Aerial view of Miami waterfront mansions, October 2018.
Wealth inequality in the United States is rising more steeply to the already very rich, even more than the well-known rise in income inequality. The wealthiest 1 percent of families in the United States hold about 40 percent of all wealth and the bottom 90 percent of families hold less than one-quarter of all wealth. (See Figure 1.)
Figure 1
This gaping wealth divide has sparked proposals for sharply higher taxes on wealth. Taxing wealth is a promising way to raise revenues and deal with the deep historical skeins of economic inequality and structural racism exposed by the coronavirus and COVID-19, the disease it causes. There are many ways taxes on wealth could be reformed and expanded, including adoption of a wealth tax, switching to mark-to-market taxation of investment income, incremental reforms to the existing income tax, and adopting an inheritance tax. Recently, I and my co-authors William Gale, Christopher Pulliam, and Isabel Sawhill at The Brookings Institution proposed another approach—expanding the federal estate tax.
There are four principal reasons why expanding the estate tax could well be the most effective and efficient way to close the wealth divide and provide the federal government with the fiscal means to ensure the economic recovery from the coronavirus recession is both equitable and designed to deliver long-term structural change. First, policymakers have repeatedly cut the estate tax over the past 20 years, without regard for the true economic and distributional consequences. The result: The top estate tax rate has fallen from 77 percent in 1976 to 40 percent currently, and dramatic increases in the exemption mean that many fewer estates have to pay anything.
Second, although critics like to characterize the estate tax as penalizing a lifetime of hard work and savings, the estate tax, in practice, is better described as an effective backstop to the federal income tax. The estate tax is not a tax on death; it is a way of collecting taxes that the deceased avoided over their lifetimes by using income tax loopholes. Academic research shows that an effective estate tax and forced realization of untaxed capital gains at death are similar in many ways, in terms of revenue and distributional effects.
Third, the very failure to collect taxes on the true incomes of the very wealthy increases wealth inequality within generations and amplifies the inequality due to intergenerational wealth transfers. Law professor Lily Batchelder at New York University finds that “wealth transfers increase within-generation inequality on an absolute basis because of what economists call regression to the mean.” She explains that “someone who earns $100 million per year, for example, is likely to have a child whose income is slightly lower, even including the child’s inheritance [but] someone who earns $10,000 per year is likely to have a child whose income is slightly higher than her own.” (See Figure 2.)
Figure 2
These deeply skewed inheritances—due to no effort on the part of the children, grandchildren, and great-grandchildren of the wealthy—robs the United States of the promise of equal opportunity and leaves the federal government with less revenue to address the baleful long-term economic consequences of wealth inequality.
Which brings me to the fourth reason to revive the estate tax—doing so would greatly improve the overall fiscal outlook of the federal government, and in a highly progressive way. Simply restoring the estate tax to the 2001 law, adjusted for inflation, would have generated $145 billion in 2020, which is almost 25 percent of all nondefense discretionary spending in that year. This is more than eight times what the IRS is collecting today under the existing estate tax.
Gale, Pulliam, Sawhill, and I provide a range of calculations of how reviving the estate tax could result in significantly more revenue for the federal government. Our estate tax calculator is one way policymakers in Congress can decide how to expand the estate tax. As we say in the conclusion of our Brookings issue brief, “The long-term threats of unsustainable federal debt, rising inequality, and the need for government investments should compel policymakers to seek new ways to raise substantial revenue from the well-to-do. An expanded estate tax would raise large amounts of revenue, be highly progressive, and directly target a major source of wealth inequality.”
Black women hold almost one third of nursing assistance jobs
Today is Black Women’s Equal Pay Day. This is the day until when Black women have to work, from the start of 2019 through August 2020, to earn as much as White men earned in 2019 alone. In dollars and cents, Black women who work full-time, year-round earn 62 cents for every one dollar full-time, year-round White men workers earn. Lower earnings year-over-year means a lower level of well-being and increased economic risk in a downturn.
Read our work for Black Women’s Equal Pay Day 2021 here:
Black women face unique barriers at the intersection of race and gender in the U.S. labor market. In a Equitable Growth working paper, titled “Returns in the labor market: A nuanced view of the penalties at the intersection of race and gender,” Mark Paul of the New College of Florida, Khaing Zaw of Duke University, Darrick Hamilton of The Ohio State University, and William Darity Jr. of Duke University find that Black women’s pay disparities are greater than the sum of racial pay disparities and gender pay disparities. In their words, “Black women face a different gender penalty than White women, and different race penalties than Black men.”
To dig in deeper, we answer five questions about why Black Women’s Equal Pay Day falls more than 7 months into 2020 and what to do about it:
What is the role of anti-discrimination enforcement when a large portion of the lower pay received by Black women is due to discrimination, compared to the entire population of women workers?
How much are Black women disproportionately crowded into low-wage occupations?
How do structural barriers that Black women face increase employers’ monopsony power to exploit workers?
How can rejuvinating labor institutions and fostering worker power can help Black women share in the economic growth that they help create?
How can labor market policies such as expanding and increasing the minimum wage disproportionately benefit Black women workers?
The answers to these questions demonstrate why Black women have achieved important gains in the U.S. labor market yet still face significant pay disparities due to persistent systemic discrimination.Increasing worker power through collective action and raising the minimum wage are two other critical steps needed to help close the persistent pay gap faced by Black women.
Anti-discrimination enforcement is critical to ensuring Black women earn their fair share
In their working paper, Paul, Zaw, Hamilton, and Darity find that more than half of the wage divide faced by Black women is not explained by human capital variables. This means that Black women with equivalent education, work experience, occupations, and other factors earn 20 cents less per dollar than a similar White man worker due to no discernible factor, or is the result of overt discrimination.
As one of the many victories of the Civil Rights movement, in 1965, the U.S. federal government created the Equal Employment Opportunity Commission, the agency in charge of enforcing laws against workplace discrimination on the basis of race and sex, along with other protected individual characteristics. Research shows that as anti-discrimination enforcement became more active in the mid-1960s, the earnings of Black workers—and especially those of Black women workers—increased at a faster pace than the earnings of their White counterparts.
Yet the Equal Employment Opportunity Commission’s budget has declined consistently since the 1980s. Its number of employees fell by 42 percent between 1980 and 2018. The weakening of the agency’s ability to enforce anti-discrimination laws might be especially damaging for Black workers, who are more likely than any other racial or ethnic group to report facing discrimination at work or when applying for a job. An analysis by the National Partnership for Women and Families shows that between fiscal years 2011 and 2015, 28.6 percent of the charges of pregnancy discrimination filed with the Equal Employment Opportunity Comission were by Black women, despite representing only 14.3 percent of all women workers.
Occupational segregation results in Black women being crowded into low-paying jobs
Occupational segregation contributes to a significant proportion of Black women’s pay disparities. It accounts for 28 percent of the intersectional wage gap that Black women face, ranking second as a contributing factor after unexplained causes or discrimination. The proportion of women in an occupation reduces the earnings for workers in those jobs, yet even when controlling for education and work, and due to the devaluation of jobs associated with women, the penalty associated with working in women-dominated occupations is greatest for Black women. Case in point: The median wage of nursing assistants was only $13.23 in 2017—a profession where Black women are nearly one-third of the sector’s workforce. (See Figure 1.)
