Elevating economic research on racist violence and exclusion in the United States

Posted on by Maria Monroe
Violence and repression are wielded against Black people to minimize their political power and economic opportunity.

On May 25, 2020, a police officer murdered George Floyd in Minneapolis, Minnesota. This public killing was one of the most recent murders of Black people either by law enforcement or by civilians who faced no immediate consequences for their actions. Earlier in the month, the two men who shot and killed Ahmaud Arbery, a Black man out for a run in Georgia, were finally arrested for the February shooting, but only after national attention and sustained public outrage. The case of Breonna Taylor, an emergency medical technician murdered by police in Louisville, Kentucky as she lay in her own bed, similarly took months to gain national attention. These and so many other tragedies—the lost lives of Tony McDade, David McAtee, and far too many others—underscore the unacceptable view of the expendability of Black lives, and have sparked days of protests, uprisings, and civil resistance across the United States.

To understand the present moment, decades of research demonstrates the undeniable harm caused by racism and the persistent damage that is present today. The Kerner Commission was assembled in 1967 to investigate the causes of uprisings at that time and issued its final report in early 1968. This report had its own flaws and shortcomings, as many researchers detailed on its 50th anniversary, such as failing to capture the institutionalized mechanisms of racism, its silence on White rage, the invisibility of Black women, and the lack of Black technical staff involved in the research itself. The report, however, directly identified White racism as the underlying cause of the uprisings of the 1960s and described specific practices, such as police brutality, directly contributing to the unrest. Yet many of the disparities discussed in the report remain the same or are even worse today due to the choices and neglect of policymakers over the intervening five decades.

The violence and repression wielded against Black people, often carried out by authorities at all levels of government in the country or implicitly sanctioned by those same authorities, is deployed in order to minimize Black Americans’ political power and economic opportunity. It is older than the United States itself, enshrined in the founding charters of the original 13 colonies, and it has thrived in southern as well as northern states, in cities and suburbs, and in rural areas. Segregation, mass incarceration, and wealth-stripping practices—all variations of racialized control over Black people deployed in the service of White dominance—also have intergenerational effects, constraining opportunity for later generations.

It is impossible to understand our economy, our failure to ensure broad-based growth and stability, and the economic connections to social and political power without addressing these forces in our policy frameworks and policymaking. That’s why the Washington Center for Equitable Growth is elevating key empirical research from our network of academics and grantees, along with other researchers. We focus here on incarceration and police militarization, as well as economic consequences of racist violence, exclusion, and disenfranchisement. This list is not exhaustive, but it highlights some of the important work that examines the pervasive role of White supremacy in limiting and destroying economic opportunity for Black communities in order to anchor this framing in future research and policy solutions.

Equitable Growth would be remiss not to mention the work of the National Economic Association, founded in 1969 as the Council of Black Economists. NEA has led decades of work that both elevates the professional careers of Black economists and exposes the structural mechanisms of U.S. racial inequality and oppression. Through all of this work, it is clear that the legacy and continued presence of structural racism distorts economic stability and growth through many channels, in ways both direct and subtle. And it makes clear that sweeping policy solutions, such as reparations, will be necessary to center racial justice in an economic agenda.

Equitable Growth must still do much more to address the ongoing forces and effects of our country’s deep and systemic racism, including within our organization and our profession. The racial inequities built into the foundation of our economic system will continue to block and constrict the pathways to economic growth and stability unless we do the work to identify them, name them, and address them. Going forward, we will continue to fund and elevate research that places Black lives and the role of race and power at the center of the analysis, based on cutting-edge research, with policymakers and the media.

  • Research by Lisa Cook, a member of the Washington Center for Equitable Growth’s Research Advisory Board and an economist at Michigan State University, shows how hate-related violence against African Americans in the late 19th and early 20th centuries significantly harmed economic activity and innovation. Cook finds that ethnic and political violence and segregation laws between 1870 and 1940 led to 1,100 fewer patents among African American inventors during this time period, with this lost output equivalent to a medium-sized European country.
  • Further research by Cook—along with grantee Trevon Logan, the Hazel C. Youngberg Trustees Distinguished professor of economics at The Ohio State University and a research associate at the National Bureau of Economic Research, and John Parman, the Paul R. Verkuil Distinguished associate professor of economics at the College of William and Mary and the National Bureau of Economic Research—also explores the relationship between interracial violence and residential segregation. The authors find that segregation doubled between 1880 and 1940, and was especially high in the South. They also find that more segregated areas saw higher levels of interracial violence, specifically lynching: “Past lynching activity predicts the outflow of the Black migrants from a county but not the segregation of the remaining Black households.”
  • Additional recent research by Logan examines the effect that Black enfranchisement and political representation had on public finance during Reconstruction, immediately after the Civil War. He finds that “an additional Black official increased per capita county tax revenue by $0.20, more than an hour’s wage at the time,” and the effect disappeared when Black officials were removed from office later in the century. The presence of Black public officials, who generally prioritized public education and land redistribution, also led to increased tenant farming and decreased sharecropping, as well as higher literacy rates among Black men—improving economic outcomes and economic opportunity for Black communities.
  • Identifying and measuring the specific impacts of racism can be a challenge, but economic tools can help bring them to light. Jhacova Williams, an economist at the Economic Policy Institute, uses the presence of streets named after Confederate generals as a proxy for racial animus in a recent working paper. Her analysis shows worse labor market outcomes for Black people living in areas with Confederate-named streets and suggests that this labor market penalty could be due to persistent racial resentment in these areas.
  • Grantee Ellora Derenoncourt of Princeton University examines how cities changed in response to the influx of Black families during the Great Migration out of the South between 1940 and 1970, finding that destination cities changed in ways that reduced the economic opportunities available to children, especially Black children. As Black families moved in, seeking safety and economic opportunity, White families withdrew to the suburbs, and public expenditures in those increasingly segregated cities fell—with the exception of spending on policing, which rose. Derenoncourt’s analysis shows that these changes explain 27 percent of the region’s present-day racial gap in upward mobility, with the greatest effects on Black men.
  • As this research shows, outcomes for Black residents in northern states are often very poor compared to those of White residents, and the gaps for Minnesota—the place of George Floyd’s murder—are particularly large compared with other states. Former National Economics Association President and University of Minnesota economist Samuel Myers Jr. coined the term “the Minnesota Paradox” to describe these extreme racial inequities in income and relative greater opportunity for Black residents in Minnesota. Myers identifies the source of these gaps in compounding intergenerational inequities around wealth and opportunity, such as homeownership and access to bank loans, which continue to constrain Black communities’ economic well-being.
  • Equitable Growth grantee Robynn Cox, an assistant professor at the University of Southern California’s School of Social Work, explores the intersection of crime, incarceration, and employment. She begins by examining the rise of incarceration, which was driven by policy changes and not individual behavior, and how it has affected the labor market and future outcomes for young Black men. Cox’s analysis then examines the potential implications of the Great Recession on unemployment and incarceration, as unemployment for Black youth reached 40.8 percent in September 2009: Incarceration widened racial employment gaps even as a lack of employment raises the likelihood of criminal involvement and incarceration. She argues for shifting public investments from incarceration to youth outcomes in light of not only the threat of incarceration but also persistent discrimination in the labor market.
  • In a Vision 2020 essay on race and criminal justice, Cox further explores many of the changes in federal crime-control policies that have contributed to today’s racial disparities in incarceration and offers several policy recommendations. Among other key points, she calls for solutions that address structural barriers and calls for a federal audit of crime-control programs and policies “to understand their impact on historically marginalized groups … and then defund programs that inadvertently lead to greater net social harm, that increase racial disparities, or that have a disproportionate burden on historically marginalized communities.”
  • Research Associate Khaing Zaw of Duke University, economist Darrick Hamilton, the executive director of the Kirwan Institute for the Study of Race and Ethnicity at The Ohio State University and a Equitable Growth grantee, and grantee William Darity Jr., the Samuel DuBois Cook professor of public policy, African and African American studies, and economics at Duke University and an Equitable Growth Research Advisory Board member, used data from the 1979 cohort of the National Longitudinal Study of Youth to study the connection between racial disparities in wealth and incarceration. The three co-authors find that Black men were consistently most likely to experience incarceration at some point in life at every level of wealth. People with less wealth were more likely to be incarcerated than those with higher levels of wealth and experiencing incarceration had severe impacts on later wealth, but in ways that compounded overall racial wealth gaps. For Black men and women, possessing even relatively small amounts of wealth ($2,000) in their 20s and 30s could dramatically reduce the odds of becoming incarcerated in the short term. At the same time, White people who had been incarcerated had even greater wealth than Black people who had never been incarcerated.
  • Broad legal protections for law enforcement, such as qualified immunity and various state laws, may increase police misconduct. In addition, many police unions have also worked to create processes that shield officers from accountability. A working paper at the University of Chicago Coase-Sandor Institute for Law & Economics by Dhammika Dharmapala, Richard McAdams, and John Rappaport of the University of Chicago Law School suggests that collective bargaining rights for sheriffs’ offices increased the number of violent incidents of misconduct by those offices.
  • Police militarization is correlated with residential segregation. Research by Gbenga Ajilore, a senior economist at the Center for American Progress, finds that counties with larger relative African American populations are less likely to acquire mine-resistant, ambush-protected vehicles, which were developed to withstand improvised explosive devices in Iraq. At the same time, counties with greater residential segregation are more likely to have such militarized vehicles.

