Page 66 – Equitable Growth

ASSA Round-up: Day 1

Posted on January 3, 2021January 3, 2021 by Maria Monroe

Today was the first day of the three-day annual meeting of the Allied Social Science Associations, which is organized by the American Economic Association. The conference, held virtually this year, features hundreds of sessions covering a wide variety of economics and other social science research. Below are some of the papers and presentations that caught the attention of Equitable Growth staff during the first day. Included below are the abstracts from those papers as well as links to the sessions at which they were presented. Come back tomorrow evening for more highlights.

“Sharing is Caring: Inequality, Transfers and Growth in the National Accounts”

Marina Gindelsky, U.S. Bureau of Economic Analysis

Abstract: Using the updated Distribution of Personal Income by the Bureau of Economic Analysis for U.S. households (2007-2018) with a focus on the bottom of the distribution, I show that transfers significantly lower the level of pre-tax and post-tax inequality in a national accounts framework. However, 2/3 of the reduction in the Gini derives from Social Security and Medicare. Though mostly available to elderly households, together these programs quadruple the share of the bottom income quintile and reduce the Gini by 16%. Conversely, the inclusion of all means-tested programs (such as Medicaid and refundable tax credits) reduces the Gini by half as much, raises the share of the bottom quintile by only 1.8 percentage points, and does not increase the income share of the middle quintiles. Consistent with an aging population, transfers have increased as a share of personal income; yet, inequality continues to rise.

“The Distributional Financial Accounts of the United States”

Michael Batty, Federal Reserve Board, Jesse Bricker, Federal Reserve Board, Joseph Briggs, who is non-affiliated, Sarah Friedman, Federal Reserve Board, and Danielle Nemschoff, Federal Reserve Board

Abstract: This paper describes the construction of the Distributional Financial Accounts (DFA), a dataset containing quarterly estimates of the distribution of U.S. household wealth since 1989. The DFA build on two existing Federal Reserve Board statistical products—quarterly aggregate measures of household wealth from the Financial Accounts of the United States, and triennial wealth distribution measures from the Survey of Consumer Finances—to incorporate distributional information into a national accounting framework. The DFA complement other sources by generating distributional statistics that are consistent with macro aggregates, by providing quarterly data on a timely basis, and by constructing wealth distributions across demographic characteristics. We encourage policymakers, researchers, and other interested parties to use the DFA to better understand issues related to the distribution of U.S. household wealth.

“Fiscal Multipliers in the COVID19 Recession”

Alan Auerbach, University of California, Berkeley, Yuriy Gorodnichenko, University of California, Berkeley, Peter B. McCrory, University of California, Berkeley, and Daniel Murphy, University of Virginia

Abstract: In response to the record-breaking COVID19 recession, many governments have adopted unprecedented fiscal stimuli. While countercyclical fiscal policy is effective in fighting conventional recessions, little is known about the effectiveness of fiscal policy in the current environment with widespread shelter-in-place (“lockdown”) policies and the associated considerable limits on economic activity. Using detailed regional variation in economic conditions, lockdown policies, and U.S. government spending, we document that the effects of government spending were stronger during the peak of the pandemic recession, but only in cities that were not subject to strong stay-at-home orders. We examine mechanisms that can account for our evidence and place our findings in the context of other recent evidence from microdata.

“The Role of Containment and Macroeconomic Measures in Shaping the Transmission and Economic Effects of COVID-19”

Pragyan Deb, International Monetary Fund, Davide Furceri, International Monetary Fund, Jonathan D. Ostry, International Monetary Fund, Nour Tawk, International Monetary Fund

Abstract: The paper uses daily real-time measures implemented by countries around the world to quantify the effect of containment and macroeconomic policy measures on the spread of the virus and on high-frequency economic indicators.

“Luxury or Necessity: How Will State and Local Governments Balance Budgets in the Wake of COVID-19?”

Troup Howard, University of Utah, and Adair Morse, University of California-Berkeley

Abstract: The reduction of economic activity during the Covid-19 crisis is expected to sharply decrease government revenues over the upcoming years, while spending on public health and welfare must grow atypically high. Because state and local governments face balanced budget requirements and public angst against borrowing, these shocks will necessitate a reduction in expenditures across public goods and services. This paper uses the Great Recession shock to test whether governments under income distress simply force revenue effects pro rata on public goods categories according to their budget share, versus the alternative that governments curtail budget shares in goods that exhibit luxury-like behavior in a Deaton demand system. We then forecast the luxury-versus-necessity sensitivities onto the current setting of public expenditures at the state, county and city level.

In Census of Governments spending data covering the population of districts in the United States ($4 trillion for 2020), we find that states, counties and municipalities all shift relatively more funding away from public safety (police, fire and judiciary) and retirement funding. This latter fact implies that short term budget solutions may exacerbate long-term fiscal imbalances. In addition, at the state level, higher education also loses: in response to a 10% revenue shock, states reduce higher education expenditure by 18%. On the other side, capital outlays rise in budget shares in most public good departments, presumably due to commitments.

The fact that higher education, public safety, and pension payments are, to some degree, luxury goods is disheartening. Projected onto Covid-19 setting, the implied preference shifts are small compared to the income effect: a proportional reduction across all goods. Across higher education, public safety, and pension payments, for example, we estimate a reduction in spending nationally of $79 billion, $46 and $62 billion respectively, of which a third is the shift from luxuries to necessities.

