–2011.

Among these taxpayers, hundreds had been randomly audited in the years immediately preceding their disclosure of unreported offshore assets. These individuals’ offshore tax evasion had not been detected in random audits, however, because even excellent auditors have difficulty detecting hidden offshore wealth. Moreover,offshore tax evasion is extremely concentrated at the top of the U.S. income distribution. Less than 1 in 1,000 individuals in the bottom 99 percent of the income distribution appear on our lists of taxpayers disclosing an offshore account following the crackdown. In contrast,about 1 in 15 people in the top 0.01 percent appear on these lists—lists that, according to the prior study, probably only capture 10 percent to 15 percent of all offshore evasion. (See Figure 1.)

Figure 1

Number of tax filers where auditors do and do not detect that foreign bank account reports, or FBAR, are required, for first-time filers and among offshore voluntary disclosure program participants, or OVDP

Another source of tax evasion missed by random audits involves so-called pass-through business income.

Pass-through businesses (partnerships and S-corporations under the U.S. tax code) do not remit their own income taxes but rather this income “passes through” to their owners for tax purposes. Pass-through business income is highly concentrated at the top of the income distribution. Partnerships in particular can be highly complex because the owners of partnerships can be other pass-through businesses. And when an auditor encounters pass-through income during an individual random audit, we observe that they only proceed to audit the pass-through businesses themselves in less than 5 percent of cases. Consequently, random audits uncover very little pass-through business tax evasion, even though the complexity of these businesses can facilitate substantial evasion.

Our research shows that correcting, conservatively, for these two forms of undetected sophisticated tax evasion significantly changes the picture of tax evasion at the top of the income distribution painted by random audit data. Accounting for sophisticated tax evasion approximately doubles the tax gap for the top 0.1 percent of the U.S. income distribution, compared to conventional estimates. Additionally, accounting for underreported income increases estimates of the share of all income received by the top 1 percent by about 1.5 percentage points, which highlights the value of our findings for the measurement of inequality with data from tax returns.

Why is sophisticated tax evasion so concentrated at the top? In our working paper, we propose a new theoretical explanation based on three ideas. First, the concealment of tax evasion from auditors is costly, requiring substantial financial sophistication. Second, high-income people can save huge amounts of tax with little risk by adopting sophisticated strategies, which makes it worth the cost. Third, audit rates are relatively high at the very top of the income distribution, so if the audits are not thorough enough to correct sophisticated evasion, then frequent audits themselves incentivize the concealment of tax evasion.  

Policy implications

Our results are important for the effective enforcement of tax evasion among very high-income Americans. First, existing statistics on total tax evasion at the very top of the U.S. income distribution are substantially underestimated. Second, the sophistication of top-end tax evasion suggests that increasing audit rates of high-income individuals alone may limit our progress.

Effective tax enforcement at the very top of the U.S. income distribution requires a more comprehensive approach. Strategies that would improve enforcement of tax evasion include:

The IRS already invests in many of these enforcement strategies, but budget cuts have severely curtailed the agency’s ability to conduct them efficiently and effectively.

We conservatively estimate that increased enforcement to close the income tax gap for the top 1 percent could yield $175 billion in currently uncollected income tax revenue per year. To put that in perspective, this would be enough revenue to make permanent the $3,000 to $3,600 annual child allowance in the American Rescue Plan and then make it about 50 percent more generous. Even modest success at enforcing taxes on the richest Americans could dramatically improve the fairness and progressivity of our tax system.

—Daniel Reck is an economist at the London School of Economics. Max Risch is an economist at the Carnegie Mellon University Tepper School of Business. Gabriel Zucman is an economist at the University of California, Berkeley.

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Brad DeLong: Worthy reads on equitable growth, March 16-22, 2021

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

1. This is very well done by Joanna Venator. Solid evidence that migration benefits men’s access to material resources and within-the-household status more than it benefits women. If I were at the U.S. Department of Labor department right now, I would be thinking about job-search assistance for “trailing” spouses as one place where the fruit is very low-hanging and where the potential benefit-cost ratio is very, very high. Read Joanna Venator, “Dual-Earner Migration Decisions, Earnings, & Unemployment Insurance,” in which she writes: “Access to unemployment insurance for trailing spouses increases long-distance migration rates by 1.9–2.3 percentage points (38-to-46 percent) for married couples … Women are the primary beneficiaries of this policy, with higher UI uptake following a move and higher annual earnings of $4,500 to $12,000 three years post-move … [My] structural model of dual-earner couples’ migration decisions … increasing the likelihood of joint distant offers substantively increases migration rates, increases women’s post-move employment rates, and improves both men and women’s earnings growth at the time of a move. However, unconditional subsidies for migration that are not linked to having an offer in hand at the time of the move reduce post-move earnings for both men and women, with stronger effects for women.”