Figure 1
In forthcoming research, Michelle Holder of John Jay College and Thomas Masterson of the Levy Institute reweight the distribution of workers across occupations to be representative of the workforce to determine the degree to which pay disparities between demographic groups are the result of over- or underrepresentation in high- and low-paid occupations. They find that when looking at Black and White workers by gender, Black women women face the greatest earnings penalty due to being crowded into lower-paying jobs and White men receive the greatest earnings bonus due to being crowded into higher-paying jobs.
Monopsony has reinforced the ability of employers to exploit Black women workers
As the U.S. labor market becomes less competitive, stifling wage growth, Black women may be increasingly exploited by employers across the labor market. In a new Equitable Growth working paper, titled “Discrimination and Monopsony Power,” Equitable Growth’s Director of Labor Market Policy Kate Bahn and Mark Stelzner of Connecticut College model how the historical and current barriers that Black women face across society limit how they can search for jobs, which, in turn, can give employers monopsony power to undercut wages. In the paper, the authors model how racial wealth disparities mean it is harder for Black and Latinx workers to leave their jobs in search of better ones, and gendered household responsibilities mean that breadwinner mothers may accept suboptimal jobs that allow for them to manage family care needs.
These phenomena lower the labor supply elasticity (economic parlance for the extent to which workers respond to changes in wages) of Black women. This is why it is possible and profitable for employers to offer lower wages than what would exist in a competitive labor market.
This theoretical model of how monopsony reinforces racial, ethnic, and gender wage discrimination not only aligns with the empirical evidence but also supports the findings of Paul, Zaw, Hamilton, and Darity, showing that the intersection of race and gender is multiplicative, so greater than the sum of individual racial and gender wage disparities.
Fostering worker power can help boost Black women’s wages
The increase in monopsony power, which reinforces persistent pay disparities experienced by Black women, is at least partially the result of the dismantling of institutions that support unionization and worker power. Black workers have higher rates of unionization compared to White and Latinx workers, and union wage premiums are stronger for Black workers and particularly for low-wage Black workers. But declining union density over time means that union wage premiums are less able to offset wage inequality.
In “Discrimination and Monopsony Power,” Bahn and Stelzner show that increasing institutional support for collective action reduces the ability of employers to exploit workers along racial, ethnic, gender, and intersectional lines. And the converse is also true—attacks on labor unions can disproportionately harm Black women, such as the U.S. Supreme Court decision inJanus v. American Federal, State, and County Municipal Employees limiting the ability of unions to collect dues in the public sector, where Black women are overrepresented. Jake Rosenfeld of St. Louis University and Meredith Kleykamp of University of Maryland find that, among women workers, Black-White wage divides would have been between 13 percent and 30 percent lower than they are today if deunionizaton had not occurred to the level it has in the United States.
Fostering worker bargaining power is particularly important for Black women workers, but there is still overall progress that needs to be made in organizing occupations with low levels of bargaining power, such as domestic workers, who are disproportionately Black women. Organizing among Black domestic workers in the 1970s led to the inclusion of more domestic workers in minimum wage and overtime protections in the 1974 amendment to the Fair Labor Standards Act, yet many are not covered and have limited worker power to engage in collective action.
Encouraging and protecting the ability of workers to organize with broad policies such as the Protecting the Right to Organize, or PRO, Act, and policies targeted at jobs with a high share of Black women, among them the proposed federal Domestic Workers Bill of Rights, would balance the ability of employers to exploit Black women and help close this intersectional wage divide.
Increasing and expanding the minimum wage helps close the wage divide that Black women suffer
New research shows how effective minimum wage legislation can be in alleviating pay disparities along the lines of race. Ellora Derenoncourt at Princeton University and Claire Montialoux at the University of California, Berkeley find that the expansion of minimum wage coverage to sectors such as agriculture, hotels, restaurants, schools, nursing homes, and hospitals through the 1966 Fair Labor Standards Act played a major role in narrowing the earnings gap between Black and White workers during the Civil Rights era. The pay divide narrowed because Black workers were overrepresented in those newly covered sectors and the adoption of the minimum wage led to a much greater raise for Black workers than for their White counterparts.
This extension of the minimum wage, Derenoncourt and Montialoux show, explains more than 20 percent of the decline in the Black-White earnings divide between the late 1960s and early 1970s.
The problem is that the federal minimum wage is still the same today as it was in July 2009, standing at $7.25 per hour. Even though many states acted to boost their minimum wages over the past few years, Black women remain overrepresented among minimum wage workers and are particularly hurt by the long absence of a hike in the federal miniumu wage. A recent analysis by the U.S. Bureau of Labor Statistics finds that even though Black women make up 8 percent of all hourly workers, they represent 19.3 percent of workers with wages at the federal minimum and 8.8 percent of those below it. (See Figure 2.)
Figure 2
Conclusion
Black women have, without a doubt, increased their rates of college completion, experienced declining occupational segregation, and achieved other types of gains that the human capital model purports would help to close the intersectional wage divide, yet significant pay disparities remain due to enduring systemic discrimination.In this column, we examined some of the strides Black women have made in the U.S. labor market, alongside the structural barriers that are preventing them from reaching pay parity. Even though the traditional human capital model explains some of the disparities and helps map some policy solutions, this model is inadequate in helping us understand why pay disparities remain so persistent and how we can finally close the wage divide. Increasing worker power through collective action and raising the minimum wage are two other critical steps needed to help close the persistent pay gap faced by Black women.
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.
The social sciences are not immune to the ongoing and long overdue reckoning with racial injustice in the United States. In this installment of Expert Focus, we focus on scholars who have been pioneers in their conceptual and empirical approaches to understanding the role of race, ethnicity, and gender in the U.S. economy, and how community and inequality intersect. Their respective work to center racial equity and community more consciously in research and policy analysis helps spur interdisciplinary dialogue on the historic and persistent role structural racism plays in driving wealth and income inequality in the United States.
Daina Ramey Berry
University of Texas at Austin
Daina Ramey Berry is the Oliver H. Radkey Regents professor of history at the University of Texas at Austin and the incoming chair of the department. Berry’s research focuses on the history of gender and slavery in the United States and Black women’s history. She contributed a key chapter on the role of the slave trade and slave labor in capital and wealth accumulation in the pre-Civil War era in After Piketty: The Agenda for Economics and Inequality, an interdisciplinary commentary on economic debates spurred by Thomas Piketty’s Capitalism in the 21st Century. Her most recent publication, A Black Women’s History of the United States, co-authored with Kali Nicole Gross, is an empowering testament to Black women’s ability to build communities while oppressed and Black women’s continued resistance to systemic racism and sexism. Watch Berry discuss her research on enslaved people at a virtual Economics for Inclusive Property event last month.
Jasmine Hill
Stanford University
Jasmine Hill is a Ph.D. candidate in sociology at Stanford University and a Washington Center for Equitable Growth grantee. She is a self-described “mixed-methods researcher, educator, and scholar-activist” focused on improving the economic conditions of people of color in the United States. Her current work aims to shed light on mechanisms creating and prohibiting social mobility, particularly for low-income communities of color. Hill is co-editor of Inequality in the 21st Century with Equitable Growth grantee David Grusky. Additionally, she regularly designs and evaluates diversity and inclusion initiatives for organizations and corporations to help foster equity and equality in workplace communities.