“Does Peer Motivation Impact Educational Investments? Evidence from DACA”

Briana Ballis, University of California-Merced

Abstract: Despite the significant influence that peer motivation is likely to have on educational investments during high school, it is difficult to test empirically since exogenous changes in peer motivation are rarely observed. In this paper, I focus on the 2012 introduction of Deferred Action for Childhood Arrivals (DACA) to study a setting in which peer motivation changed sharply for a subset of high school students. DACA significantly increased the returns to schooling for undocumented youth, while leaving the returns for their peers unchanged. I find that DACA induced undocumented youth to invest more in their education, which also had positive spillover effects on ineligible students (those born in the US) who attended high school with high concentrations of DACA-eligible youth.

“Addressing Societal Externalities to Promote Racial Equality”

Madhavi Venkatesan, Northeastern University

Abstract: Beginning with the religiously legitimized marginalization of African slaves, inclusive of the establishment of the concept of “race” and racial hierarchy through craniometry and Social Darwinism, to the promotion of stereotype based on genetic inferiority, and finally, the endogenization of stereotype through regulation and institutionalized discrimination, this paper highlights the trade-off between morality and economic gain, referenced as societal externalities, in the construction of racial inequality. Societal externalities, the author argues, have affected social construction and social norms both within groups and across groups, with the intergenerational adoption of social norms resulting in implicit racial bias. Using economic theory and selected policy examples, the author discusses the racial bias inherent in economic assumptions and highlights how the exclusion of societal externalities in economic assessments has limited the value of related policy action in curbing racial inequality. The paper concludes with recommendations for incorporating societal externalities in economic evaluation along with the rationale for interdisciplinary collaboration in the development and implementation of policy focused on promoting racial equality.

“Creating Moves to Opportunity: Experimental Evidence on Barriers to Neighborhood Choice”

Raj Chetty, Harvard University, and Nathaniel Hendren, Harvard University

Abstract: Low-income families in the United States tend to live in neighborhoods that offer limited opportunities for upward income mobility. One potential explanation for this pattern is that families prefer such neighborhoods for other reasons, such as affordability or proximity to family and jobs. An alternative explanation is that they do not move to high-opportunity areas because of barriers that prevent them from making such moves. We test between these two explanations using a randomized controlled trial with housing voucher recipients in Seattle and King County. We provided services to reduce barriers to moving to high-upward-mobility neighborhoods: customized search assistance, landlord engagement, and short-term financial assistance. Unlike many previous housing mobility programs, families using vouchers were not required to move to a high-opportunity neighborhood to receive a voucher. The intervention increased the fraction of families who moved to high-upward-mobility areas from 15% in the control group to 53% in the treatment group. Families induced to move to higher opportunity areas by the treatment do not make sacrifices on other aspects of neighborhood quality, tend to stay in their new neighborhoods when their leases come up for renewal, and report higher levels of neighborhood satisfaction after moving. These findings imply that most low-income families do not have a strong preference to stay in low-opportunity areas; instead, barriers in the housing search process are a central driver of residential segregation by income. Interviews with families reveal that the capacity to address each family’s needs in a specific manner from emotional support to brokering with landlords to customized financial assistance was critical to the program’s success. Using quasi-experimental analyses and comparisons to other studies, we show that more standardized policies increasing voucher payment standards in high-opportunity areas or informational interventions have much smaller impacts. We conclude that redesigning affordable housing policies to provide customized assistance in housing search could reduce residential segregation and increase upward mobility substantially.

“The Productivity Job Ladder”

John C. Haltiwanger, University of Maryland, Henry Hyatt, U.S. Census Bureau, Erika McEntarfer, U.S. Census Bureau, and Matthew Staiger, University of Maryland

Abstract: In this paper, we use linked employer-employee data for the United States to provide direct evidence on the role of job-to-job flows in reallocating workers from less productive to more productive firms. We show that job-to-job moves generally reallocate employment to more productive firms, accounting for most of the differential employment growth rates between high and low productivity firms. During recessions, productivity-enhancing job-to-job moves decline, while separations to non-employment contribute to productivity enhancing reallocation. The latter arises because the flows from employment to non-employment in downturns disproportionately rises at low productivity firms. In this respect, we find evidence for both a cleansing and sullying effects of recessions. We develop an accounting decomposition to quantify the contribution of the relative cleansing and sullying effects over time. We also explore the extent to which declining worker flows documented in several recent studies has implications for economy-wide productivity growth.

“The Insurance Value of Redistributive Taxes and Transfers”

Michael Stepner, Massachusetts Institute of Technology

Abstract: Progressive tax and transfer schedules serve a redistributive role by transferring from high-income to low-income individuals, but they also serve an insurance role by transferring from the high-income years to the low-income years within each person’s lifespan. This paper examines how the design of the tax and transfer system provides insurance against income risks by studying the two largest economic shocks faced by working-age households: layoffs and illness. Using 1.6 million layoffs and 1.2 million hospital stays linked to Canadian tax records, I first show that both events cause persistent declines in earnings lasting more than six years. The full tax and transfer system provides substantial insurance against these risks, shrinking the percentage of income lost post-layoff by 40% and post-hospitalization by 60%, which I estimate to be worth 7-10% of total post-event consumption. But less than half of this social insurance comes from the unemployment and disability insurance programs that formally insure these risks. The progressive shape of taxes and transfers provides the majority of social insurance, and is especially important for reducing the risk of catastrophic income losses and mitigating inequality in the income risks of layoffs and hospitalizations. Using a dynamic model, I find that the insurance value of redistributive taxes and transfers is considerable across the entire income distribution, and is more than twice as large at the bottom of the income distribution than at the top.