The broad research reviewed here demonstrates the link between anti-Black racism and White supremacy, policing and incarceration, and racial economic inequality. Reparations have been proposed as a measure to address the history of state-sanctioned violence and oppression of Black Americans. Vision 2020 author Dania Francis, an economist at the University of Massachusetts Boston, explores what it would take to institute a reparations program in the United States. She discusses the logistical questions of eligibility, financing, and the amount and form reparations could take, depending on the goals of the program. “In this way,” Francis concludes, “centuries spent by African Americans not sharing in the full fruits of phenomenal U.S. economic growth over the course of the past 400 years can be addressed, so that they can more fully contribute to and accrue the full benefits of living in the world’s wealthiest nation in history.”

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Weekend reading: Black Lives Matter edition

Posted on by Maria Monroe

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

Equitable Growth round-up

Equitable Growth President & CEO Heather Boushey made a statement this week on structural racism and economic inequality in the United States:

At Equitable Growth, we stand with our Black colleagues and Black families across the country who every day shoulder the legacy of White supremacy and systemic violence older than the United States itself. We condemn the recent murders of George Floyd, Breonna Taylor, Tony McDade, David McAtee, and Ahmaud Arbery and so many, many more Black men, women, and children who have died from police violence, unchecked White civilian power, and structural racism over more than 400 years. Each and every one of their lives matters, and we bear witness to their senseless loss of life.

The statement also addresses the lack of diversity in the field of economics and reiterates Equitable Growth’s commitment to support more Black scholars and elevate their research and policy ideas to the policymaking community, to fund more research that is based on the lived experience of structural racism, and to ensure that the ideas and voices of Black colleagues and economists are represented across our work. As part of this commitment, Boushey continues, we will work to address the roles that the legacy of slavery, white supremacy, and systemic racism play in U.S. politics and the distribution of wealth and power. In this way, we hope to build a better, more just, and more equitable world, where government and society as a whole recognize that Black Lives Matter.

Despite the drop in overall joblessness in May to a still-high 13.3 percent, part-time workers and workers of color in the United States are facing tough times amid the coronavirus pandemic and recession. Black workers are now experiencing a 16.8 percent unemployment rate, and the Hispanic joblessness rate is 17.6 percent, compared to the 12.4 percent rate of their White peers. In addition, in May, part-time workers accounted for almost one-third of the recent unemployment numbers, despite making up less than one-sixth of the U.S. workforce. Kate Bahn and Carmen Sanchez Cumming analyze today’s release of unemployment data from the U.S. Bureau of Labor Statistics, highlighting the disproportionate impact on these workers and why the current crisis’ impact differs from that of previous recessions.

New research shows that increasing wages for direct-care staff in eldercare facilities can improve safety and health for both facility workers and residents—without reducing the number of workers or the time staff spends with patients. Krista Ruffini summarizes her new working paper, explaining how even a modest increase in wages for nursing home staff increases their tenure with eldercare companies, and reduces the number of health inspection violations and the prevalence of infections and deaths among residents. Ruffini then shows that a 10 percent hike in wages could have reduced the severity of several coronavirus outbreaks at nursing homes across the country and prevented thousands of deaths caused by COVID-19, the disease spread by the new coronavirus. Several policies on the state and local levels could improve the quality of care in nursing homes, she concludes, including raising the federal minimum wage, structuring Medicare reimbursement rates to incentivize high-quality care, and incorporating staffing costs into Medicaid reimbursement rates.

A year ago, Equitable Growth and the Hamilton Project published a book titled Recession Ready: Fiscal Policies to Stabilize the American Economy describing six evidence-based policy ideas that would shorten and ease the next recession using automatic stabilizers tied to economic indicators, such as the unemployment rate. Now, the United States is in the midst of that next economic downturn, with 1 in 4 Americans having lost their job due to the coronavirus recession. On June 8, Equitable Growth and the Hamilton Project will host a virtual event to discuss the significance of the policies proposed in Recession Ready in the coronavirus era and why aid to state and local governments is especially critical now.

Links from around the web

The economics profession has long been struggling to explain racial discrimination in the economy, Peter Coy writes for Bloomberg Businessweek. Coy takes us through the history of economists’ speculations about racial discrimination—largely by White economists, who, “however smart and well-intentioned, can never know how discrimination is experienced and understood by its victims.” Many ignore the impact and legacy of slavery, for instance. What also gets overlooked, he shows, is how ingrained racism and racial discrimination is in our economy and society, from healthcare to housing, from education to policing—and, Coy states, this is made all the more harmful by “the fact that it doesn’t require deliberate hostility to persist.” The economics profession and business industries must grapple with and change the fact that these lived experiences are not being elevated and researched, which only serves to exacerbate racial discrimination.

The coronavirus crisis is making racial inequality even worse in the United States, writes Greg Rosalsky for NPR’s Planet Money. Not only are Black Americans dying at a higher rate of COVID-19 than their White peers, but they are also losing jobs at a higher rate. Studies show that economic inequality will rise as a result of the coronavirus pandemic, and in the United States, Rosalsky says, that undoubtedly means racial inequality will rise as well. The downturn strikes just as African Americans were finally seeing wage growth, after more than a decade of wage stagnation following the Great Recession of 2007–2009. And many Black families already lack the wealth and financial cushions needed to stay afloat during an economic crisis. The disparity between Black-owned wealth and White-owned wealth is being made ever more obvious during this crisis, and will disproportionately put Black workers and their families at a disadvantage coming out of the coronavirus recession.

A recent study by The Brookings Institution’s Makada Henry-Nickie and John Hudak examines how social distancing efforts have been carried out in Black and White communities to see whether social distancing disparities contribute to racial disparities in health outcomes during the coronavirus pandemic. Using mobile tracking device data from Detroit, Henry-Nickie and Hudak show that Black Detroiters were less able to stay home and socially distance than their White peers—not because of personal choices but due to structural differences in the economy and the higher proportion of Black workers in so-called essential jobs. Black and poor communities have not had the option to stay home, telecommute, or remain physically distant, while their White and well-off neighbors have, and the study clearly shows that this has had a large impact on their infection and death rates from COVID-19.

Friday figure

Figure is from Equitable Growth’s 2019 article, “For Juneteenth: A look at economic racial inequality between white and black Americans” by Liz Hipple and Maria Monroe.

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How the coronavirus recession is impacting part-time U.S. workers

Posted on by Maria Monroe

The coronavirus recession continues to highlight and deepen the structural inequities that have long made the U.S. economy so fragile.

According to the Bureau of Labor Statistics’ monthly Employment Situation Summary—also known at the Jobs Report—the unemployment rate fell from 14.7 percent in April to 13.3 percent in May and the economy recovered 2.5 million nonfarm payroll jobs. After prime-age employment experienced the steepest decline in history in April, the share of the population aged 25 to 54 that has a job rose to 71.4 percent in May.