Marlene Kim
University of Massachusetts Boston
Marlene Kim is a professor of economics at the University of Massachusetts Boston and specializes in race, gender, and class discrimination, especially their intersection, in employment. She is the editor of Race and Economic Opportunity in the Twenty-First Century, a book that explores the economic and social environments that shape economic outcomes and help explain the persistence of racial disparities. She was the first recipient of the Rhonda Williams Prize for her work on race and gender discrimination. Kim currently serves on the Editorial Boards of Feminist Economics, The Review of Radical Political Economy, and Panoeconomics. Her research challenges the invisibility of Asian Americans in discussions of race in the United States, focuses on the compounded burden of discrimination faced by women of color, and looks at disparities between different racial and ethnic communities.
Manuel Pastor
University of Southern California
Manuel Pastor is a distinguished professor of sociology and American studies and ethnicity at the University of Southern California, and a member of the Washington Center for Equitable Growth’s Research Advisory Board. His research focuses on the economic, environmental, and social conditions facing low-income urban communities, and the social movements seeking to change those realities. His book, Equity, Growth, and Community: What the Nation Can Learn from America’s Metro Areas, argues that inequality stunts economic growth and suggests that bringing together equity and growth requires concerted local action. And his book, State of Resistance: What California’s Dizzying Descent and Remarkable Resurgence Mean for America’s Future, explores the role of social movement organizing in terms of shifting the political calculus to move toward racial and economic justice. He is director of the Equity Research Institute at USC, which recently collaborated with PolicyLink to release the National Equity Atlas, a first-of-its-kind data and policy tool containing data on demographic change, racial and economic inclusion, and the potential economic gains from racial equity for the largest 100 cities, largest 150 regions, all 50 states, and aggregate data for the United States as a whole (excluding territories). Additionally, his developing work on solidarity economics argues that caring for others leads to better outcomes.
Patrick Sharkey
Princeton University
Patrick Sharkey is a professor of sociology and public affairs at Princeton University. His work focuses on the connection between criminal justice, economic mobility, and inequality. His most recent book, Uneasy Peace: The Great Crime Decline, the Renewal of City Life, and the Next War on Violence, was published in 2018 after the emergence of the Black Lives Matter movement. He recently authored an op-ed calling for long-term investments in community-based public safety institutions and alternatives to law enforcement, and he testified before the Joint Economic Committee in 2019 on how to build stronger communities and spoke on the intersection of community and inequality. Additionally, his current work with Crime Lab New York looks at how the decline of violent crime affects urban inequality.
Equitable Growth is building a network of experts across disciplines and at various stages in their careers 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.
JOLTS collects data on job openings, hires, layoffs, quits, and other separations between workers and employers.
The U.S. Bureau of Labor Statistics today released its monthly Job Openings and Labor Turnover Survey for the month of June. Also known as JOLTS, the survey collects data on job openings, hires, layoffs, quits, and other separations between workers and employers, providing information on the labor market dynamics behind June’s overall change in employment.
Over the past few months, JOLTS data have shown how the coronavirus recession has, so far, been different from previous downturns. In typical economic contractions, the number of job openings, hires, and quits usually start to fall before there is a surge in layoffs because workers and employers become more cautious when the economy starts to take a turn for the worse. But when the consequences of the pandemic crashed into the U.S. economy in February, layoffs led the way, with a record 11.5 million workers losing their jobs in March alone.
By June, the previous month with published JOLTS data, as states lifted their shelter-in-place orders and coronavirus cases declined, the pace of layoffs plunged. Hiring was strong, as many temporarily laid-off workers were called back. Yet job openings and quits were still below their pre-pandemic levels, a clear sign that the U.S. economy remained in a downturn.
The most recent Employment Situation Summary, also known as the Jobs Report, released this past Friday, detailed labor market statistics for mid-June to mid-July and showed a slowdown in the job gains the U.S. economy made in the previous 2 months. Today’s JOLTS release provided data for the entire month of June and showed, for instance, that between May and June there was no change in the pace of layoffs, the rate of hiring declined with respect to the previous month, and job openings continued to recover in June.
Here are what four labor market indicators available through JOLTS can tell us about how workers and employers experience economic booms and downturns, as well as how this recession is different from the previous one.
The quits rate
The quits rate measures the share of the U.S. workforce that decides to leave their job in a given month. Because most quits are voluntary and tend to reflect job-switching for new opportunities rather than entry into unemployment or exit from the labor force, the quits rate gives insight into workers’ confidence in the strength of the labor market. During booms, workers are more willing to change jobs and find positions that are a better match for their skills or desired earnings, freeing up spots for other workers. As a result, quits tend to have a positive relationship not only with overall job creation but also with the quality of those jobs, since employers have to offer higher wages and more career-advancement opportunities in order to keep and compete for workers.
Conversely, the relationship between quits and the business cycle points to one of the many channels through which both employed and unemployed workers lose bargaining power during downturns. Gadi Barlevy of the Federal Reserve Bank of Chicago proposes that as workers become less willing and able to leave their jobs during recessions, the decline in the quits rate points to a “sullying” effect, where workers get stuck in either low-quality jobs or in positions that are a bad match for their skills. Research shows, for instance, that one of the reasons the Great Recession of 2007–2009 was particularly tough on younger workers was that many older workers decided to retire later and work longer hours, freeing up fewer opportunities for those just stepping into the labor force.
Capturing the onset of the coronavirus recession, March’s JOLTS data show that the quits rate dropped from 2.3 percent in February to 1.8 percent in March—the largest month-to-month decline since the start of the series, in December 2000—and dropped further to 1.4 percent in April. The quits rate rebounded to 1.9 percent in June, but continues to be far below its pre-recession level. (See Figure 1.)
Figure 1
Compared to the Great Recession, however, the initial drop in the quits rate was small, relative to the massive surge in layoffs. That the quits rate did not drop down further is likely a consequence of the coronavirus health crisis: Unlike previous downturns, more workers have had to leave their jobs over health concerns or because of new caregiving responsibilities—work that falls heaviest on women in general and women of color in particular. By industry, the information sector—the industry in which workers are most likely to be able to work from home for pay—has seen the largest decline in its quits rate between February and June.
The ratio of unemployed workers to job openings
The ratio of unemployed workers per job opening is one of the measures economists use to determine how “tight” the labor market is. A low ratio means there are few job-seekers and many vacancies, demand for workers is strong, and the U.S. labor market is operating near full-employment. A tight labor market therefore shifts the bargaining power in favor of workers and, according to economic theory, spurs wage growth, since employers have to make better offers in order to compete for workers.
During the Great Recession and its immediate aftermath, the U.S. unemployed-to-job-openings ratio surged, reaching a high of more than 6.4 jobless workers for every job opening in July 2009. The ratio returned to its pre-crisis level in mid-2015, and by early 2018, there were fewer unemployed workers looking for a job than there were job vacancies for the first time since JOLTS data have been available.