“Beyond Health: Non-Health Risk and the Value of Disability Insurance”

Manasi Deshpande, University of Chicago, and Lee Lockwood, University of Virginia

Abstract: The public debate over disability insurance (DI) has centered on concerns about individuals with less-severe health conditions receiving benefits. We go beyond health risk alone to quantify DI’s overall insurance value, including value from insuring non-health risk. We find that DI recipients, especially those with less-severe health conditions, are much more likely to have experienced a wide variety of non-health shocks than non-recipients. Selection into DI on the basis of non-health shocks is so strong among individuals with less-severe health conditions that by many measures less-severe DI recipients are worse off than severe DI recipients. As a result, under baseline assumptions, DI benefits to less-severe recipients have an annual value (insurance benefit less efficiency cost) of $7,700 per recipient, about three-fourths that of DI benefits to severe recipients ($9,900). Insurance against non-health risk accounts for about one-half of DI’s value.

“An Intersectional Approach to Occupational Crowding Analysis in NOLA”

Anastasia C. Wilson, University of Massachusetts-Amherst

Abstract: This work examines occupational crowding patterns in the labor market in New Orleans, Louisiana. Informed by the methods of stratification economics, this analysis takes an intersectional approach to focus on the impacts of occupational crowding on women, people of color, and young and older workers in New Orleans. Using an intersectional occupational crowding analysis, this work will identify the occupations and industries that groups are crowded into and out of, with a particular focus on the hospitality, retail, care, and other service sectors. This research will then be matched with qualitative focus group interviews with workers to identify how occupational crowding creates a specific barrier to economic stability, and to identify which groups of workers are being impacted by the current economic and public health crisis. This analysis will then be used to inform proposals for state and local policy interventions that build economic security, centering the needs of marginalized workers in the economic recovery.

“Innovative Ideas and Gender Inequality”

Marlène Koffi, University of Toronto

Abstract: This paper analyzes the recognition of women’s innovative ideas. Bibliometric data from research in economics are used to investigate gender biases in citation patterns. Based on deep learning and machine learning techniques, one can (1) establish the similarities between papers (2) build a link between articles by identifying the papers citing, cited and that should be cited. This study finds that, on average, omitted papers are 20% more likely to be female-authored than male-authored. This omission bias is more prevalent when there are only males in the citing paper. Overall, to have the same level of citation as papers written by males, papers written by females need to be 20 percentiles upper in the distribution of the degree of innovativeness of the paper.

“Merger, Product Repositioning and Firm Entry: the Retail Craft Beer Market in California”

Ying Fan, University of Michigan, and Chenyu Yang, University of Maryland

Abstract: We study the effects of merger on firm entry, product repositioning and prices in the retail craft beer market in California. To deal with selection on unobserved fixed cost shocks, we develop a new method to estimate multiple-discrete choice models. The method is based on bounds of conditional choice probabilities and does not require solving the game. Using the estimated model, we simulate a counterfactual merger where a large brewery acquires multiple craft breweries. In most markets, we find that new firms enter, non-merging incumbents add products, and merging firms drop products. However, the net effects of product variety from firm entry and product repositioning differ considerably across markets. Larger markets are more likely to see an increase in product variety, which moderates the loss of consumer surplus from the merger’s price effects. In a majority of smaller markets, product variety decreases, exacerbating the welfare loss from the price effects.

Improving U.S. labor standards and the quality of jobs to reduce the costs of employee turnover to U.S. companies

Posted on December 21, 2020December 21, 2020 by Maria Monroe

Overview

Implementing policies that improve job quality in the United States could come with a direct cost, such as the cost to a U.S. company from raising wages or providing more paid time off. For these reasons, business interests often argue against policies that improve U.S. labor standards. Yet these qualms are short-sighted. Research on the cost of employee turnover reveals that it costs an average of 40 percent of an individual employee’s annual salary to find a replacement if that employee leaves in search of better job opportunities.

In contrast, U.S. labor market policies that improve job quality have been shown to increase job tenure. Reducing the cost of employee turnover and improving the well-being of workers reinforce each other to the benefit of both companies and workers.

Improving U.S. labor standards and the quality of jobs to reduce the costs of employee turnover to U.S. companies Download

This issue brief reviews the economic literature on the cost of employee turnover. We present the evidence that there is a dollar value to replace a worker and get the next hire up to speed, which could be deferred by keeping those workers in their jobs if it is an otherwise good fit for their skills and passions. The costs of turnover range from 2 percent to almost 150 percent and vary across industries, but the sum of this research demonstrates the case for providing better jobs in the first place.

The research on employee turnover also points us to the solutions. Raising the floor on job quality sorts workers into jobs for which they are best matched. And employers are less likely to risk losing good workers when they search for the benefits needed to improve their well-being. These policy solutions include increasing earnings with policy tools such as minimum wages, giving workers a voice in their workplaces, and enforcing anti-discrimination protections so that no worker feels stuck between a hostile workplace and unemployment.

How employee turnover costs U.S. businesses revenues and profits

For businesses, the cost of losing and replacing a worker goes well beyond the cost of a new hire. These costs can amount to big financial losses. Because jobs in high-turnover industries and occupations are associated with low wages and lack of access to employer-provided benefits, the rate at which employees leave and are replaced has important implications for both workers and employers. Yet many businesses do not know or underestimate the toll that high turnover has on their workforce, their sales, and their bottom lines.

Studies that estimate the cost of losing and replacing a worker generally takes into account direct expenses such as the resources that go into advertising an open position, interviewing and screening candidates, and onboarding a recently hired worker. Consider the analysis of Iowa’s direct care professionals—home health aides, nurse assistants, and patient care technicians—that shows paying overtime to make up for the loss of capacity while a position is vacant, recruiting, and training a new hire amounted to $4,026 per worker in 2013. Because these positions tend to pay low wages, provide few benefits, and expose workers to injuries, that year’s high turnover is estimated to have cost service-providing companies in Iowa almost $200 million in direct expenses alone.