2. It is time to re-up this from a year and a half ago. Read Equitable Growth”s “Nobel laureates, former Fed Chair, two former CEA chairs endorse the Measuring Real Income Growth Act of 2019,” which reads: “Robert Solow and Joseph Stiglitz, former chair of the Federal Reserve Janet Yellen, and former chairs of the Council of Economic Advisers Jason Furman and Laura Tyson, endorsed the Measuring Real Income Growth Act of 2019, which was reintroduced in the U.S. Senate today by Senator Chuck Schumer (D-NY) and Senator Martin Heinrich (D-NM) … The Measuring Real Income Growth Act would add a distributional component to the National Income and Product Accounts, breaking out income growth into deciles of income and allowing us policymakers and the American people see who prospers when the U.S. economy grows.”

Worthy reads not from Equitable Growth:

1. The intellectual panoply the social sciences currently possess is, unfortunately, much better tuned to analyzing the societies of western Europe between 1900 and 1950 than in analyzing any significant chunk of the world today. We academics need to figure out which political economy and social theory authors and schools will be most insightful as tools for understanding the world of 2045. And we then need to figure out how to best teach those authors and schools. Read my “What Are We Doing When We Teach “Political Economy,” in which I write: “We have … more technological and organizational change in the world economy now in every two years than we had in any century back before 1500 … Political economy is thus social theory in the age of this extraordinary transformation of technology, understood as human powers to transform nature—not always in a good way—and to organize humans—not always in a good way at all … [and] not that economists or political scientists have any special expertise in figuring out what the appropriate social theory for this age of extraordinary transformation of technology is … The economy is changing and changing so rapidly and those changes ramify so far that they pretty much have to be at the core of whatever analysis you might undertake. Now: rubber, meet road: What should we teach?”

2. Figuring out how to do antitrust in the age of the attention economy is really, really hard. Read Ben Thompson, “The FTC’s Google Documents, the Staff Memo, the Economists Memo,” in which he writes: “The fundamental premise of the Politico article, along with much of the antitrust chatter in Washington, misses the point: Google is dominant because consumers like it. That doesn’t mean the company didn’t act anticompetitively, or that we shouldn’t think seriously about acquisitions or contracts or advertising. Such thinking, though, has to start with a certain degree of humility about the fundamentally different nature of the Internet and how it is leading to these Aggregator-type outcomes. It really might be different this time.”


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Weekend reading: Expanding Unemployment Insurance coverage benefits workers and boosts the economy edition

Posted on by Maria Monroe

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

Equitable Growth round-up

Unemployment Insurance is a vital resource for U.S. workers who lose their jobs through no fault of their own, but those who voluntarily leave their jobs typically are not eligible to receive UI benefits. This complicates job searches for married dual-earner couples. Studies show they tend to move to pursue job opportunities less often than single-earner households, partly because of the challenges involved in moving two jobs as opposed to one. When married couples do move, one spouse frequently becomes the so-called trailing spouse, leaving their job behind and usually facing earnings penalties and lower labor force participation rates as a result. A new working paper by Joanna Venator looks at the impact of Unemployment Insurance for trailing spouses—a program enacted in 23 states, as of 2017—which allows trailing spouses to apply for and receive Unemployment Insurance from the state in which the couple worked prior to moving. Venator explains in a column that her research finds access to this income support program increases the likelihood that a dual-earner household will move and improves married women’s labor market outcomes after a move, in part because women become the trailing spouse more often than men. In fact, she writes, married women who are able to claim the trailing spouses benefit receive higher annual earnings 3 years after moving of between $4,500 and $12,000, compared to similar women who are not eligible for these benefits. Venator details the policy implications in terms of the design of UI systems and policies meant to encourage moving for work opportunities.

Head over to Brad DeLong’s latest Worthy Reads column to get his takes on recent Equitable Growth content and other items from around the web.