But even as the unemployed-to-vacancies ratio reached a series low, wage growth remained slower than expected. The relationship between unemployment, job openings, and wage growth was weaker than in previous booms, sparking a debate among economists, with some researchers arguing that the labor market was not as strong as the jobless rate suggested. The “wage growth puzzle” has big implications for the U.S. economy, suggesting that the labor market has to be very tight before workers start seeing significant wage gains. This is particularly true for Black workers because their earnings are more responsive to fluctuations in the labor market.
When the coronavirus recession hit the U.S. economy and the unemployment rate skyrocketed, there were more unemployed workers in March than vacancies for the first time since February 2018. By June, there were three jobless workers for every job opening. (See Figure 2.)
Figure 2
The vacancy yield
Also called the job-filling rate, the vacancy yield captures the number of hires in a given month per the number of job openings at the end of that same month. In a strong labor market, there are more job openings, fewer job-seekers, and businesses find it harder to turn their open positions into hires. Conversely, downturns make it easier for employers to fill their vacancies.
Similar to previous downturns, during the Great Recession of 2007–2009, the vacancy yield surged. As many newly unemployed workers competed for few available jobs, employers filled their openings quickly. But in the recovery from the 2007–2009 downturn, the job-filling rate dropped more than in previous recoveries, with some economists proposing that the process by which workers and employers match to turn a job opening into a hire somehow became less efficient.
For instance, Jason Faberman of the Federal Reserve Bank of Chicago argues that a decline in employers’ recruiting intensity helps explain why the U.S. labor market was so slow to recover from the Great Recession. When hiring, employers can ramp up their recruitment efforts not only by posting job openings but also by lowering their hiring standards, spending more time and money on screening candidates, and offering higher wages and better benefits. A team of economists, for example, find evidence that during the 2007–2009 crisis, there was “opportunistic upskilling” as employers began requiring greater levels of experience and education from applicants.
Broken down by sector, researchers find that the leisure and hospitality industry played a major role in the aggregate drop in recruiting intensity during the Great Recession. This could be particularly damaging in the context of the coronavirus recession since this sector is both one of the largest employers in the U.S. economy and the industry that has suffered the greatest number of layoffs since March.
The vacancy yield climbed from 0.8 hires for every job opening in February to 1.1 hires per job opening in June. Despite anecdotal evidence that some businesses are having a hard time re-hiring workers, JOLTS data show that, at least at the aggregate level, employers are now filling their open positions faster than at any point since January 2014. In other words, there does not appear to be a shortage of willing workers, but rather a shortage of job openings. (See Figure 3.)
Figure 3
The Beveridge Curve
The Beveridge Curve maps the relationship between unemployment and job openings. It shows that when the job opening rate increases, the unemployment rate tends to fall. During economic downturns, the opposite happens: Unemployment rises, job openings decline, and the data points move along the curve down and to the right.
In the Great Recession of 2007–2009, this is exactly what happened. The unemployment rate increased, the vacancy rate fell, and the Beveridge Curve tracked the same path it followed in the 2001 recession. As the economy began to recover, however, the curve shifted, moving right and upward from its 2001–2007 recovery pattern. The shift meant that the increase in the job openings rate was not followed by a corresponding drop in the unemployment rate. Some economists worried that the way unemployed workers and open positions matched had become less efficient, while others argued it was a normal consequence of a particularly deep downturn.
The coronavirus recession has led to sharp movements in the Beveridge Curve. As the unemployment rate soared to 14.7 percent in April, the curve shifted to the right. Job openings also fell, but much less so. Even though the curve is now shifting back, generally, the decline of hiring plays a much bigger role in the rise of joblessness. So far, layoffs have led the way. (See Figure 4.)
Figure 4
Job search as a measure of the health of the labor market
A dynamic labor market, where workers are searching for and moving into new jobs that are a better match and higher quality, contributes to overall productivity and income growth and is a fundamental way to understand the health of the labor market. The economic literature on job search theory allows researchers to examine the extent to which “frictions”—or impediments to healthy labor market dynamics—influence unemployment rates, job vacancies, and wage levels. Where there are more frictions evident in job-search measurements, both employment levels and wage levels are lower since it is harder for workers to find a good job and bargain for higher wages, which we can predict by looking at the quits rate.
Job search theory has been a core component of understanding the extent of monopsony in the labor market. When the labor market is not dynamic, workers are not changing jobs in response to the ability to achieve higher wages, which enables employers to exploit these conditions and offer wages lower than would exist in a tight, competitive labor market. Research by Briggs Depew of Utah State University and Todd Sorensen of University of Nevada at Reno finds that so-called labor supply elasticity, or the extent to which workers are sensitive to wage changes, is lower in economic contractions, such as recessions, and higher in expansions. Lower labor supply elasticity in a downturn means that employers will have more wage-setting power, further exacerbating the downside impacts of a recession.
Conclusion
Economic shocks have short-, middle-, and long-term consequences for the way employers make hiring decisions, the confidence with which people move from job to job, and the opportunities available for workers to move up the career ladder and bargain for higher wages. As the coronavirus recession drives uncertainty for workers and employers, the downturn and policy choices aimed at reining it in will continue to have big implications not only for the number of jobs available, but for the quality of those jobs, too. JOLTS data will continue to give economists and policymakers alike a better bead on where the U.S. economy stands in all of these key data measurements.
The CEOs of Apple Inc., Amazon.com Inc., Facebook Inc., and Alphabet Inc.’s Google unit testified in late July.
The CEOs of Apple Inc., Amazon.com Inc., Facebook Inc., and Alphabet Inc.’s Google unit testified in late July before the House Judiciary Committee’s Antitrust, Commercial, and Administrative Law Subcommittee. None of the companies could have been happy with the closing remarks by subcommittee Chairman Rep. David Cicilline (D-RI): “Today, we’ve had the opportunity to hear from the decisionmakers at four of the most powerful companies in the world. This hearing has made one fact clear to me—these companies as they exist today have monopoly power. Some need to be broken up; all need to be properly regulated and held accountable.” That statement got the notice of multiple press outlets, but his next sentence was equally important: “We need to ensure the antitrust laws first written more than a century ago work in the digital age.”
Indeed, over the past four decades, conservative courts relying on unsound economic theories and unsupported empirical claims have enfeebled U.S. antitrust laws—the very laws meant to protect society from corporate abuses of market power. The hearing will intensify pressure on both the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission to bring antitrust cases. But Chairman Cicilline’s closing signals a broader conversation as well. Certain problems may require new regulations or a new regulatory regime. He also acknowledged the need to consider whether the courts have been interpreting the antitrust laws correctly.
The Anticompetitive Exclusionary Conduct Prevention Act of 2020, introduced by Sens. Amy Klobuchar (D-MN), Richard Blumenthal (D-CT), and Cory Booker (D-NJ), takes one approach to addressing current legal rules for how dominant firms can operate in the U.S. economy. The proposed legislation would update the previous time Congress passed legislation on the topic of dominant firm conduct, in 1914, when airplanes were new, Archduke Ferdinand’s assassination (that sparked World War I) was 3 weeks away, and Ford Motor Company had just instituted an 8-hour workday.