And turnover also has indirect, less-easy-to-observe costs. A study analyzing the U.S. supermarket industry finds that when accounting for opportunity or indirect costs of an employee leaving (such as paperwork errors or the loss of customers due to a decline in the quality of service), per-employee turnover costs more than doubled. For instance, the direct replacement costs of a nonunion supermarket cashier averaged $736 in 2000, but this number jumped to $1,550 when factoring in indirect costs. As such, estimates can vary widely not only because expenses are different across sectors and job types, but also because academic researchers and employers use a wide range of inputs to arrive at a dollar value of losing and replacing a worker. As a result, calculations tend to represent a conservative estimate of the true cost of turnover.

That being said, high turnover is more prevalent in some industries than others. The rates of quits and layoffs—the total number of quits and layoffs in a given period of time as a share of total employment—are highest in leisure and hospitality, construction, and retail. That workers in service industries such as retail and leisure and hospitality are particularly likely to voluntarily leave their jobs is, in no small part, a function of low pay (these two sectors have the lowest average wages among the major U.S. industries), lack of access to employer-provided benefits, and management practices that chip away at workers’ sense of well-being and job security, such as unpredictable work schedules. (See Figure 1.)

Figure 1

Annual quits and layoffs/discharges rates, by U.S. industry, 2019

In this issue brief, we analyze 37 case studies in 14 research articles published between 2000 and 2020 (see Table 1 in the Methodological Appendix for a summary of the studies and calculations for each position). The main estimates pool 31 case studies in order to calculate turnover costs as a percent of a given position’s average annual wage, and include jobs in the healthcare, education, hospitality, finance, retail, transportation, and manufacturing industries. The results are the following:

On average, turnover costs represent 39.6 percent of a position’s annual wage. Across the 31 case studies included in our estimates, the median cost of turnover represented 23.5 percent of a worker’s annual wage.
For workers earning less than the 2019 average annual wage ($53,490), turnover costs made up 19.3 percent of their annual wage.
In the two major sectors for which at least five case studies are available, turnover costs as a share of average annual wage are as follows: health services (32.7 percent) and hospitality (19.6 percent).

Emblematic of these findings are the overall costs of replacing a worker across industries up and down the U.S. wage ladder in the 21st century. (See Figure 2.)

Figure 2

U.S. turnover costs as a share of the average annual wage for that position and average annual wage, 2019 dollars, 2000–2020

Reduce employee turnover by increasing U.S. job quality

One of the most basic ways reduce turnover and increase job tenure is to improve job quality by increasing earnings. In the United States, the minimum wage is the strongest tool to do this. Like other labor policies, opponents of the minimum wage argue that it imposes too high of a cost on businesses, which will respond by reducing employment levels. Yet the breadth of high-quality research on the minimum wage demonstrates that increasing the statutory minimum wage did not reduce employment and increased worker tenure. Across low-wage work and within critical industries such as nursing homes, increasing wages has positive effects for workers and the provision of services, with minimal costs to businesses.

In an Equitable Growth working paper by Kevin Rinz and John Voorheis of the U.S. Census Bureau, the authors use administrative data to follow workers who, over time, were affected by a minimum wage increase in their local labor market. They find that workers in affected jobs experienced wage increases and did not lose employment, which ultimately leads to longer job tenure and increased earnings growth at the lower end of the income distribution. These findings are reinforced by the broad trend of estimating the impact of the minimum wage with administrative data and increasing the accuracy of findings. These estimates show that long-term earnings are increased without reducing employment levels.

The studies reviewed in this issue brief are across a wide variety of occupations, industries, and income levels, many of which would not be directly impacted by a minimum wage increase. But this does not mean statutory wage levels cannot be instituted across earnings levels to improve job quality and increase worker tenure. In Equitable Growth’s Vision 2020: Evidence for a stronger economy, an essay by Arindrajit Dube of the University of Massachusetts Amherst develops a proposal for establishing wage standards by industry and occupation so that workers are able to receive earnings aligned with the value they create.

Reduce employee turnover by improving U.S. labor standards

Another metric of job quality is worker voice in their jobs, which, in the United States, is primarily achieved by unionization. In a paper on the impact of unions on job satisfaction and turnover, Trove Hammer and Ariel Avgar of Cornell University School of Industrial and Labor Relations find that unionized workers are more likely to remain in their jobs, yet this may reduce some job satisfaction. A study by Steven Abraham and Barry Friedman of the State University of New York at Oswego and Randall Thomas of Ipsos, formerly of Harris Interactive, surveys workers by union status on job satisfaction and intent to leave a job. They find that job dissatisfaction is more strongly correlated with intent to leave for nonunion members, compared to union members.

Union membership subdues the impact of other variables associated with intent to leave a job, increasing the job tenure of unionized workers. A body of research examines why unions may increase job dissatisfaction while still increasing tenure. One theory is that greater information is available to unionized workers, inducing what Richard Freeman and James Medoff called “voice-induced complaining” in their seminal text, “What Do Unions Do?”. A very recent National Bureau of Economic Research working paper by David Blanchflower of Dartmouth College and Alex Bryson of University College London finds that the relationship between union membership and job satisfaction has become positive. Using data from the Gallup U.S. Daily Tracker Poll from 2009 to 2013, they find that unions had a positive effect on job satisfaction in the years following the Great Recession, as the protective effect of unions increased job security among members.