Links from around the web

The Unemployment Insurance system in the United States dealt with unprecedented demand over the past year, starting with new benefit claims shattering records in March 2020 and continuing through this year. The U.S. Department of Labor reports the 52nd consecutive week with more than 1 million new claims filed. A Century Foundation factsheet, compiled by Andrew Stettner and Elizabeth Pancotti, distills a vast array of data on UI take-up and distribution since the onset of the pandemic, providing comparisons to data from previous downturns. One point in particular stands out: The co-authors show that 1 in 4 workers has relied at least once on UI benefits during the COVID-19 pandemic. They also highlight the various inequities, deficiencies, and delays that plague the system, particularly for workers of color, and how this affects unemployed workers and access to UI benefits amid the coronavirus recession. Stettner and Pancotti close with lessons to be learned after this trying year, including a call for implementing automatic stabilizers, expanding UI eligibility, increasing benefit levels and duration, and modernizing the current system to increase efficiency and prevent fraud.

Friday figure

Effects of UI benefits for trailing spouses on movers' earnings, by gender, 95% confidence intervals are shaded

Figure is from Equitable Growth’s “Moving with two careers is hard, but Unemployment Insurance for trailing spouses can help,” by Joanna Venator.

Moving with two careers is hard, but Unemployment Insurance for trailing spouses can help

Posted on by Maria Monroe
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Where one works is tied to where one lives, and for many job searchers, changing jobs also means having to move. These joint job-location decisions are one way that a person might move up the job ladder or leave an economically depressed labor market, but these are decisions that aren’t as easily made for some types of households. Married dual-earner couples move less than single-earner households, in part because it is harder to move two jobs than one.

Oftentimes, one spouse ends up as a trailing spouse, moving without a job in hand or to a lower-paying job than they had prior to the move. This phenomenon also tends to be gendered, with women more likely to be trailing spouses. And a large array of research documents that married women tend to experience earnings losses and lower labor force participation following a move.

What role could policy play in changing how moves impact trailing spouses’ earnings? In my new working paper, titled “Dual-Earner Migration, Earnings, and Unemployment Insurance,” I study one such policy: Unemployment Insurance for trailing spouses. My research shows that having access to income support for a trailing spouse at the time of a move increases the likelihood that dual-earner households move and improves married women’s labor market outcomes after they move.

Workers who quit their jobs are typically not eligible for Unemployment Insurance, but some states make an exception if the reason they quit is because their spouse’s new job requires a move that makes commuting to their previous job impractical. Both within-state and across-state moves are eligible, and the worker collects Unemployment Insurance from the state in which they worked prior to the move.

As of 2017, 23 states included leaving a job due to a distant move for a spouse or partner’s career as one type of acceptable cause for leaving a job. This number is down from a peak of 27 states in 2010 but is much higher than pre-recession levels, when only 11 states had trailing spouse Unemployment Insurance provisions. Many states incorporated this provision as part of the Unemployment Insurance modernization requirements associated with receipt of federal funds during and immediately after the Great Recession of 2007–2009 under the American Recovery and Reinvestment Act. (See Figure 1.)

Figure 1

My paper first uses variations in where and when this policy was implemented to be able to make causal claims about how access to Unemployment Insurance for trailing spouses impacts whether a household moves. Because this policy was implemented simultaneously with other policies, I use single individuals as a natural control group in these analyses because a married couple would have additional incentives to move with this policy in place while an unmarried person should be equally likely to move or not move with or without the policy. By using individuals as a control group, as well as controlling for state and year fixed effects, I am able to control for other policies and economic conditions that might be changing at the same time as Unemployment Insurance benefits for trailing spouses that might affect migration decisions.

I find that having access to Unemployment Insurance for trailing spouses increases the likelihood that married individuals make long-distance moves of greater than 50 miles by 2 percentage points off a base rate of 5 percent and has the expected null effect on singles’ migration patterns. These effects, however, vary based on age and the level of Unemployment Insurance benefits. I show that the policy more broadly affects younger married couples ages 35 or below more than older couples. This is consistent with younger couples having higher migration rates overall, so we might thus expect to them to be more sensitive to policies such as Unemployment Insurance for trailing spouses.