But the Jobs Report also shows that May’s decline in joblessness was mostly driven by White workers, whose unemployment rate went from 14.2 percent in April to 12.4 percent in May. The unemployment rate of Hispanic workers also fell, albeit less so and still standing at unprecedented levels, going from 18.9 percent to 17.6 percent. Meanwhile, the joblessness rate for Black workers actually climbed from to 16.7 percent in April to 16.8 percent in May.

Part-time workers are also among the hardest hit by the coronavirus recession. They have accounted for almost one-third of the decline in employment since pre-pandemic February, despite making up less than one-sixth of the U.S. workforce. Between February and May, the unemployment rate of part time workers surged from 3.7 percent to 19.7 percent. The unemployment rate for full-time workers has increased at a much slower pace, going from 3.5 percent to 12 percent. (See Figure 1.)

Figure 1

Even before the current economic downturn, part-time workers—those working less than 35 hours per week—were already an especially vulnerable segment of the workforce. Part-time workers are disproportionately women of color, are much more likely to experience financial strain, and are much less likely to receive benefits such as paid holidays, health benefits, and family leave. For instance, even though more than 70 percent of U.S. workers have access to paid sick leave, less than half of part-time workers do.

Young workers and those 65 and older—groups that have consistently been among the hardest hit by recessions—are also overrepresented among those doing part-time jobs. This means some of the workers most affected by the current downturn are also among the least likely to have the financial resources to ride out the recession.

Even though it is not surprising that part-time workers have smaller annual and weekly earnings than their full-time peers, a new study by Lonnie Golden of Penn State University advances previous research that shows they experience an hourly wage penalty, with part-timers making 20 percent less per hour than workers with comparable levels of education, demographic characteristics, and working jobs in the same industry and occupation. This penalty is especially burdensome for Black and Hispanic women, who are also overrepresented among those who would like to work more hours but are not able to because of slack labor market conditions or because they could only find part-time jobs.

The massive 7.7 percentage point unemployment gap between part-time workers and their full-time counterparts also points to how the coronavirus recession is different from the previous downturn. In the worst months of the Great Recession of 2007–2009, full-time workers faced an unemployment rate that almost doubled that of their part-time peers. That the opposite is now true is, in part, explained by part-time workers’ overrepresentation in the service occupations being the hardest hit by the coronavirus pandemic and ensuing recession. Similarly, this occupational composition helps explain why part-time workers experienced a bigger decline in joblessness this month, with the leisure and hospitality industry gaining 1.2 million jobs—almost half of the employment gains between mid-April and mid-May.

Part-time workers’ unemployment toll is particularly concerning in the context of the current crisis. Many of them are taking on new caregiving responsibilities and may need positions that demand fewer hours. What’s more, part-time workers are experiencing delays and barriers to access unemployment benefits, much like what is happening to independent contractors and the self-employed. Increasing unemployment insurance through proposals included in the Heroes Act, which just passed the U.S. House of Representatives, would work as a mechanism for macroeconomic stabilization, making this recession shorter and less severe. It also would represent a step forward in alleviating long-standing disparities that have prevented many workers, and especially Black workers, from receiving benefits.

Policymakers should also help part-time workers by ensuring these positions are well-paid and secure by expanding access to basic benefits such as paid family leave and paid sick leave—benefits to which Black workers, who are also particularly impacted by recessions and left behind by recoveries, have less access to than their White peers. There should also be increased federal support for the Children’s Health Insurance Program, which has helped leveling the playing field by providing important support to families of color. In this way, the care responsibilities of many part-time workers would be more stable and sustainable.

Moving from Federal Pandemic Unemployment Compensation to a job losers’ stimulus program amid the coronavirus recession

Posted on by Maria Monroe

Overview

The coronavirus recession is shattering businesses and dramatically increasing unemployment, which hit 14.7 percent in April 2020, the highest level since 1948.1 So far, the federal government has delivered a one-time cash stimulus to most households and increased the amount of unemployment benefits for workers who have lost their jobs through no fault of their own through a program called Federal Pandemic Unemployment Compensation. But individuals and households affected by the coronavirus pandemic and ensuing recession will continue to need support even after it is safe for businesses to reopen. The federal government should therefore consider allowing people who have lost their jobs to keep their expanded unemployment benefits when they go back to work for as long as they could have collected these benefits by staying unemployed.

My proposed policy, the job losers’ stimulus program, is a cash stimulus for workers who have lost their jobs regardless of whether they remain unemployed or find new employment. Compared to only providing higher unemployment benefits to the unemployed, the job losers’ stimulus program boasts the twin benefits of providing greater support to workers who have been most affected by pandemic-related job losses while also modestly increasing overall employment. The exact size of the impact of this new stimulus program is difficult to predict, but a simple policy simulation shows that it could increase the amount of stimulus by 34 percent and allow an additional 6 percent of workers to exit unemployment and return to work within 4 months of losing their jobs.

The job losers’ stimulus program would strengthen the fiscal stimulus at a critical time for economic recovery and would create jobs and raise Gross Domestic Product by increasing consumer demand.2 This is especially important as consumer demand is low during the pandemic, which already led to price decreases as of April 2020.3 Such price decreases can lead to a deflationary spiral in which businesses are cash-strapped and must lay off workers, leading to even lower consumer demand and further price decreases down the road. Beyond these macroeconomic effects, the job losers’ stimulus program also directly benefits job losers and their families: The literature shows that an unconditional cash transfer has many positive effects, in particular on children’s education and health outcomes.4

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Moving from Federal Pandemic Unemployment Compensation to a job losers’ stimulus program amid the coronavirus recession

The job losers’ stimulus program would also have positive effects on the U.S. labor market, allowing workers to return to work when the economy can safely reopen without losing precious income. Typically, Unemployment Insurance benefits do not replace all of a worker’s lost income, but the federal move to expand benefits by $600 per week during the pandemic as part of the Coronavirus Aid, Relief, and Economic Security, or CARES, Act means that some workers are receiving more in unemployment benefits than they earned while employed. Instead of taking away these important benefits from workers when the economic recovery is fragile, the job losers’ stimulus program would allow them to keep these benefits as they start working again and make more money overall than if they stayed unemployed.

Unemployment Insurance benefits are a powerful fiscal stimulus during times of low consumer demand

An increase in federal government spending during a recession can increase GDP by more than the value of that spending—in some cases, almost doubling the amount of the original stimulus. This multiplier effect occurs when consumer demand is low. In April of this year, for example, the price of clothing decreased by 4.7 percent because there was not enough demand.5 When it is safe to reopen, a cash stimulus can increase consumers’ demand for clothing and create jobs in the clothing retail industry. These extra jobs then lead to more people having higher incomes and spending on more clothes, as well as other goods and services, multiplying the impact of the original cash stimulus.

The multiplier effect for Unemployment Insurance is at least 1.7, meaning that a $100 increase in government spending leads to $70 additional GDP in the private sector.6 This 1.7 multiplier effect is based on the effect of fiscal stimulus during the Great Recession of 2007–2009. The expansion of Unemployment Insurance during the Great Recession had an even greater impact—about 1.9, which means that every $100 spent on Unemployment Insurance led to $90 additional GDP value.7

The job losers’ stimulus program would build on this success by giving additional cash to formerly unemployed workers after they find a new job or otherwise return to work. In doing so, the job losers’ stimulus increases the size of the stimulus at a time when it can have the greatest impact, and the effect of each additional dollar can be calculated using the fiscal multiplier.