Reducing employee turnover is particularly important to public-sector work, where unions are also more prevalent and where recent attrition in the public-sector workforces is a particular cause for concern. Emma García and Elaine Weiss of the Economic Policy Institute find that there is a shortage of teachers in the Kindergarten through 12th grade education system that has increased in recent years. In a study on unionized teachers in New York state, Yujin Choi of Ewha Womans University and Il Hwan Chung of Soongsil University find a positive relationship between the strength of grievance procedures and a lower likelihood of turnover. And a report by Rich Jones of the Economic Analysis Research Network on Colorado finds that turnover in the public sector has increased in the state over the past 10 years—a phenomenon that could be offset by increasing collective bargaining, which would ultimately improve the provision of public services.

Efforts to increase the coverage of collective bargaining agreements in the United States include proposals in Harvard University’s Labor and Worklife Program’s “clean slate for worker power” agenda that could pave the way to increase unionization and, by association, reduce worker turnover.

In addition to increasing worker voice at their jobs through unionization, worker involvement in workplace decision-making may broadly reduce turnover. In a study with administrative data from Denmark, Elena Cottini of Università Cattolica del Sacro Cuore, Takao Kato of Colgate University, and Niels Westergård-Nielsen of Copenhagen Business School find that “high-involvement work practices,” where human resources policies allow for workers to produce knowledge in a systematic way and have a say in workplace practices, reduce worker turnover.

Worker involvement in establishment decision-making can also be bolstered through policies such as co-determination, where worker representatives have a seat on corporate boards. In a recent study by Equitable Growth grantees Simon Jäger of the Massachusetts Institute of Technology and Benjamin Schoefer of the University of California, Berkeley, along with Jörg Heining of the German Institute for Employment Research, co-determination is not associated with higher wages at firms with workers on boards, but also does not negatively impact firm’s bottom line.

Hostile workplaces are also more likely to experience employee turnover, particularly given currently poorly enforced labor laws such as anti-discrimination protections, which give workers little recourse other than to leave their jobs and potentially suffer long-term earnings consequences. Research on sexual harassment in the workplace finds that it increases employee turnover, which, in turn, constitutes the greatest cost of sexual harassment for companies—more than litigation costs.

Likewise, lack of representation across race and ethnicity can result in burnout from the few workers from underrepresented groups in a workplace. This dynamic is detailed in Adia Harvey-Wingfield’s recent book Flatlining: Race, Work, and Health Care in the New Economy. Then, there is racial discrimination in healthcare workplaces, which is shown to increase employee turnover. Well-enforced anti-discrimination protections, where workers have recourse without fear of retaliation, and workplace inclusion would both create higher-quality jobs for workers of color and women workers.

Conclusion

Improving U.S. labor standards to protect workers from discrimination in the workplace and to boost earnings and workers’ voices on the job would benefit their employers by reducing the costs of employee turnover. This issue brief documents that businesses prioritizing low labor costs over job quality are misguided because they do not take into consideration the significant costs of replacing a worker. The research reviewed in this issue brief finds that the cost of turnover is an average of 40 percent of a worker’s salary. To avoid these significant costs, workplaces that provide higher-quality jobs, particularly those with decent pay and a voice at work, have lower turnover and longer employee tenure.

Policies to increase earnings through higher minimum wages and wage boards would take a first step in helping companies avoid losing workers. Expanding unionization would go a long way to increasing worker tenure as well. Workers also need to be protected from discrimination and harassment at work, so that they are not left to choose between job security and their own well-being, which often results in them choosing to leave jobs at a cost to both themselves and the company.

Methodological Appendix Download

Improving the enforcement of U.S. anti-discrimination protections would give workers recourse within their jobs, potentially reducing turnover and limiting costs to the company at the same time. Improving job quality will increase the well-being of workers, who will then be more likely to stay at a job, thus increasing their firm-specific human capital and productivity in a virtuous cycle where workers are able to share in the gains of economic growth.

Brad DeLong: Worthy reads on equitable growth, December 15-21, 2020

Posted on December 21, 2020December 18, 2020 by Maria Monroe

Worthy reads from Equitable Growth:

1. Austin Clemens is completely correct here. Shifting the conversation about economic growth away from the topline aggregate number to a more nuanced, distributional assessment holds enormous promise in terms of getting the U.S. political system in the public sphere to focus on what is really important, and what works. Read Austin Clemens, “New distributional snapshot of U.S. personal income is a landmark federal statistical product,” in which he writes: “Policymakers and analysts should pay close attention to future releases of BEA’s distribution of personal income. Trends in the share of income held by top earners will indicate whether the benefits of the strong post-Great Recession economy have accrued to Americans broadly or to upper-income Americans more narrowly. Going forward, this new tool should give pause to those who target growth as a catch-all metric to indicate economic success. Too often, growth has been tilted in favor of those who are already doing well.”

2. If the experience of the internet tells us anything, it is that open standards are a true bonanza, a true gold rush, a true El Dorado. Unfortunately, they do not produce very many steeply wild gardens to produce mammoth profits for venture capitalists and shareholders. And even more unfortunately, neither the George W. Bush nor the Obama administrations understood the least thing about the importance of the government’s role in nudging the information sector into configurations with open standards. Read Michael Kades and Fiona M. Scott Morton,” Interoperability as a competition remedy for digital networks,” in which they write: “Mandatory interoperability based on robust and effective rules could overcome the network effects that protect the incumbent from entry, maximizing the potential for new entrants to enter at minimal cost, compete in the market, and take share from the incumbent. This remedy could be ordered in addition to other relief such as a divestiture, and indeed could be complementary to it, or stand on its own. In today’s internet-based network markets, interoperability carries no incremental costs such as dedicated wires and machines that were true of the telecom interoperability of past decades. Its main cost is the establishment of an open standard.”