Last month’s hearing focused on whether tech firms have too much leeway to suppress competition through harmful exclusionary conduct. Those practices allow dominant companies to stifle actual and potential rivals, preventing competition on the merits and allowing incumbents to obtain or exploit market power. These types of concerns are often raised in the context of digital markets, such as an electronic marketplace preferencing its products or applications over smaller, independent competitors or a dominant company acquiring potential competitors that could disrupt the market, which we have discussed here, here, and here.
Many of the concerns raised at last month’s hearing could be forms of exclusionary conduct, among them allegations that:
Facebook cut off online entertainment community Vine’s access to Facebook because it was a potential competitor.
Amazon priced its products and services below cost to drive out competitors.
Apple discriminated against apps that compete with Apple products.
Google preferences its own content over that of its competitors.
The CEOs of these four companies also faced questions about acquisition strategies that appear to have eliminated potential competitors, in some cases being confronted with their own documents outlining that strategy. Because acquisitions raise different legal issues, however, I will focus on exclusionary practices.
All four companies strenuously deny that any of their conduct is harmful. Instead, they claim their conduct has benefited consumers, increased competition, and that, in any case, is legal. A key point is that even if the conduct is harmful, it may still be difficult for plaintiffs to prove a violation under current interpretation of U.S. antitrust laws. Current antitrust precedents rely too heavily on outdated economic theories, and their overly demanding proof requirements have encouraged the overly lenient enforcement policies that have followed.
This development has limited the ability of antitrust enforcement to stop or deter anticompetitive exclusionary conduct—despite recent economic literature establishing that anticompetitive exclusionary conduct is often feasible and profitable. Yet the Supreme Court shows no signs of changing course and could further limit the antitrust laws.
The Anticompetitive Exclusionary Conduct Prevention Act takes aim at these legal rules and would bring those rules in line with recent economic research. The bill proposes a more concrete definition for what is harmful exclusionary conduct, establishes burden-shifting presumptions to help guide courts, and limits or overturns rules that have little support from economics and limit the effectiveness of antitrust law. So, let’s look first at the problems with U.S. antitrust doctrines that the proposed legislation from Sens. Klobuchar, Blumenthal, and Booker seeks to correct, and then how the new bill could do so.
Problems with current U.S. antitrust doctrines
A recent letter to the antitrust subcommittee signed by 12 antitrust economists and lawyers, including me, details the problems with current judicial interpretations of the antitrust laws, which this section summarizes. Over the past 40 years, courts have been more worried about developing overly strict rules that condemn aggressive competition than with overly lenient rules that allow harmful conduct. Underlying this judgment is a series of assumptions about the nature of anticompetitive conduct.
Judge Frank H. Easterbrook of the U.S. Court of Appeals of the Seventh Circuit popularized this view of grafting decision theory onto antitrust policy. He argues that optimal antitrust rules should limit the costs of underenforcement (allowing anticompetitive activity to occur), overenforcement (incorrectly banning procompetitive conduct), and administering the enforcement regime. In his view, the cost of anticompetitive conduct is relatively low. Even when such conduct is successful, monopoly profits will attract new entrants who will quickly return the market to a competitive state. Even if the conduct goes unpunished, the market and competitors will adjust.
Judge Easterbrook further argues that the cost of a legal regime being overly strict and preventing procompetitive conduct is high. If the courts incorrectly ban conduct that is beneficial, then its benefits are lost forever. If courts prohibit conduct, the defendant must abandon it, and then other companies will shy away from that conduct as well. Therefore, under this view, the antitrust laws should have a limited scope because it is better to allow anticompetitive conduct to occur than to incorrectly bar procompetitive conduct.
Recent research, both theoretical and empirical, refutes the assumptions or, at a minimum, substantially limits their applicability, as American University Washington College of Law professor Jonathan Bakerandothers have explained. Nevertheless, federal courts, and the Supreme Court in particular, have explicitly and implicitly embraced Judge Easterbrook’s view. As a result, judicial doctrines increasingly circumscribe the reach of the antitrust laws and tolerate anticompetitive conduct escaping condemnation to avoid incorrectly condemning corporate conduct that is procompetitive.
A number of doctrines reflect this judgment. Currently, a firm might be able to engage in exclusionary conduct without violating the law because the standard for proving monopoly power is so difficult, which creates a gap in enforcement. In particular, a monopolization case generally requires proof that a firm has or is likely to have 70 percent of a well-defined market. A 70-percent market share should be presumptively sufficient to prove monopoly power, but there are often better ways to prove monopoly power.
Typically, this evidence is referred to as direct effects evidence, such as proof of exercising monopoly power over time, limiting entry, or, when properly measured, monopoly profits. The U.S. Supreme Court, in its State of Ohio v. American Expressdecision, significantly limited the use of direct (and often best) evidence of monopoly power by mandating market definition in cases with vertical restrictions, implying that direct effects evidence only encompasses proof of an output restriction. The Court placed additional burdens on plaintiffs defining markets when challenging conduct by a two-sided transaction platform such as a credit card company. The courts have created limitations on antitrust claims that may have little to do with distinguishing harm from benign conduct.
Courts, and the U.S. Supreme Court in particular, have limited the scope of the antitrust laws both substantively and procedurally. In the 1980s, for example, the federal government successfully challenged and broke up AT&T Inc.’s monopoly over long-distance phone service. According to the government, AT&T was refusing to deal with its long-distance competitor MCI Communications; AT&T would not connect MCI to local phone networks. Under more recent Supreme Court case law, AT&T’s conduct could be legal even if it prevented competition in long-distance markets.
Similarly, as a practical matter, under Supreme Court case law, predatory pricing—pricing products or services low to drive out or prevent competition—is almost never illegal. Both economic theory and evidence has established that predation can be both successful and profitable. And the Supreme Court has shown increasing willingness to find that Congress has implicitly repealed the antitrust laws in regulated industries.
Summary of the Anticompetitive Exclusionary Conduct Prevention Act of 2020
The new bill would shift the balance in U.S. antitrust law, requiring courts to be more concerned with risks to competition. Under the bill, exclusionary conduct is illegal if it presents an appreciable risk of harming competition, making clear that the antitrust laws are concerned with potential competition and do not require certainty. The bill defines exclusionary conduct as any action that materially disadvantages competitors or tends to foreclose the ability of a competitor to compete. Courts must consider any procompetitive benefits and entry as part of the analysis. The provisions apply to conduct by sellers or buyers, including employers.
In a general case, the plaintiff has the burden to establish that the conduct is exclusionary and creates an appreciable risk of harming competition. But a burden-shifting framework exists for certain situations. If a firm has more than a 50 percent market share or has significant market power, then the defendant must prove that the exclusionary conduct does not present an appreciable risk of harming competition. The bill clarifies that market definition is necessary in an antitrust case only if explicitly required by statute or if relied upon by the plaintiff.
The new bill also rejects or limits Supreme Court case law that has undermined enforcement. On refusals to deal, the new legislation eliminates a requirement that the defendant had to have had a prior course of dealing with the competitor or that the defendant discriminated against competitors. On predatory pricing claims, the bill eliminates the requirements that defendants’ pricing be below cost. And, the bill rejects the “no economic sense” test, which requires a plaintiff to prove that the defendant’s conduct makes no economic sense apart from its tendency to reduce competition. The bill limits courts’ ability to find an implicit repeal of the antitrust laws based on a regulatory statute.