Increasing Unemployment Insurance has little effect on overall employment levels during a deep recession

In a booming economy, when there are jobs to be had, increasing unemployment benefits can moderately increase the length of time workers remain unemployed. Overall, the literature shows that a 10 percent increase in benefits increases unemployment duration by 5 percent. This 0.5 elasticity is the average in the U.S. literature.8

Yet increasing unemployment benefits generally produces less of an effect on unemployment duration during a recession. The literature on Unemployment Insurance shows both theoretically and empirically that the impact of Unemployment Insurance on employment levels in a recession is smaller than in a boom.9 For instance, while more generous Unemployment Insurance can reduce job applications, this may not increase unemployment much if jobs are in short supply to begin with.10 A randomized controlled trial shows that increasing job search intensity in a depressed labor market has little effect on overall unemployment because job seekers engage in a rat race, where they are stealing jobs away from each other.11

But how small is the elasticity of unemployment with respect to unemployment benefits during the current recession? It is almost certainly smaller than the average elasticity estimated in the U.S. literature of about 0.5. Using data from the Great Recession, I have shown that the effects of Unemployment Insurance on aggregate unemployment are 40 percent smaller than the micro effects on individual behavior.12 If we apply this reduction to the 0.5 elasticity from the literature, we obtain an elasticity of 0.3.13

Because the coronavirus recession is particularly deep, the elasticity could be even less than 0.3—potentially close to zero. Indeed, a careful quasi-experimental identification strategy finds no statistically significant effect of benefit extensions on aggregate unemployment during the Great Recession.14

The job losers’ stimulus program would help newly employed workers while allowing those still unemployed to search for the right job

When Unemployment Insurance does increase the duration of unemployment, it does so for two main reasons. The first (and most commonly discussed) reason is what economists call “moral hazard,” where workers are less likely to return to work because doing so will make them lose their unemployment benefits. The other reason, called the “liquidity effect,” is that unemployment benefits give unemployed workers enough money to live on so that they can afford to wait for a reasonable job, instead of being so desperate that they must take the first job opportunity they find to avoid severe financial hardship. Research by Harvard University economist Raj Chetty shows that the effect of Unemployment Insurance on employment is about 60 percent due to the liquidity effect.15

Because the job losers’ stimulus program would ensure that workers continue to receive unemployment benefits after returning to work, it only has a liquidity effect. In other words, it removes any potential disincentive to return to work, neutralizing the moral hazard concern, but continues to support job searchers who are looking for an appropriate match.

What does this mean for the potential impact of the job losers’ stimulus? We know that the elasticity due to liquidity effects is only 60 percent of the overall elasticity of unemployment with respect to unemployment benefits. If the elasticity is 0.5 to begin with, then the liquidity effect elasticity is only 0.3, calculated as 0.50.6=0.3. If the elasticity is already only 0.3, as I argued is more realistic in this recession, then the liquidity effect elasticity is just 0.18, calculated as 0.30.6=0.18. Therefore, the effect of moving from the extra Unemployment Insurance benefit to the equivalent job losers’ stimulus removes the moral hazard effect and only maintains a liquidity effect, thereby lowering the elasticity from 0.3 to 0.18.

Putting it all together: Simulated policy impact

We can predict the likely impact of the job losers’ stimulus by calculating a simulation of the program if it were hypothetically implemented. To begin, we assume that the reference policy is to give a $600 weekly additional benefit to the insured unemployed only, and for up to 4 months starting at the beginning of the unemployment spell. The 4-month period was chosen because the Federal Pandemic Unemployment Compensation, or FPUC, program created by the CARES Act ends on July 31, 2020, which is 4 months after the act was passed.

To simulate the impact of the proposed job losers’ stimulus program, I examine the difference it makes relative to the reference policy I just described. The reference policy is different from the actual FPUC program because the reference policy is not limited in time; for my purposes, I will assume that a worker who loses his or her job in May can collect Federal Pandemic Unemployment Compensation for 4 months until September 2020 instead of having the benefit cut in July. In contrast, I assume that the job losers’ stimulus program allows all covered unemployed workers to receive $600 a week for 4 months, whether they remain unemployed or not.

I start with the unemployment survival rate that would prevail in the absence of any extra $600 weekly FPUC benefit. This allows policymakers to know, after each month of unemployment, what percent of originally unemployed people are still unemployed. To predict how the extra $600 a week for the unemployed affects unemployment duration, I apply the elasticity of unemployment with respect to unemployment benefits to the survival function for each of the first 4 months of unemployment. For simplicity, I assume that from the fifth month on, the unemployment survival function converges back to what it would have been without the Federal Pandemic Unemployment Compensation benefit.

Next, I examine how moving from the reference policy to the job losers’ stimulus program affects the amount of stimulus and unemployment. To figure out the extra amount of stimulus, I use the elasticity-adjusted survival function calculated in the prior step. (See the Table in the Appendix.) Taking the average over the first 4 months shows the share, out of the initial job losers, who are still unemployed and receive the job losers’ stimulus benefits over the first 4 months of the spell. One minus this average gives us the share of those who are no longer unemployed and receive benefits—this is the size of the extra stimulus because the benefits are expanded to those who are no longer unemployed.

Once the increase in stimulus is known, its effect on the economy can be calculated using the fiscal multiplier discussed above.

What about the effect of the job losers’ stimulus program on unemployment? The job losers’ stimulus only has a liquidity effect and no moral hazard effect. Therefore, it’s important to compare the unemployment survival rate in the first 4 months for the reference policy, which includes both a moral hazard and a liquidity effect, to the unemployment survival rate for the job losers’ stimulus, which includes only a liquidity effect. Because the liquidity elasticity is smaller than the overall elasticity, unemployment necessarily decreases with the job losers’ stimulus, and more people return to work.

Empirically, not all workers exiting unemployment return to work. Some people will leave the labor force entirely. But as these exits usually occur later on in the unemployment spell, policymakers can reasonably assume that all those who exit unemployment in the first 4 months do so because they are returning to work.

To implement this calculation, I first take the unemployment survival function during the Great Recession. Using the Current Population Survey gives me the survival function for unemployment spells for Unemployment Insurance-eligible workers in January 2009 to December 201116; I reproduce these numbers in column 1 of Table 1 in the Appendix. During that period, the unemployment rate was, on average, 9.3 percent, using the data from the St. Louis Federal Reserve.17 In April 2020, the unemployment rate was 14.7 percent, and this is before any effects of the extra $600 weekly benefit could have reasonably increased unemployment duration. I, therefore, inflate the unemployment survival rate by an amount proportional to the ratio of the unemployment rates between the two periods.18 I reproduce the inflated unemployment survival rate in column 2 in the upper panel of Table 1 in the Appendix. I then take this survival function to be the unemployment survival function in the absence of $600 a week extra unemployment benefits, or if the elasticity of unemployment with respect to benefit levels is zero.

The exact size of the impact of the job losers’ stimulus is difficult to predict, but the relative size of each of these benefits follows a highly predictable pattern. If the effect of the job losers’ stimulus on unemployment is smaller, then the stimulus effect is larger, and vice versa. (See Figure 1.)

Figure 1

Let’s look at the effect of the job losers’ stimulus through how it would affect a worker with the median annual wage of $40,000, according to Consumer Population Survey data for 2019. This median worker receives $393 in weekly unemployment benefits in a typical state such as Pennsylvania. Adding the $600 Federal Pandemic Unemployment Compensation benefit is an increase of 153 percent.

I then calculate the proportional increase in cash stimulus and the extra share of the initially unemployed who exit unemployment and return to work using the procedure outlined above. I consider three scenarios, summarized in Figure 1. The underlying full calculations are in Table 1 in the Appendix. Specifically:

  1. In the first scenario, the benefit increase has no effect on unemployment. In this case, the unemployment survival rate does not change (it stays as it is in column 2 in Table 1 in the Appendix), and the stimulus effect is maximum, with an 83 percent increase in the stimulus due to those job losers finding jobs within 4 months also receiving benefits.
  2. In the second scenario, the elasticity of unemployment duration with respect to benefit extensions is 0.3, and there is a liquidity effect: 60 percent of the elasticity is due to a liquidity effect, so the effective elasticity is 0.18, calculated as 0.3*0.6=0.18. In this case, the stimulus effect is lower, with a 34.39 percent increase in the stimulus. In contrast, now there is an effect on unemployment—an additional 6.24 percent of the initial job losers return to work within 4 months. (See the survival rate in month 4 in column 4 versus column 3 of Table 1 in the Appendix.)
  3. In the third scenario, the elasticity of unemployment duration with respect to benefit extensions is 0.3, and there is no liquidity effect—in other words, the whole of the elasticity is explained by moral hazard. In this case, the job losers’ stimulus—which removes moral hazard effects—has no effect at all, not even a liquidity effect, on unemployment duration. Therefore, the job losers’ stimulus now decreases unemployment more than in the second scenario—an additional 15.6 percent of job losers return to employment within 4 months. (See the survival rate in month 4 in column 4 versus column 2 of Table 1 in the Appendix.) The stimulus effect is the same as in scenario 2 above, a 34.39 percent increase in stimulus, because the stimulus effect only depends on the overall elasticity, not the liquidity effect.