Unemployment Insurance for trailing spouses also increases migration rates more in states with higher Unemployment Insurance benefits. The effect of the policy varies with the state’s income-replacement rate, but the effect of the policy is greater in states which replace a greater percentage of income, with a 1 percentage point increase in the replacement rate increasing the likelihood that a household moves under the policy by 0.4 percentage points. (See Figure 2.)

Figure 2

The effects on migration by Unemployment Insurance income replacement rates, 2005–2017

This policy also improves the labor market outcomes of trailing spouses following a move. Using an event study design and panel data from the National Longitudinal Survey of Youth, I look at how earnings change at the time of a move in the presence of the policy versus in the absence of the policy. Men’s earnings post-move do not change significantly in the presence of the policy, but I find that married female movers earn significantly more (between $4,500 and $12,000 more) 3 years post-move in the presence of the policy than similar female movers who are not eligible for Unemployment Insurance for trailing spouses due to their state of origin. (See Figure 3.)

Figure 3

Effects of UI benefits for trailing spouses on movers' earnings, by gender, 95% confidence intervals are shaded

As is evident in Figure 3, women who do nothave access to Unemployment Insurance for trailing spouses experience earnings losses following a move and never recoup those losses in the jobs they eventually find. In contrast, when women move with Unemployment Insurance eligibility in hand, they are able to rebound and ultimately end up earning similar levels to what would have been earning in the absence of a move. Some of these differences can be attributed to changes in their attachment to the labor force, yet I also find that women’s wages are higher 1 year post-move, suggesting that one reason this policy improves women’s earnings is that it allows women to search for longer rather than taking the first job they find in their new location, improving job quality and subsequent earnings.

These results, along with a more in-depth analysis of alternative subsidy policies discussed further in the paper, have important implications for how we design both Unemployment Insurance policy in general and policies meant to encourage migration in particular. First, this study demonstrates the benefits of access to Unemployment Insurance for a different population than most studies of Unemployment Insurance. Many past studies focus on access to Unemployment Insurance at the “intensive margins,” such as increases in Unemployment Insurance replacement rates or in the number of weeks of Unemployment Insurance eligibility. This paper instead focuses on access at the “extensive margin,” or who is eligible in the first place.

Those at the extensive margin of accessing Unemployment Insurance differ from those who are typically eligible in the first place. Women, in particular, are less likely to be eligible for Unemployment Insurance when leaving a job. This paper shows that female trailing spouses experience significant earnings gains from having access to Unemployment Insurance. This suggests that benefits to Unemployment Insurance for those typically not eligible may be larger than for the population usually studied. What constitutes a “voluntary” quit varies across demographic groups and revisiting what constitutes eligibility for Unemployment Insurance may address inequalities in access that contribute to gender differences in labor market attachment and earnings.

Second, policies meant to encourage “moving to opportunity” must consider the household as a whole rather than focusing on an individual’s decision-making process. Developing programs that support spouses’ job search following a move and expanding Unemployment Insurance for trailing spouses at the national level are two ways that U.S. policymakers could address the concerns faced by dual-earner households at the time of a move.

—Joanna Venator currently is a Ph.D. candidate in economics at the University of Wisconsin-Madison who will be joining the University of Rochester as a postdoctoral fellow in the fall of 2021 and becoming an assistant professor at Boston College starting in the summer of 2022.

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Brad DeLong: Worthy reads on equitable growth, March 9-15, 2021

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

1. It used to be that there were high-wage occupations and high-wage firms, and that these were different and, to a large extent, countervailing sources of income inequality. But over the past generation this has ceased to be the case to a remarkable degree. How much of this is deunionization? How much of this is tech winner-take-all? And why has modern tech been so friendly to winner—or, rather, winning-team—take all? These are still profound mysteries to me. Read Nathan Wilmers and Clem Aeppli, “Consolidated Advantage: New Organizational Dynamics of Wage Inequality,” in which they write: “The two main sources of inequality in the U.S. labor market—occupation and workplace—have increasingly consolidated. Workers benefiting from employment at a high-paying workplace are increasingly those who already benefit from membership in a high-paying occupation. Drawing on occupation-by-workplace data, we show that two-thirds of the rise in wage inequality since 1999 can be accounted for not by occupation or workplace inequality alone, but by their increased consolidation. This consolidation is not attributable to firm turnover or to how occupations have shifted across a fixed set of high-paying firms (as in outsourcing). Instead, consolidation has resulted from new bases of workplace pay premiums. Workplace premiums associated with teams of professionals have increased, while premiums for previously high-paid blue-collar workers have been cut. Yet the largest source of consolidation is bifurcation in the social sector, whereby some previously low-paying but high-professional share workplaces, such as hospitals and schools, have deskilled their jobs, while others have raised pay. Broadly, the results demonstrate an understudied way that organizations affect wage inequality: not by directly increasing variability in workplace or occupation premiums, but by consolidating these two sources of inequality.”