Finally, the bill establishes fines for violations of the statute, up to a maximum of 15 percent of the defendant’s U.S. yearly revenue or 30 percent of the defendant’s U.S. revenue during the period of the violation, whichever is greater. The bill also requires the Federal Trade Commission and the U.S. Department of Justice to issue enforcement guidelines that explain the agencies’ interpretation of the statute. Those guidelines must address the agencies’ process for determining the amount of the fine they request based on specific factors described in the bill.
In short, the Anticompetitive Exclusionary Conduct Act reflects a judgment that our legal rules do not sufficiently protect competition from dominant firms that abuse their market power and do not reflect sound economic theory and learning. As with any legislation, there will be a tendency to focus on specific phrases and provisions, a process that is a critical part of the legislative process. But taking in the big picture, this bill provides a unified critique of existing U.S. monopoly law and proposes a systematic solution: shifting the balance in favor of competition, limiting case law that undermines enforcement, and providing penalties to deter anticompetitive conduct. This bill, along with last month’s hearing and the Committee’s report, suggest that this discussion will continue.
1. The hope was that a small increase in the share of people with college degrees would, if demand curves had the right slopes, have a large effect on the only-high-school wage discount. It looks as though this hope was in vain. Read Kathryn Zickuhr, “A college degree is not the solution to U.S. wage inequality,” in which she writes: “The skills gap is only a small and relatively unimportant explanation for the college wage premium because it fails to account for declining worker power and the role of monopsony in the labor market. These more important explanations for the college wage premium—and its recent decline—underscore why policymakers need to improve the underlying labor market conditions for all workers, instead of shifting responsibility.”
2. What is happening during the coronavirus recession to work-life balance among those with small children? Some preliminary answers from Umair Ali, Chris M. Herbst, and Christos A. Makridis in their working paper, The Impact of COVID-19 on the U.S. Child Care Market: Evidence from Stay-at-Home Orders,” in which they write: “This paper quantifies the short-run impact of … containment policies on search behavior and labor demand for child care … Online job postings for early care and education teachers declined by 13 percent after enactment … driven exclusively by private-sector services … We find little evidence that child care search behavior among households has been altered. Because forced supply-side changes appear to be at play, our results suggest that households may not be well-equipped to insure against the rapid transition to the production of child care. We discuss the implications of these results for child development and parental employment decisions.”
Worthy reads not from Equitable Growth:
1. Once again: suppress the novel coronavirus so that nobody who comes into close contact with an elderly or comorbid relative has great reason for fear, and the economy will then recover. Fail to suppress the virus to that extent, and the economy will remain in depression. Read Anne O. Krueger, “The Open Secret to Reopening the Economy,” in which she writes: “Areas that eased their initial COVID-19 lockdowns and now have surging infection rates are a testament to all that has gone wrong in the pandemic. The lesson from day one still holds: until the virus is defeated, there can be no return to normal … As soon as … reopenings began, many people returned immediately to their old habits, ignoring recommendations for social distancing, avoiding crowds (especially indoors), wearing a mask, hand washing, and other preventive measures. Factories reopened, and many retail establishments and other services resumed operations, albeit at reduced capacity. For a short time, output and consumer spending rose significantly, and the unemployment rate started falling (though it remained high). But in most cases, these reopenings started with an R number close to or above one, which guaranteed that as soon as people started relaxing precautionary measures, the number of infections would begin to rise again. The result is a lose-lose scenario. Current conditions are conducive to neither a sustained improvement in economic activity nor a sustained reduction in COVID-19 cases.”
2. The last time I went into my children’s pediatricians’ office, they had two doctors, three nurses, and four papers shufflers there—and the paper shufflers were mirrored by four more paper shufflers at the insurance companies, all trying to keep whatever the pediatricians were deciding to do from being covered by insurance. But, as Kevin Drum rightly points out, that is not the only overhead of our insane healthcare financing system. We patients spend a lot of time working for the insurance companies for free as well. Read his “How Big Is the Underground Cost of Health Care?,” in which he writes: “The health care system [is] massively inefficient and prone to errors, most of which end up falling on patients to fix … on hold making appointments … medication errors … arguing with insurance companies … back-and-forth … telling doctors what some other doctor said … miscommunications caused by the fact that doctors typically know nothing about the actual operation of their own industry … [all] elements of the health care system that are outsourced to patients themselves. It never gets accounted for, but for all practical purposes the health care system relies on the unpaid labor of patients … I have never seen a study that tries to compare this underground cost among countries.”
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 U.S. economy added 1.8 million jobs in July 2020, but the coronavirus recession is still wreaking havoc on the labor market, particularly for women and workers of color, whose unemployment rates remain above the overall level of 10.2 percent. Despite the gains, the prime-age employment to population ratio is still below 74 percent. And the July increase in jobs was well-below the 4.8 million increase in June, suggesting that the uptick in coronavirus cases that continued into July may be cooling a potential recovery. Kate Bahn and Carmen Sanchez Cumming put together a series of charts highlighting the most important trends in the data, as well as a column with further analysis of the release.
Before the jobs numbers were released today, Heather Boushey posted a series of tweets previewing the data and their implications for an eventual U.S. economic recovery from the coronavirus recession. It’s an insightful look into how these numbers can help guide policymakers’ next steps and how the novel coronavirus has affected practically every aspect of American life so far.
As policymakers continue to debate the next coronavirus relief stimulus bill and as cases of coronavirus and deaths from COVID-19 continue to rise across the United States, David Mitchell compiled a helpful round-up of 21 policy solutions that Equitable Growth has put forward to combat the impact of the coronavirus recession. The policies are grouped into several areas, from Unemployment Insurance to structural racism, and from child care to paid leave to climate change. Many of these policies are derived from our Vision 2020 project and featured on our dedicated coronavirus recession page, Mitchell notes, which is meant to guide policymakers in several areas during economic and policy conversations in 2020 and beyond.
Data analyzing the economic recovery after the Great Recession of 2007–2009 reveal that the economic growth that characterized the past decade (pre-coronavirus recession) was not shared equally across the United States. Not only did wealth and income divides widen further, but rural areas also saw less prosperity than urban areas, particularly in the Western region of the country. Raksha Kopparambreaks down the data, which looks at annual Gross Domestic Product growth by county and industry, finding that rural areas saw aggregate growth of around 14.8 percent, while urban areas registered growth of 19.2 percent during the post-Great Recession 11-year recovery. Kopparam dives into industry-specific trends over the years and why certain regions grew more than others, concluding with the implications for the coronavirus recession and eventual recovery.
Brad DeLong puts together his latest Worthy Reads, highlighting recent must-read content from Equitable Growth and around the web.
Links from around the web
The economic damage from the coronavirus recession is visible across the United States. And even though each new monthly jobs report since May has shown that the economy is adding jobs, unemployment is still ravaging local areas—some worse than others. The New York Times’ Quoctrung Bui and Emily Badger take a deeper look at the unemployment numbers in three American cities—New York, Los Angeles, and Chicago—to show that in some parts of these metropolitan areas, joblessness has reached astounding levels, around 30 percent in some cases. This means, Bui and Badger continue, that other problems, such as evictions, poverty, and hunger, are likely to follow close behind and will likely be geographically concentrated in areas that were already worse off before the crisis struck, with lasting consequences for the children growing up in these areas.