Therefore, comparing column 2 and column 4 in Table 1 in the Appendix demonstrates that the higher the unemployment survival function is (meaning that unemployment duration is longer), the smaller the stimulus effect is because there are fewer people who are no longer unemployed and will also receive the benefits. For the same reason, a higher elasticity leads to a lower stimulus effect because a higher elasticity increases the unemployment survival rate, and so there are fewer re-employed people who can benefit.

Let’s take scenario 2 as an example to see how we can calculate the dollar amount for the stimulus effect and the number of job losers who return to work within 4 months based on our estimates. In scenario 2, the stimulus increases by 34.39 percent. The Congressional Budget Office currently projects that the extra $600 a week will cost $176 billion.19 If I take this number as the baseline, then the increase in stimulus is $61.42 billion.20 With a fiscal multiplier of 1.9, this would create an additional $55.28 billion in economic activity.21 At the same time, an additional 6.24 percent of the insured unemployed now find a job within 4 months.

Given that there were 18.9 million insured unemployed on April 18, and most of those entered unemployment in April, then an estimated 1.18 million job losers would return to work within 4 months due to the job losers’ stimulus.22

Conclusion

Overall, then, moving from the Federal Pandemic Unemployment Compensation to the job losers’ stimulus program would provide more income to workers who lost their jobs during the coronavirus recession. It would strengthen the much-needed stimulus to the economy while also allowing more unemployed workers to return to work when it is safe to do so.

—Ioana Marinescu is an assistant professor of economics at the University of Pennsylvania.

Appendix

Table 1
Notes: In the upper panel, the unemployment survival rate in column 1 is from (Farber and Valletta 2015), Table 3. In column 2, the survival rate is multiplied by 14.7/9.3 to account for the fact that the unemployment rate was 14.7% in April 2020 vs. 9.3% in January 2009-January 2011. In column 3, the survival rate from column 2 for months 1-4 is multiplied by the elasticity 0.18 and by 153%, which is the increase in weekly benefit levels; in month 1, the survival rate is slightly above 100%, so I truncate it to 100%. In column 4, the survival rate from column 2 for months 1-4 is multiplied by the elasticity 0.3 and by 153%, which is the increase in weekly benefit levels; in month 1, the survival rate is slightly above 100%, so I truncate it to 100%.

In the middle panel, the average share unemployed in the first 4 months is the simple average of the survival rate in months 1-4. The expense multiplier when moving to job losers’ stimulus is the inverse of the average survival rate in months 1/4.

In the bottom panel, we can calculate the effect of moving from unemployment benefits to job losers’ stimulus under different assumptions as described by column headings. The 34.39% in column 3 is not a mistake but represents the fact that moving to job losers’ stimulus allows job seekers who would have been reemployed under unemployment insurance (in col. 4) to also receive the job losers’ benefit.

Equitable Growth’s Jobs Day Graphs: May 2020 Report Edition

Posted on by Carmen Sanchezcumming

On June 5th, the U.S. Bureau of Labor Statistics released new data on the U.S. labor market during the month of May. Below are five graphs compiled by Equitable Growth staff highlighting important trends in the data.

1.

As the overall unemployment rate declined to 13.3%, this was led by a decline in white unemployment from 14.2% to 12.4%. Meanwhile, Black unemployment increased slightly from 16.7% to 16.8% and Hispanic unemployment declined from a historic high of 18.9% to 17.6%.

2.

The unemployment rate declined for all education levels, while maintaining higher rates of unemployment for less educated groups.

3.

Employment across sectors began to rebound in May, and growth was led by leisure and hospitality after this industry lost nearly half of all employment in the prior month.

4.

The proportion of unemployed workers who were on temporary layoff declined in May, while permanent job losers, re-entrants, and new entrants to the labor force all increased.

5.

After the most extreme decline in employment levels in history in April, the prime-age employment rate moved upward in May to 71.4%

Statement on structural racism and economic inequality in the United States

Posted on by Maria Monroe

Following is a statement from Heather Boushey, president and CEO of the Washington Center for Equitable Growth

At Equitable Growth, we stand with our Black colleagues and Black families across the country who every day shoulder the legacy of White supremacy and systemic violence older than the United States itself. We condemn the recent murders of George Floyd, Breonna Taylor, Tony McDade, David McAtee, and Ahmaud Arbery and so many, many more Black men, women, and children who have died from police violence, unchecked White civilian power, and structural racism over more than 400 years. Each and every one of their lives matters, and we bear witness to their senseless loss of life.

For too long, the field of economics, dominated by White gatekeepers, has failed to fully acknowledge the work of Black scholars and ignored the intersection of race and power in research agendas or treated race as a sideshow—something ancillary to the core work. Many in the profession justify this by saying that studying this important work is narrowly in the purview of the too-few Black economists in the academy, government, or other elite institutions. That must change.

At Equitable Growth, we commit to doing our part. We commit to using our power as an economic research and grantmaking organization to fund more research based on the lived experience and legacy of structural racism, support more Black scholars seeking answers to these often overlooked experiences, elevate those ideas for the policymaking community, and ensure the voices and experiences of Black economists, policymakers, and staff members are reflected in all of the work we do. We commit to creating a publicly accessible resource by the end of 2020 that will publish and track over time the demographic characteristics of our grantees, leadership, and staff as one way to hold ourselves accountable.

Key to understanding a pathway forward is serious dialogue and examination about wealth and power. The wealth of this nation is perfused with the legacy of slavery. Our nation’s wealth continues to be disproportionately owned by Whites and that economic power translates into social and political power. We need reparations policies enacted to at long last address the original sin on which our nation was founded—a sin that continues to benefit White Americans and exploit Black Americans to this very day.

Every organization, including Equitable Growth, needs to commit to acknowledging and addressing the role that systemic racism and White supremacy play in U.S. politics, the economy, and our very own institutions. My intention is to hold ourselves accountable to creating public benchmarks relevant to our own organizational mission with the goal of pushing government, institutions, and policymakers to reflect the priorities of the Movement for Black Lives and a world where all decisions reflect the unequivocal truth that Black Lives Matter.

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Better workplace conditions for long-term eldercare staff are key to promoting resident safety amid the coronavirus pandemic

Posted on by Maria Monroe
Residents and workers in long-term residential eldercare settings account for more than 40 percent of all the deaths in the United States due to COVID-19.

Overview

Residents and workers in long-term residential eldercare settings account for more than 40 percent of all the deaths in the United States due to COVID-19, the disease spread by the new coronavirus—more than 35,000, as of May 21, 2020. This particularly tragic consequence of the coronavirus pandemic sadly illustrates the scale of how the well-being of workers and nursing home residents are deeply intertwined—shedding light on some health and safety concerns that have plagued long-term residential care facilities for more than 60 years.

Policymakers, public health officials, and the American public are still grappling with the ongoing pandemic, which may not abate until there is a proven vaccine provided to large segments of the U.S. population. So, going forward, what can be done to improve the quality of care in long-term residential eldercare settings? My new working paper, “Higher Wages, Service Quality, and Firm Profitability: Evidence from Nursing Homes and Minimum Wage Reforms,” explores one such possibility. In my paper, I show that increasing wages for direct-care staff can improve the safety and health of both nursing home workers and residents. A modest cost increase for providing care would have significant positive impacts.

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Better workplace conditions for long-term eldercare staff are key to promoting resident safety amid the coronavirus pandemic

In this issue brief, I describe my paper’s key findings, relate these findings to the current healthcare crisis, and conclude with a discussion of potential policy reforms. Briefly, my paper finds that higher minimum wages would increase pay and tenure among eldercare nursing home staff (primarily nursing assistants) without reducing the number of workers or the time nursing staff spends with patients. What’s more, these earnings gains and greater firm-specific expertise benefit consumers by reducing the number of health inspection violations, the prevalence of pressure ulcers and infections, and the number of deaths among nursing home residents.