Worthy reads not from Equitable Growth:

1. This is a very nice line from former Equitable Growth president and CEO Heather Boushey in her essay in the most recent issue of the International Monetary Fund’s publication Finance and Development: “Transforming the U.S. economy requires policymakers to recognize that markets cannot perform the work of government. The first step is to eradicate COVID-19 … [Then] the United States [needs] to address its long-term problems: a costly health system that leaves millions with insufficient care, an education system designed not to end inequality but to preserve it, lack of basic economic stability for most families, and climate change. Major public investments are required to deal with each issue.”

2. This is very well worth reading from Jason Furman and Larry Summers. Why it is not conventional wisdom now is something I do not understand. Why it was not conventional wisdom a decade ago is something I do not understand. Why it was not the background belief of the Obama administration is something I do not understand. Read Jason Furman and Lawrence Summers, “A Reconsideration of Fiscal Policy in the Era of Low Interest Rates,” in which they write: “Fiscal policy must play a crucial role in stabilization policy in a world where monetary policy can counteract financial instability but otherwise is largely “pushing on a string” when it comes to accelerating economic growth … In a world of unused capacity and very low interest rates and costs of capital, concerns about crowding out of desirable private investment that were warranted a generation ago have much less force today … Debt-to-GDP ratios are a misleading metric of fiscal sustainability … Current debt levels are at low rather than high levels relative to calculations of the present value of GDP or prospective tax receipts … Traditional notions of financial responsibility for households and businesses hold that borrowing in order to invest in assets that have a return well in excess of the cost of borrowing increases creditworthiness and benefits future stakeholders … Borrowing to finance appropriate categories of Federal expenditure pays for itself in Federal budgetary terms on reasonable assumptions.”

Weekend reading: How the coronavirus recession affects the economic and psychological well-being of workers and their families edition

Posted on December 18, 2020December 18, 2020 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

With coronavirus cases on the rise again, it appears the recession caused by the pandemic isn’t going anywhere. What does this mean for workers and their families? New research studies the effects of job losses on economic and psychological well-being, particularly for vulnerable households. One of the working paper’s authors, Ariel Kalil, explains the nuanced findings of the study, which showed the coronavirus having both negative and positive effects for mothers and their children. Essentially, Kalil writes, it boils down to whether mothers lose their income due to the pandemic. Those who lost their jobs—and with it a significant share of household income—are experiencing more stress and depressive symptoms, while those who are able to continue working or who got laid off but have not lost significant household income (thanks to unemployment benefits, stimulus checks, or a partner working more hours to make up for the lost earnings) are reporting better mental health outcomes and more quality time spent with their children. Improving parent-child interactions affects children’s economic, social, and educational outcomes down the road and thus has long-term implications. The study highlights that employment status may not matter as much as loss of income for parents’ well-being, Kalil concludes, as well as the importance for parents of having quality time to spend with children—important findings that U.S. policymakers should keep in mind as they craft solutions to current challenges.

Each month, Equitable Growth highlights scholars in our network who are working to understand how inequality affects economic growth and stability, in a series called Expert Focus. This month, Christian Edlagan and Maria Monroe look at researchers studying market organization and the effects of firms’ behaviors on growth and distribution. From antitrust law and competition policy to market structure and industry organization, these academics are working to explain the relationship between inequality, market power, and economic growth.

Brad DeLong’s latest Worthy Reads highlights must-read content from Equitable Growth and around the web.

In case you missed it, Equitable Growth launched our 2021 Request for Proposals on November 30. For more information on what topics and types of research we are interested in funding, who can apply, and deadlines and instructions for submitting a proposal, head to the RFP page on our website.

Links from around the web

It has been months since the U.S. Congress passed a coronavirus relief package, and many of the emergency programs that were included in the previous bill are set to expire this month. Even if policymakers are able to push through another round of relief, at this point, many workers will face a gap in coverage that could have dire consequences. Vox’s Emily Stewart explains that up to 4 million unemployed workers have already had benefits dry up, which means these vulnerable workers are potentially facing eviction, hunger, poverty, or other crises, including mental health issues, in addition to joblessness. Stewart shows why the procrastination of some U.S. policymakers on coronavirus relief has led to this situation and why there will almost certainly be a delay in distribution even if a bill were to pass right now—thanks in part to complicated bureaucracy procedures that put up unnecessary hurdles.

As average U.S. workers and their families struggle to get by and small businesses close their doors, a new analysis in The Washington Post finds that 45 of the 50 largest U.S. companies have turned a profit since March, when the coronavirus pandemic and recession reached the United States. Douglas MacMillan, Peter Whoriskey, and Jonathan O’Connell detail how these big companies have laid off thousands of workers while raking in profits and making shareholders richer during some of the most volatile months in modern history—and despite many of them making promises to protect workers. Even in hard-hit sectors such as restaurants, travel, and hospitality, the authors write, many of the biggest companies were protected from the worst of the virus’ effects as smaller, independent businesses were devastated and shuttered, which has led to troublesome market concentration in many areas and industries. The analysis underscores yet another long-lasting contribution the coronavirus recession will have on ever-growing economic inequality in the United States.

New research shows that tax cuts for wealthy people did not, in fact, promote economic growth for all. Though many trickle-down economists argue that lowering taxes on the highest-income individuals and families has widespread benefits for all, in reality, these cuts are shown to only help those directly affected. Bloomberg’s Craig Stirling looks at a recently published study of the fiscal policies and economic conditions in 18 countries over the past 50 years, revealing that these policies served mostly to make the wealthiest even more wealthy, without boosting economic growth or creating jobs for those further down the economic ladder. As a result, the study’s authors make clear, policymakers needn’t worry about the economic effects of increasing taxes on the rich to cover, for instance, the high costs of the coronavirus pandemic and recession.