The coronavirus recession has affected women more than men, with 11.5 million women and 9 million men losing jobs between February and May. In fact, women’s job losses by the end of April wiped out a decade of gains. Amanda Holpuch of The Guardianexamines how this recession differs from the Great Recession of 2007–2009, when men lost twice as many jobs as women, and attributes the difference mainly to the industries hardest hit by this downturn—those where women, especially women of color, hold a disproportionate number of jobs. Holpuch writes that these data highlight how women are more vulnerable to sudden losses of income due to the gender wage gap, as well as more dependent on child care and schools opening to be able to work.
Homeownership has long been considered one of the keys to wealth in the United States and an essential milestone on the path to achieving the American Dream. But Black Americans have been shut out of this process for decades—and the gap in homeownership rates between Black and White Americans is now wider than it was before the Civil Rights movement. The homeownership racial divide has especially important implications during the coronavirus recession, which has hit Americans of color harder than their White peers, as the wealth building that typically occurs alongside homeownership enables families to weather economic downturns and job losses. NBC News’ Nigel Chiwaya and Janell Ross explore the various ways homeownership and maintenance is kept out of reach and made more difficult for people of color in the United States, even for those who inherit already-paid-off homes from their parents and grandparents. They look at historical practices such as redlining and systemic barriers built into the financial system that have contributed to this trend, as well as the consequences that lack of homeownership have had and continue to have on Black communities.
Latinx workers constitute 24 percent of the leisure and hospitality industry.
With novel coronavirus infections still rising in many states, an ongoing squeeze on already hard-hit workers and businesses, and uncertainty about the federal government’s next economic relief package, July’s Employment Situation Summary by the U.S. Bureau of Labor Statistics shows that the labor market lost some of its momentum toward recovery compared to May and June. And women workers, Asian, Black, and Latinx workers, and workers with lower levels of education are all continuing to experience particularly high rates of unemployment.
After record job losses in April followed by strong employment gains in May and June, the U.S. economy recovered1.8million jobs in July. The share of prime-aged adults who have a job ticked up from 73.5 percent to 73.8 percent, and the overall unemployment rate fell to 10.2 percent—a 0.9 percentage point decline from the previous month. The share of unemployed workers who report having permanently lost their jobs rather than being on a temporary layoff rose for the fourth month in a row, albeit less so than in June and May, going from 20.9 percent in June to 22.6 percentin July.
Small sample sizes in the Bureau of Labor Statistics’ jobs survey mean month-to-month changes should be interpreted with caution, yet the disparities by race and ethnicity are striking. Between June and July the unemployment rate for Black workers fell the most slowly among workers of color, going from 15.4 percent to 14.6 percent. For Asian American workers it declined from 13.8 percent to 12 percent. White workers’ jobless rate fell from 10.1 percent in June to 9.2 percent in July. (See Figure 1.)
Figure 1
The labor market has been particularly volatile for Latinx workers. In April, their unemployment rate shot up, reaching an all-time high of 18.9 percent—6.9 percentage points higher than at its Great Recession peak in August 2009. But the Latinx unemployment rate has been falling relatively quickly since then, dropping from 14.5 percent in June to 12.9 percent in July.
These sharp fluctuations are explained, in part, by the economic downturn’s impact on service jobs. Since the coronavirus recession hit, service industries have borne the brunt of job losses, with the leisure and hospitality industry leading the way. Between February and April the sector lost 8.3 million jobs—almost 50 percent of its pre-pandemic employment. Yet in the last 3 months the leisure and hospitality industry has also made some of the strongest gains. Despite surging coronavirus cases dampening usual summer activities, in July hospitality and leisure accounted for more than a third of all new jobs, more than any other industry, followed by government, retail, and education and health services.
For Latinx workers, these job losses and gains have big implications, since they are overrepresented in service industries and occupations. Despite making up 17.6 percent of the U.S. workforce, Latinx workers constitute 24 percent of the leisure and hospitality industry. In 2019, almost 1 in 3 Latinas and 1 in 4 Latinos worked in service occupations such as housekeepers, medical assistants, and cooks, higher than the proportion of White men and women and Black men and women in service occupations. (See Figure 2.)
Figure 2
Because many of these service jobs require face-to-face interactions, the percent of Latinx workers who were able to telework for pay at any time in June was only 21.1 percent—a smaller share than workers of any other major racial or ethnic group.
The crisis in the service sector is compounded by Latinx workers’ overrepresentation in low-wage jobs. They have the lowest median earnings of any major ethnic or racial group. Breaking the data down by gender, Latinas are the worst paid workers in the U.S. economy.
When analyzing differences in pay, researchers find that there is, on average, a 40-cent wage gap between Latinas and White men. Occupational segregation explains an important chunk of the gap, followed by disparities in education and training, and industry distribution. More than half of the pay gap between Latinas and White men, however, is unexplained by other demographic or human capital variables, and interpreted as evidence of discrimination in the U.S. labor market.
Additionally, some of the decline in the Latinx unemployment rate is probably a consequence of many of these workers dropping out of the labor force altogether. Between June and July the Latinx labor force participation rate—the share of people employed or actively looking for a job—fell more than for any other group, dropping from 65.5 percent to 64.6 percent.
This exit from the U.S. labor force risks erasing some of the gains made by Latinas during the 2009–2020 expansion. As early as a decade ago, Latinas used to have the lowest labor force participation rate in the United States, but by February 2020, just before the coronavirus recession hit, their unadjusted labor force participation rate reached 59.4 percent—higher than the rate for women overall and the highest point since the statistic was first reported in 1976. In July, however, the share of Latinas who are either employed or actively looking for a job dropped from 59.3 percent in June to 58.5 percent in July.
The U.S. labor market is far from roaring back. Many of the jobs created last month—particularly those in service occupations—are worse and less safe than the jobs that were lost in March and April. Uncertainty and lack of support for workers who have been hardest hit by the coronavirus recession are already putting the brakes on the recovery. The expiration of the weekly $600 Pandemic Unemployment Compensation boost at the end of July is particularly painful for low-wage workers in the most exposed industries. Even though it will now take weeks before any further enhancements to jobless benefits reach workers, policymakers should extend the extra $600 and only phase them out once the unemployment rate falls and the health crisis is kept in check. As long as both workers and consumers feel unsafe, the recovery will stall.
On August 7th, the U.S. Bureau of Labor Statistics released new data on the U.S. labor market during the month of July. Below are five graphs compiled by Equitable Growth staff highlighting important trends in the data.
While the labor market added a relatively robust 1.8 million jobs in July, the prime-age employment-to-population ratio only increased slightly from 73.5% to 73.8%.
While unemployment rates have been declining for White, Hispanic, and Asian workers since May, the decline has been slower for Black workers, whose unemployment rate was at a high level of 14.6% in July.
Unemployment rates continue to be higher for those with lower levels of education, but workers with a college degree experienced the smallest decline in unemployment in July at 10%, down from 10.9% in June.