My preliminary data show that eldercare facilities with more health inspection violations and lower staffing ratios are more likely to experience outbreaks of COVID-19, yet some facilities with known COVID-related deaths are among the highest-ranked providers in the country. And using the effects identified in my paper, I simulate how many fewer infections and deaths there might have been between February and mid-May 2020 if the minimum wage in all jurisdictions was 10 percent higher. Finally, I examine several policies that states and the federal government could consider in order to improve the quality of care in eldercare residential settings over the longer term, among them:

  • Raise the federal minimum wage to boost the wages of low-wage workers in eldercare facilities
  • Structure Medicare reimbursement rates for eldercare facilities to further incentivize high-quality care
  • Incorporate staffing costs into Medicaid reimbursement rates so that eldercare facilities that pay workers higher wages receive slightly higher revenue

Importantly, many of these reforms could be implemented without a substantial overhaul of existing eldercare programs or policies.

Quality and staffing in long-term care

Nursing homes provide long-term residential care on a 24/7 basis to patients who require assistance with activities of daily living, such as eating, walking, and showering. Nursing homes, like other long-term care settings, rely heavily on low-wage labor. About 40 percent of nursing home employees are nursing assistants—direct-care staff who provide the majority of person-to-person care by helping residents with activities of daily living and who work with certified nurses and eldercare teams to monitor patients’ conditions. Yet these employees, like many other essential workers in maintenance and food prep occupations, are among the lowest-paid workers in the U.S. economy. Most earn less than $14 an hour.

While existing research shows that higher staffing levels are associated with better patient outcomes, nursing homes frequently report difficulty in recruiting and retaining staff. Between 60 percent and 85 percent of nursing assistants leave their employers each year, most often to go work in other nursing homes. This turnover rate is two to three times higher than that across the entire healthcare sector.

The difficulty in staffing nursing homes 24 hours a day, 7 days a week means that in the typical eldercare facility, residents receive about 4 hours of nursing care a day: 2.3 hours from a nursing assistant and 1.6 hours from either a licenced vocational nurse or a registered nurse. These levels are below the levels many medical experts recommend, and often even lower on weekends. Moreover, staffing shortages are acute amid the current coronavirus pandemic as workers and their families become exposed to the virus and contract COVID-19.

Taking a step back, there are several channels by which higher wages could improve patient care and firm performance. First, standard “efficiency wage” models in economics posit that paying workers higher wages incentivizes better performance by making unemployment and the loss of a paycheck more “costly” to workers. Second, an emerging literature in psychology and economics documents that financial pressures and the stress associated with poverty impair cognitive functioning—stress that could be allieviated by paying low-wage workers higher wages to improve household budgets and improve overall financial decisionmaking. Third, when a firm offers higher wages, competing firms are less likely to poach workers by offering even higher pay. This means the hiring and training costs associated with turnover fall, and the workers who stay with their employers for longer periods gain firm-specific expertise and become even more productive.

These mechanisms to improve eldercare in nursing homes by improving workers’ pay may seem intuitive. But there is relatively little empirical work on whether higher wages can improve the quality of goods and services customers receive, particularly in the low-skilled service industries where worker performance is not systematically monitored and measures of quality are often subjective. In order to make progress on this question, in my working paper, I combine information on statutory minimum wages at the federal, state, and city levels with administrative data on nursing home inspection violations, resident health, and mortality.

My findings indicate that even before the recent pandemic, many eldercare-facility residents faced day-to-day conditions that put their health and safety at risk. In the most recent inspection data, more than a quarter of facilities received a violation related to infection control and prevention. Moreover, between 2008 and 2012, 20 percent of residents who entered a nursing home after a hospital discharge were readmitted to the hospital within a month for harm that was fully avoidable, according to the Department of Health and Human Services’ Office of the Inspector General.

Simply relating wage levels in an area to patient outcomes probably misses important factors that might influence both the minimum wage and the health of the elderly in these care facilities, such as demographic patterns, economic conditions, and other policies. In order to overcome this empirical challenge, my approach leverages the fact that businesses in the same geographic area can face different minimum wages when cities, states, and counties raise the minimum wage, depending on what side of the border these establishments operate. Using this fact, I compare changes in patient outcomes within a nursing home before and after the minimum wage increases, relative to changes in a neighboring facility that does not experience the same change in the minimum wage.

This approach largely compares facilities on both sides of a state border, such as Illinois and Indiana, but also includes county- and city-level reforms by comparing, for example, changes in facilities in Chicago relative to those in neighboring DuPage County. I then aggregate all of these “county-pair” comparisons over a 25-year period in order to estimate the effect of the minimum wage on worker, resident, and firm well-being.

I first show that when the minimum wage increases, nursing assistants and other less-skilled staff receive a pay increase. The most recent federal increase between 2007 and 2009, from $5.15 per hour to $7.25 per hour, for example, increased nursing assistants’ annual pay by between 5 percent to 8 percent (about $1,300 to $2,300) with no significant reduction in the number of nursing assistants employed or the time spent with residents. At the same time, higher wages reduced the separation rate (that fraction of workers who leave their employers) and increased the fraction of stable hires (that share of new hires who remain with their new employers for at least 3 months). These patterns mean that, on the whole, workers gain firm-specific expertise and receive additional income, but do not lose their jobs.

Second, I show these minimum wage induced increases in pay for nursing home staff improve health and safety conditions for patients. My working paper finds that increasing the minimum wage by 10 percent would reduce the number of health inspection violations by 1 percent to 2 percent, the number of residents with moderate to severe pressure ulcers by about 1.7 percent, and the number of deaths by 3 percent.

What do these patterns mean for firms? Using financial report data, I show that after a minimum wage hike, eldercare facilities report that their costs increase by the same amount as the increased labor costs, and they fully recoup these costs by charging residents higher prices. These price increases are concentrated among residents who are paying out of pocket, rather than those covered by Medicaid or Medicare, and, at the same time, these facilities admit slightly more private payors, fewer Medicaid residents, and do not change the number of Medicare recipients. Importantly, however, I do not find a significant increase in deaths occurring outside nursing homes, suggesting that consumers are able to find care options that are equivalent in quality, at least on this dimension.

COVID-19 and nursing homes

What do these patterns mean amid the current coronavirus pandemic and the rising number of COVID-19 cases and deaths in nursing homes? And to what extent are observable factors associated with a recent outbreak in specific eldercare facilities? In April 2020, the federal Centers for Medicare & Medicaid Services, or CMS, issued guidance requiring nursing homes to submit information on COVID-19 cases and deaths among residents and staff to the Centers for Disease Control and Prevention, yet these data are not yet publicly available, and other measures of patient care during the pandemic will not be available for several months.

So, as a preliminary step to provide some insights about what types of long-term care settings have documented cases of COVID-19, I match facility-level information on the number of cases and deaths collected by The New York Times through May 9, 2020 to CMS administrative reports on inspection violations, staffing levels, and patient health outcomes from the most recent inspection period (2019 through February 2020). As reporting requirements vary by state and measures are not comparable across states, all of these figures show patterns in facilities with known COVID-19 deaths relative to facilities in the same state without known deaths.

The data provide some suggestive evidence that higher service quality is associated with fewer deaths from COVID-19 in nursing homes. Facilities with documented COVID-19 deaths tend to have lower nurse staffing levels, more inspection violations and fines, and operate closer to full capacity than facilities in the same state without such violations. (See Figure 1.)

Figure 1

These average differences are small, and many facilities with documented outbreaks are among the highest-rated centers. The data show that, for example, more than 40 percent received a four- or five-star overall rating, and more than a quarter received at least four stars on the most recent health inspection. (See Figure 2.)