Friday figure

Average daily percentage of low-wage workers with young children in a typical large U.S. city reporting personal psychological distress and uncooperative child behavior prior to and during the coronavirus crisis

Figure is from Equitable Growth’s April 2020 post, “How the coronavirus pandemic is harming family well-being for U.S. low-wage workers” by Alix Gould-Werth and Raksha Kopparam.

Expert Focus: Understanding the role of market structure in equitable growth

Posted on December 16, 2020March 31, 2021 by Maria Monroe

Equitable Growth is committed to building a community of scholars working to understand whether and 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. If you are looking for support to investigate the relationship between inequality, market power and competition, and economic growth, please see the “Market Structure” section of our current Request for Proposals.

How does market organization and firm behavior affect economic growth and its distribution? In this installment of Expert Focus, we highlight the industry- and market-specific analyses of researchers helping to advance our understanding of the complex relationship between industrial organization and market structure, antitrust law and competition policy, and economic inequality and growth.

Leemore Dafny

Harvard University

Leemore Dafny is the Bruce V. Rauner Professor of Business Administration at Harvard University Business School and is a frequent adviser to federal policymakers on healthcare and antitrust matters. An academic health economist, her research focuses on competition and consolidation across various healthcare sectors. She currently serves on the Congressional Budget Office Panel of Health Advisers (now in her seventh year on the panel), has testified before both houses of Congress, and was formerly the Deputy Director for Health Care and Antitrust at the Federal Trade Commission’s Bureau of Economics from 2012 to 2013. She is also on the editorial board of the American Economic Journal: Economic Policy and Management Science.

Quote from Leemore Dafny on private insurers

Ying Fan

University of Michigan

Ying Fan is an associate professor of economics at the University of Michigan and is an important voice in industrial organization research. In her highly cited 2013 article in the American Economic Review, she develops a novel dataset and model for jointly assessing the welfare effects of mergers on product characteristics and prices in the U.S. newspaper markets. Her more recent work with Chenyu Yang, assistant professor at the University of Maryland, College Park, studies the U.S. smartphone market and the impact of competition on firms’ choices of both the number and the composition of the products they offer.

Quote from Ying Fan and co-author on mergers and competition

Nathan Miller

Georgetown University

Nathan Miller is the Saleh Romeih Associate Professor at the Georgetown University McDonough School of Business. His research covers topics in the fields of industrial organization and antitrust economics, with a recent focus on collusion and the competitive effects of mergers. He was previously an economist at the U.S. Department of Justice, where he provided economic analysis for antitrust investigations, including the merger review of AT&T Inc. and T-Mobile US Inc. He was awarded an Equitable Growth grant in 2020 to examine how technological innovation has affected market concentration, markups, productive efficiency, and prices in the cement industry over the past four decades.

Quote from Nathan Miller and co-author on the MillerCoors merger

John Van Reenen

Massachusetts Institute of Technology

John Van Reenen is the Ronald Coase School Professor at the London School of Economics, and is an MIT Initiative on the Digital Economy Digital Fellow. Van Reenen has published widely on the economics of innovation, labor markets, and productivity. In an Equitable Growth working paper co-authored with grantees Alex Bell and Raj Chetty at Harvard University, Xavier Jaraval at the London School of Economics, and Neviana Petkova at U.S. Treasury, Van Reenen looks at the lifecycle of inventors and determines that increasing exposure to innovation during childhood significantly affects children’s’ propensities to become inventors, with large gaps currently by income, gender, and race.

Quote from John Van Reenen and co-authors on the gender gap in innovation

Nancy L. Rose

Massachusetts Institute of Technology

Nancy L. Rose is the Charles P. Kindleberger Professor of Applied Economics at the Massachusetts Institute of Technology, where her research focuses on industrial organization, competition policy, and the economics of regulation. She previously served as deputy assistant attorney general for economic analysis in the Antitrust Division of the U.S. Department of Justice and directed the National Bureau of Economic Research program in Industrial Organization. She is a co-author on two Equitable Growth publications related to antitrust enforcement and competition issues, including the recent report, “Restoring competition in the United States: A vision for antitrust enforcement for the next administration and Congress,” as well as a related column recommending guiding principles for U.S. vertical merger enforcement policy.

Quote from Nancy L. Rose on rebalancing competition

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, December 8-14, 2020

Posted on December 14, 2020December 11, 2020 by Maria Monroe

Worthy reads from Equitable Growth:

1. I thought that our Grantees’ Conference went very well this year. I found it well worth attending. And I think you will see why. Take a look at the line up and the broad agenda at “Equitable Growth 2021: People and Research Advancing Economic Evidence.” Here’s the teaser: “Equitable Growth … will bring together [our] grantees and stakeholders to showcase cutting-edge research from our grantees on how economic inequality affects economic growth and stability. Early and mid-career, as well as established, scholars will have a chance to give and receive feedback on their research, as well as discuss the relevance of that research in an evidence-backed economic agenda in 2021 and beyond.” And then listen to Representative Ro Khanna (D-CA), who gave a very nice closing talk for our Grantees’ Conference. Watch the video.

2. Yes. Nearly all changes in federal tax policy since 1997 have been on net very destructive. Why do you ask? Well, here’s a good reason. Read Owen Zidar and Eric Zwick, “A modest tax reform proposal to roll back federal tax policy to 1997,” in which they write: “The fiscal position of the United States was much healthier in the late 1990s than it is today. The federal government now collects 3 percent less of Gross Domestic Product than it did two decades ago, yet the nation faces a number of pressing needs for new spending, including on infrastructure, research and development, education, and healthcare. This essay draws on new research to present a modest proposal to address this problem: roll back federal tax policy to 1997. We propose a set of reforms to the individual income tax and estate tax, with particular attention to the tax treatment of “pass-through” income—profits from certain types of businesses that, for tax purposes, pass through to individual owners who then pay income tax on those profits. These reforms would raise revenues by $5 trillion over the next decade and reduce after-tax income inequality.”