2. This is a very nice survey indeed of the long-standing childcare-affordability problem in the United States. Read Taryn Morrissey, “Addressing the need for affordable, high-quality early childhood care and education for all in the United States,” in which she writes: “In 2017–2018, most children in the United States under 6 years of age—68 percent of those in single-mother households and 57 percent in married-couple households—lived in homes in which all parents were employed. Most of these families require nonparental early care and education … 12.5 million of the 20.4 million children under the age of 5 living in the United States (61 percent) attended some type of regular childcare arrangement … Families with young children are spending more on childcare than they are on housing, food, or healthcare … I argue that greater policy attention to early childcare and education is warranted for three reasons: High-quality early care and education promotes children’s development and learning, and narrows socioeconomic and racial/ethnic inequalities. Reliable, affordable childcare promotes parental employment and family self-sufficiency. Early care and education is a necessary component of the economic infrastructure … A universal early care and education plan, particularly one with a sliding income scale to provide progressive benefits, may not pay for itself in the short term, but will very likely do so in the long term by boosting broad-based U.S. economic growth and stability while narrowing economic inequality.”

3. The Chicago Law-and-Economics rollback of antitrust enforcement was not the worst thing to happen to the United States over the past half century. But we now have enough evidence to be confident that it was definitely a bad thing for the health of the U.S. economy. Read Fiona Scott Morton, “Modern U.S. antitrust theory and evidence amid rising concerns of market power & its effects,” in which she writes: “The experiment of enforcing the antitrust laws a little bit less each year has run for 40 years, and scholars are now in a position to assess the evidence … The bulk of the research featured in our interactive database on these key topics in competition enforcement in the United States finds evidence of significant problems of underenforcement of antitrust law. The research that addresses economic theory qualifies or rejects assumptions long made by U.S. courts that have limited the scope of antitrust law. And the empirical work finds evidence of the exercise of undue market power in many dimensions, among them price, quality, innovation, and marketplace exclusion. Overall, the picture is one of a divergence between judicial opinions on the one hand, and the rigorous use of modern economics to advance consumer welfare on the other.”

Worthy reads not from Equitable Growth:

1. I did a podcast on an excellent new book by Mike Konczal, Freedom From the Market: America’s FIight to Liberate Itself from the Grip of the Invisible Hand. His book is an example of the very nice work currently being done at the Roosevelt Institute. Please listen to my podcast with Mike Konczal and Noah Smith.

2. I have long thought that running so much of the U.S. social insurance system through the U.S. Department of the Treasury, the IRS, and the tax code is a significant mistake. We started doing this with the Earned Income Tax Credit simply because the late Senator Russell Long was chair of the Senate Finance Committee. And we are still doing it. It will require a lot of work to make the new and expanded Child Tax Credit work the way it does in the dreams of its proponents. And I do not yet see any sign that anyone in the administration is taking ownership of making this work. Read Annie Lowrey, “Calculate how much you would get from the expanded child tax credit,” in which she writes: “I’ve talked to a bunch of folks who will get the monthly CTC cash allowances, and none had any idea the money is coming. It’s a really complicated policy change (“a monthly advance on a newly fully refundable tax credit” is, I mean, even my eyes start to cross) and I hope there’s a concerted effort to increase awareness and participation rates … This is a good calculator/explanation! One thing to note is that you won’t get the money unless you file taxes, so super important for parents to do that even if their incomes are so low they don’t have to.”  

3. Very smart people seem to me to have the wrong intuitions with respect to how the U.S. labor market works, the numbers of jobs, and the role of training. Seeking to have giant tech companies in some sense “grow their own” is, I think, a distraction. Read Zeynep Tufekci, “How Google’s New Career Certificates Could Disrupt the College Degree,” in which he writes: “More training is fine but there’s decades of research that the (obvious) key problem in the U.S. job market is the scarcity of good, stable jobs across the education ladder.”


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