Figure 2

As a second analysis, I apply the estimates on improvements in patient health and safety to a hypothetical reform that would increase the minimum wage by 10 percent in all jurisdictions. So, for example, the federal minimum would increase to just less than $8; states with a minimum of $10 would increase their minimum to $11; and some of the highest minimum wage jurisdictions, such as San Francisco and New York City, would increase their minimum from $15 to $16.50 an hour. Between February 1 and March 16, 2020, more than 170,000 residents died in eldercare facilities, from both COVID-19 and other causes. My estimates imply that this hypothetical reform could have prevented at least 5,300 of these deaths, or about 3 percent.

I can also extend the approach in my paper to focus on infection-related violations and deaths specifically. Here, I find that with a 10 percent minimum wage increase, over the course of the year, 200 fewer eldercare facilities would receive any infection-control violations, and the total number of such violations would fall by 5 percent. Finally, the number of eldercare facility deaths due to infection would fall by 3.3 percent.

Although these estimated reductions may seem small in the context of the overall COVID-19 death toll, now surpassing 100,000 nationwide, it is important to recognize that such a reform comes at a modest cost. Increasing the minimum wage everywhere in the country by 10 percent would increase each nursing assistant’s annual pay by about $350 to $600, meaning that the cost of each eldercare facility death prevented in early 2020 ranges from $38,000 to $70,000, below existing estimates of quality-adjusted life years saved for the elderly population.

Conclusion and policy options

Even before the COVID-19 crisis amplified concerns about resident safety and health in long-term eldercare settings, our nation was already facing another potential health crisis with the baby boomer generation entering retirement and demand for long-term care increasing commensurately. Over the next several decades, the costs to Medicare and Medicaid will likewise increase, making it even more critical that we promote policies that promote both residents’ health and workers’ livelihoods. My working paper points to one such policy reform: increasing pay for healthcare support staff. Fortunately, there are several modest policy changes that federal, state, and local government officials could pursue now in order to incentivize better care.

Perhaps the most obvious reform, and directly tied to my work, is to increase workers’ pay. While many states and localities have taken recent action to increase their minimum wages, at $7.25 an hour, the federal minimum wage means that a full-time worker supporting a family of three earned about 73 percent of the federal poverty line in 2019, the lowest level since 2008. My results suggest if the federal government just increased the federal minimum wage by 10 percent, then average nursing assistant earnings would increase by about $325 to $560 a year, and at least 7,000 nursing home deaths could be prevented each year in just the 21 states subject to the federal minimum.

Increasing the federal minimum wage also would increase earnings and increase retention for other essential low-wage occupations, such as grocery clerks, food service workers, and retail employees, during this coronavirus pandemic. Beyond this broad policy reform, however, there are several targeted changes policymakers could enact for the long-term eldercare sector.

First, most long-term eldercare stays are covered by Medicaid and Medicare. In the case of Medicare, the recent Skilled Nursing Facilities Value-Based Purchasing Program has provided small financial incentives for facilities to lower their hospital readmission rates by increasing reimbursements for facilities with lower-than-expected rates and by decreasing reimbursements for those readmitting more residents than expected. Recent research by Tamara Konetzka at the University of Chicago, Meghan Skira at the University of Georgia, and Rachel Werner at the University of Pennsylvania shows performance-based payment formulas, particularly those with simple structures, can improve targeted outcomes. While the coming years will provide more information on whether the size of this program is an adequate incentive, policymakers may wish to further structure reimbursement rates to incentivize high-quality care.

For residents covered by Medicaid, the most common payment source, states have substantial flexibility in structuring reimbursement formulae and rates. Some states, such as California and Washington, explicitly incorporate staffing costs into their formulas so that facilities that pay workers higher wages receive slightly higher revenue. The effects of these policies have not yet been fully explored in the public health literature, but my findings suggest that if firms are able to cover higher labor costs without losing profits, then they avoid reducing staffing levels, and patient health and safety correspondingly improves.

—Krista Ruffini is a visiting scholar at the Minneapolis Federal Reserve. She is a 2019 Equitable Growth grantee.

Posted in Uncategorized

Brad DeLong: Worthy reads on equitable growth, May 27-June 2, 2020

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

  1. The first and most crucial tasks of economic policy in the coronavirus public health crisis are to keep the supply shock from becoming a distributional shock and from becoming a demand shock as well. Successfully accomplishing these ranks requires, first, a great increase in social insurance spending. In a country as rich as the United States, nobody should be thrown in the poverty and destitution and have to deal with those problems as well as with the disease. The expansion of social insurance spending cannot be precisely targeted—lots of people will wind up getting more than their fair share. Too bad. It is inappropriate to make the best the enemy of the good and the attainable here, and to make it such that in order to prevent some from getting more than their share, we ensure that many who need support get much, much less. Somewhat similarly, the necessary expansion of aggregate demand in order to maintain and return the economy to as close to full employment as possible will attract, in fact has already attracted, critics. Preventing the coronavirus shock from becoming a major and prolonged demand shock will be inconsistent with the government not spending a lot more, will be inconsistent with a stability in the value of the national debt, will be inconsistent with avoiding a long run increase in taxes, may well be inconsistent with any form of normalizing interest rates to gratify rentiers, and might be inconsistent with maintaining a 2 percent-per-year Inflation target. Once again, the proper societal response would be: too bad. Our task is to arrange government finances so that Americans can do as much as possible, and not to hit what are sometimes artificial and are sometimes intermediate policy objectives targets. Heather Boushey discusses all of these considerations in Medium’s “Off-Kilter Podcast: Beyer + Boushey.”
  2. Amanda Fischer finds the acting Comptroller of the Currency going way beyond his competence, apparently in order to try to curry favor with his political masters. It is his job to help avoid unnecessary negative financial and economic fallout from necessary public health measures. It is not his job to try to put constraints that would prevent undertaking necessary and desirable public health measures. Check out her twitter thread on this issue, in which she says, “I have not seen such an opportunistic, inappropriate & frankly dangerous statement from a financial regulatory official maybe ever.”
  3. “Although the United States has entered a period of deepening social strife and economic depression, the Republicans who are in charge have neither the ideas nor the competence to do anything about it. The Democrats must start planning to lead, starting with a commitment to full employment.” I write in “What the Democrats Must Do.” I continue: “A federal commitment to full employment is not a new idea. The U.S. Employment Act of 1946 embraced the principle … The best response to … objections has always been John Maynard Keynes … ‘Anything we can do, we can afford.’ … Far from acting as an independent binding constraint on economic activities, the financial system exists precisely to support such activities. Finding useful jobs for willing jobseekers is surely something we are capable of doing. But adjusting the prevailing payments and financial structure to support full employment would of course have consequences … Supporting full employment … may … require higher and more progressive taxes … sky-high debt … that we divert demand from elite consumption to labor-intensive sectors such as public health. It also may require a large-scale labor-intensive public-works program. So be it. It’s time to make full employment our highest priority. Once we have done that, everything else will fall into place.”

 

Worthy reads not from Equitable Growth:

  1. Nick Bunker at Indeed’s Hiring Lab is closely watching the U.S. labor market in advance of this week’s employment report. The employment report will be one of our first significant clues as to the extent to which the coronavirus supply shock is turning into a demand shock as well, Read his “May 2020 Jobs Day Preview: Tracking the Spread of the Coronavirus Shock,” in which he writes: “The coronavirus has devastated the U.S. economy, leading to the destruction of over 21 million payroll jobs since February … The concentration of job losses so far is unsurprising, with the leisure and hospitality sector seeing total employment drop by almost 50 percent. Employment in the utilities sector has barely fallen, losing less than 1 percent of jobs. If the cumulative employment drop starts to pile up in utilities or other indirectly affected sectors, that could mean that more of the aggregate job loss is due to a systematic, economy-wide shock rather than a sector-specific one. Cumulative job loss will also put the eventual jobs recovery in a fuller context.”
  2. This is tremendously depressing. Stomping the coronavirus is now out of reach. This means that we are in “hammer & dance” land, trying to push cases out beyond the vaccine horizon and the better antivirals horizon, without incurring very large economic costs for little long run mortality benefit. Almost all other countries will do better. Read Kelsey Piper, “California coronavirus cases are rising despite early lockdown. Why are cases still rising?,” in which he writes: “One of the hopes for stay-at-home orders was that they would cause significant declines in new case numbers, not just get to a plateau. Once new cases become relatively rare, states could set up contact tracing, isolation of confirmed and possible cases, and other less restrictive strategies for combating the virus. That remains the best way out of lockdown, but those strategies are harder to implement when case numbers keep rising. The fact that California’s stay-home order didn’t decrease, or only slightly decreased, the number of new cases means that the road ahead will be a very hard one.”
  3. No, the coronavirus supply shock does not have to turn into a large demand shock, and even a large demand shock does not have to be followed by an anemic recovery. But this survey by FiveThirtyEight of me and my colleagues finds that nearly all of us think that we will do as bad a job of coping with this shock as we did with the subprime shock a little bit more than a decade ago. Check out “Don’t Expect A Quick Recovery. Our Survey Of Economists Says It Will Likely Take Years,” in which the co-authors write: “How quickly will the economy really be able to bounce back? How long will we be stuck with a double-digit unemployment rate and a host of other historically bad economic indicators?… So we partnered with the Initiative on Global Markets, a research center at the University of Chicago Booth School of Business, to survey a group of quantitative macroeconomic researchers who work in academic settings about the trajectory of the economic crisis. In consultation with Jonathan Wright of Johns Hopkins University and Allan Timmermann of the University of California, San Diego, two experts on macroeconomic forecasting, we asked the panel questions like what the shape of the recovery will resemble, when gross domestic product will return to its pre-crisis levels.”
Posted in Uncategorized