Worthy reads not from Equitable Growth:

1. Here is a piece that seems now to be ill-informed about the global economic recovery. In the North Atlantic right now, there is no recovery anymore. Rather, a second dip together with another wave of mass deaths seems to be on the plate. And I do not think anybody has a handle on what is going on in large chunks of the global south. Read the Financial Times’ Editorial Board’s take on this in “The global economic recovery is dramatically uneven,” in which they write: “The IMF said in its World Economic Outlook, which was released on Tuesday, that the global economy will shrink by 4.4 per cent this year—an awful figure … [with] prospects of recovery … are far from even … China, buoyed by strong export sales and a reduction in caseloads that has enabled an economic reopening, is set to grow by 1.9 per cent this year … The U.S. and European economies, meanwhile, are still set to experience sharp contractions as a result of not being able to fully remove restrictions on movement … The United States, where the Federal Reserve and the Treasury acted swiftly to shore up financial and labour markets, will perform much better than Europe. Its economy is seen as shrinking by 4.3 per cent, compared with a deeper contraction of 8.3 per cent in the eurozone. The U.K. economy, meanwhile, is forecast to shrink by 9.8 per cent … Divergences within the major emerging markets are stark, too … India … is expected to see its economy shrink by 10.3 per cent…. The IMF’s forecasts suggest the best means … lie in mitigating the spread of the disease through successful track-and-trace policies that will enable economies to reopen more quickly, too. The virus first became widespread in China; the lead set by it and other east Asian countries in controlling it offers the best way out for the global economy.”

New research shows the impact of 2020 job and income losses on family dynamics and parents’ mental health in vulnerable households

Posted on December 14, 2020December 10, 2020 by Maria Monroe

As job losses in the United States persist amid the coronavirus recession, the economic and mental health fallout becomes ever clearer. Historically, research on the effects of job losses and unemployment on parental mental health and family dynamics has emphasized its ill effects, highlighting, for example, the increase in parental stress and depression and disruptions in parent-child relationships in households suffering from job loss. Many of these adverse impacts can be traced to the financial hardships that can accompany sudden unemployment, particularly in economically vulnerable households.

During the pandemic, the expansion of the Unemployment Insurance system and other economic aid programs mitigated, at least temporarily, the most devastating consequences for those who are able to access those benefits. By the end of December, however, all of these expanded unemployment benefits will expire, while other fiscal measures to protect existing jobs from the ravages of the current third wave of the coronavirus pandemic and COVID 19, the disease caused by the virus, are stalled in the U.S. Congress.

What, then, has been the impact of job losses so far on family well-being during the pandemic? It turns out the answer is more nuanced than one might first assume. In our new working paper, I and my co-authors Susan Mayer and Rohen Shah at the University of Chicago find that there are, indeed, negative effects for mothers in low-income households, many of whom are experiencing increased levels of stress and depressive symptoms, compared to before the pandemic. Yet there also are positive effects for some mothers and their children. The difference is largely around whether mothers lose income due to pandemic circumstances.

These findings offer new insights into the effect that economic shocks, including the coronavirus pandemic, can have on the quantity and quality of time spent between mothers and children, as well as on the financial and emotional health of mothers. I’ll now walk through some of our specific findings.

Pandemic effects on family dynamics

Our survey research on the effects of the pandemic on family dynamics focuses on low-income families, where the virus has been more prevalent. These families, which often already face stresses associated with limited income, face additional pressures during the pandemic, including stress arising from stay-at-home orders and social distancing, separation from friends and other support resources, and disruptions to employment and daily routines. Children in low-income families tend, on average, to have lower academic and socio-emotional skills, compared to their peers in economically better-off households. The families in our study have preschool age children who are vulnerable to a slowdown, or even a reversal, in their skills development due to their preschools having closed in the spring.

On the one hand, given the stresses and pressures placed on low-income families during the pandemic, one would assume that mothers are facing more ill-effects than otherwise and that such negative effects are affecting relationships with their children. This conforms with much of the news coverage and other cultural assumptions prevalent during the pandemic.

On the other hand, many of those mothers received federal stimulus funds in late spring 2020 and, if they lost their jobs, received expanded Unemployment Insurance that, in some cases, amounted to a higher income during their unemployment. Some also may have partners who increased their work hours, and hence their income, due to the pandemic. In effect, these families experienced a type of paid family leave for at least one partner, albeit with an uncertain future looming directly ahead.

We also investigated the effects on parental mental health and stress, parent-child interactions, and children’s behavioral adjustment. We did this by comparing the relative importance of pandemic-induced economic hardships, such as job and household income losses and the inability to make ends meet, as well as pandemic-induced social conditions, including oneself or one’s family members becoming ill with COVID 19, and pandemic-induced increases in child care time.

The findings about the relative effects of job and income losses are especially relevant to discussions of economic support for low-income families. In particular, mothers who both lost their jobs and suffered substantial drops in household income were significantly more likely to report depressive symptoms, as well as increases in life stress, compared to those survey respondents who experienced neither of these events. These mothers also experienced less hope for the future. Importantly, however, losing a job with no substantial loss of household income had no impact on these mental health indicators.

Furthermore, parents who lost their jobs but did not experience a drop in their incomes reported having more positive interactions with their children and were more likely to report that their children enjoyed spending time with them. Parents struggling with losses of income, by contrast, report more often losing their temper and yelling at their children.