Despite the surge in coronavirus cases across the country, employment in leisure and hospitality led the increase in payroll employment, accounting for nearly one-third of jobs added in July.
As unemployment decreased in July, the proportion of unemployed workers who have permanently lost their jobs remained steady, while the share of re-entrants to the labor force increased.
Downtown Prattville, Ala. during a period of shelter-in-place orders, mid-April 2020.
Overview
Prior to the current coronavirus recession, most U.S. economic metrics pointed to a slow but steady nationwide recovery amid an 11-year post-Great Recession run of economic growth. But prosperity was not spread equally across the breadth of the nation. In addition to widening income and wealth gaps, new data show that rural communities did not reap widespread benefits compared to urban regions of the country. The reasons for this gap between urban and rural economic growth bear serious policy consideration as the coronavirus pandemic sweeps across the nation.
During the 11-year recovery following the Great Recession of 2007–2009, Gross Domestic Product growth in rural America lagged behind urban GDP growth, according to the recently released Local Area GDP measure, which provides annual GDP growth data by county and industry. Rural areas in the aggregate experienced post-recession growth of 14.8 percent while urban areas registered 19.2 percent growth. When the data are broken down regionally, we see that the largest urban-rural divide is in the West, which consists of California, Oregon, Washington state, Alaska, and Hawaii. (See Figure 1.)
Figure 1
Demographic and industry breakdowns
This divide in urban and rural outcomes was driven by changes in demographic and industry composition. Rural and nonmetropolitan areas have a higher share of older people over 65 years of age, 17.5 percent, meaning labor force participation rates will drop as rural communities age. In addition to age, educational attainment contributes to declining labor participation and outcomes because half of prime-age adults (ages 25 to 54) held no more than a high school diploma in rural communities. Decreasing educational attainment brought about an ever-widening labor force participation gap between rural and urban areas.
Looking at the regional breakdown of urban and rural growth, it is evident that rural communities rely on specific industries for economic growth and sustainability. Rural counties in some states such as Texas and Oklahoma depended on the mining and fracking industries for long-term growth after the Great Recession. (See Figure 2.)
Figure 2
Indeed, Louisiana’s rural counties witnessed a 30 percent decline in post-recession output, yet the entire Southern region’s rural growth was able to counteract this decline partially through mining and fracking output in Texas. As a result, the South, as well as the Northeast, experienced large shares of growth coming out of the mining and fracking sector. (See Figure 3.)
Figure 3
Beyond farming, mining, and fracking, the rural economy relied heavily on the service industry as a form of sustainable employment. In 2016, data from the U.S. Census Bureau’s American Community Survey showed that 22 percent of people living in completely rural counties (counties in which 100 percent of the population live in a rural area) were employed by the educational, healthcare, and social assistance service sector. Another 7.3 percent worked in the arts, food, and accommodations service sector. Yet even though many rural workers depended on services over fracking, mining, and agriculture, the service industry output fell short for these communities during the post-Great Recession run of economic growth.
What’s more, growth in the rural service sector lagged behind similar industries in urban communities. In the South and the West, there was a 14 percentage point and 16 percentage point gap, respectively, in the growth of service output between urban and rural communities. The gaps were smaller in the Midwest and especially in the Northeast. (See Figure 4.)
Figure 4
Rural and urban and regional economic growth gaps in healthcare
Then, there’s the healthcare sector. There are widespread regional and rural-urban divides in economic output in healthcare since the Great Recession. Rural counties in the West and Rocky Mountain states experienced growth in healthcare while rural counties in the South, Midwest, and Northeast registered more contraction in this industry since the previous recession. (See Figure 5.)
Figure 5
One explanation for such geographic divides is the growing trend of healthcare professionals moving away from rural counties toward urban counties, where hospitals are growing rather than closing or consolidating. Since 2010, 130 hospitals in rural communities have closed their doors, predominantly in the South. A study from the Chartis Center for Rural Health estimates that another 453 hospitals out of the remaining 1,800 are vulnerable to closure based on their performance and funding support between 2019 and 2020.
In addition to funding struggles and closures, rural hospitals are often vulnerable to mergers and acquisitions. Between 2007 and 2012, approximately 8 percent of rural hospitals, or 121, were involved in a merger. These hospitals had fewer profit margins, a lower percent of outpatient revenue coming from Medicare, a smaller ratio of full-time-equivalent, or FTE, employees to hospital beds, and higher amounts of debt compared to hospitals not involved in a merger. Researchers found that after the mergers, salaries went down by more than $1,220 per FTE employee, or almost $645,000. Other studies show that rural hospitals that merged with larger hospital systems experienced a decline in services provided, such as diagnostic imaging and outpatient care.
Despite the reduction in services, these rural hospitals showed significantly increased operating margins, which indicates that they aren’t performing at any greater efficiency than before the mergers took place.
The preservation and improvement of rural hospitals is crucial to the growth of the rural economy, particularly amid the current pandemic. Without accessible and good-quality healthcare, rural workers won’t be able to effectively work and promote growth within their local economies. Lack of accessible healthcare in rural counties means people risk losing their jobs in order to travel further distances to seek medical care that they can’t afford, thus exacerbating the social disparities in rural and urban public health outcomes.
Protecting healthcare accessibility doesn’t mean preserving poorly operating hospitals. In order to close the growth gap between rural and urban communities, policymakers should look at ways to strengthen healthcare accessibilities, such as providing public funding for nonprofit rural healthcare or expanding Medicaid in states with higher rural populations.
Reasons for the growth gap between rural and urban economies
Research by Charles S. Gascon and Brian Reinbold of the St. Louis Federal Reserve credits the urban-rural growth gap to agglomeration effects, which are seen when urban cities experience stronger growth because of firms’ access to resources that increase productivity, such as airports, efficient public transportation, and large pools of consumers. Some urban firms do provide services that spill over into rural communities, such as an urban hospital providing telemedicine to rural patients. But this is still output generated by and for urban areas, and so improvements in rural accessibility to resources primarily boosts urban output and growth. Nonetheless, these spillover effects and increased accessibility to cities’ resources improve rural prime-age adults’ employment prospects and optimism.
On the urban side, much of the gap is attributed to a technology boom concentrated in major metropolitan areas such as San Francisco, Boston, Austin, and New York. The rise of the tech industry worked in tandem with the phenomenon known as the rural brain drain. Young and talented individuals raised in rural communities are migrating to metropolitan areas in waves, searching for jobs in new industries and a higher quality of life.
In a study conducted by demographers Ken Johnson at the University of New Hampshire and Richelle Winkler at Michigan Technological University, the data show that large metropolitan areas experienced net population gains while nonmetropolitan areas experienced net population losses of people ages 20 to 34 years old. As a result of the decreased supply of workers, tech industries are failing to establish themselves in rural areas, despite the relatively low cost of living in such areas.
Policy implications
It is imperative that policymakers consider rural communities when discussing economic policy initiatives. Programs that promote urban growth, for example, may have negative effects on the rural economic expansion. Through the use of data, such as the U.S. Bureau of Economic Analysis’s Local Area GDP measure, academics and policymakers alike can track rural industry trends and create policies that promote a stable and resilient rural economy.