One year later: Recession Ready and the coronavirus recession

Posted on by Maria Monroe

Proposals put forth can help support communities, stabilize the economy amid coronavirus recession

<em>Recession Ready</em> policies are needed now more than ever.

One year ago, long before the risks of the new coronavirus and the ensuing recession enveloped our nation, the Washington Center for Equitable Growth, in partnership with The Hamilton Project, released Recession Ready: Fiscal Policies to Stabilize the American Economy. This book advanced a set of evidence-based policy ideas for shortening and easing the adverse consequences of the next recession with the use of triggers that would increase aid to households and states during an economic crisis and only recede when economic conditions warranted. Experts from academia and the policy community proposed six big ideas, including two new initiatives and four improvements to existing programs.

Since the book was released, 1 in 4 Americans have lost their jobs amid the coronavirus recession, inflicting significant harm on families at a time when many are coping with the loss of friends and loved ones among the more than 100,000 who have died in just 3 months. As the new coronavirus and COVID-19, the disease spread by the virus, continue to threaten lives and our economic stability, Equitable Growth and The Hamilton Project will co-host an anniversary event on June 8 featuring:

  • Heather Boushey, president & CEO of Equitable Growth
  • Jason Furman of The Hamilton Project, the Harvard Kennedy School of Government, and Equitable Growth Steering Committee member
  • U.S. Rep. Don Beyer (D-VA)
  • Philadelphia Mayor Michael Nutter
  • Jay Shambaugh, director of The Hamilton Project and a senior fellow in Economic Studies at the Brookings Institution

They will discuss the significance of the policies laid out in Recession Ready and why providing aid to state and local governments is absolutely critical.

With state and local general fund revenues in freefall due to needed increases in spending on healthcare and related spending amid plummeting tax revenue, these governments’ budgets are on the precipice. State budget shortfalls could total more than $500 billion in a single year, nearly double what it was estimated states missed out on in the entire decade following the Great Recession. Fiscal requirements that states balance their budgets are already forcing governors to propose cuts in spending that will harm already struggling communities.

During the previous recession, these budget cuts proved seriously harmful to the economy. Shrinking state and local government budgets during the Great Recession reduced Gross Domestic Product by more than three times the size of the cuts themselves, according to estimates.

The proposals offered in Recession Ready are designed to help policymakers mitigate economic harm precisely at moments such as today. Though the policy proposals are focused on the federal government, which is the only entity that can deficit spend at a time of crisis, the policies themselves are designed to help individuals and families by providing support to state and local communities. They include:

  • Increasing federal support for state Medicaid programs and Children’s Health Insurance Programs during economic downturns: This increased federal support would offset approximately two-thirds of state budget shortfalls. When a state’s unemployment rate exceeds a threshold level, the matching rate for these two programs would increase by 4.8 percentage points for every percentage point the state’s unemployment rate exceeded the threshold. Automatic increases in the state matching rate would reduce pressure on state budgets, reduce incentives to cut health spending when the need is large, and diminish the severity of economic downturns. As a state’s economy recovers, its matching rate would gradually and automatically phase down. A version of this trigger was proposed in Speaker of the House Nancy Pelosi’s (D-CA) alternative to the Coronavirus Aid, Relief, and Economic Security, or CARES, Act.
  • Increasing Unemployment Insurance and macroeconomic stabilization during economic downturns: Increasing Unemployment Insurance participation and payments during downturns, as well as strengthening extended unemployment benefits, would provide a backstop for workers who lost their jobs through no fault of their own and are searching for new work. Unemployment Insurance, a joint state-federal program that is administered by states, acts as a macroeconomic stabilizer during recessions by supporting the consumer expenditures of those who experience unexpected drops in income during spells of involuntary unemployment, helping pump money back into state and local economies that would otherwise be lost. Sen. Michael Bennet (D-CO) released a recent proposal that would codify many of the recommendations made in this proposal, as did our upcoming event’s featured speaker Rep. Beyer, through the introduction of the Worker Relief and Security Act. The HEROES Act, which recently passed in the House, would extend the extra $600 of weekly federal unemployment benefits, which is set to expire in July, through January 2021, and includes protections for immigrants, gig workers, independent contractors, part-time workers, and self-employed people.
  • Strengthening the Supplemental Nutrition Assistance Program as an automatic stabilizer during economic downturns: Limiting or eliminating SNAP work requirements, as well as increasing SNAP benefits by 15 percent, would increase resources available to individuals and localities in recessions. Increasing SNAP accessibility also would reduce the need for other state and local government-funded supports such as food banks. Sen. Bennet recently announced a plan drawing from this proposal, and the HEROES Act included an amendment that would increase SNAP benefits by 15 percent through September 2021.
  • Providing direct stimulus payments to individuals during economic downturns: Providing direct payments that are automatically distributed when the unemployment rate increases rapidly would boost consumer spending that could help keep struggling businesses afloat. It would ease the burden on local social services as an increasing number of families struggle to afford rent and food. These direct payments would offset about half of the slowdown in consumer spending that occurs in a typical recession. A group of senators called for a similar proposal recently that would include an immediate $2,000 cash payment for every adult and child, which would decrease in amount and phase out over time as economic conditions improve. The HEROES Act proposes another round of a one-time $1,200 payment for individuals, with families of five receiving up to $6,000.
  • Improving the countercyclicality of the Temporary Assistance for Needy Families program during economic downturns: Expanding federal support for basic assistance and creating an ongoing job subsidy program would help to reduce employment losses in state and local communities. These triggers would come with the assistance of a federal match rate in coordination with states and counties that administer the TANF program, including cash vouchers and emergency assistance to meet the basic needs of families during recessions and cover part of the cost of employers hiring and employing workers who would have not otherwise been hired into positions that would have not otherwise existed.
  • Providing an automatic infrastructure investment program during economic downturns: Funding transportation projects at the state and local level through expanding the U.S. Department of Transportation’s BUILD funding would create new jobs in local communities through federal funding that typically constitutes a sizable share of state and local government spending, providing a valuable, long-lived benefit for firms and households alike.

Policymakers have already enacted more than $3 trillion in rescue measures designed to bolster public health and stabilize the economy, but more must be done. Absent further policy action, the nonpartisan Congressional Budget Office projects that by December 2021, the national unemployment rate will remain elevated at 8.6 percent, presenting a stunningly high cost to both individuals and families and state and local budgets. The policies outlined in Recession Ready are the best set of ideas to help policymakers avoid this devastation.

Please join the Washington Center for Equitable Growth and the Hamilton Project at our joint June 8 event to hear from Boushey, Furman, Rep. Beyer, Mayor Nutter, and Shambaugh to learn more about how these proposals are essential to ensuring an equitable and broadly shared recovery.

Weekend reading: How to return to work safely edition

Posted on by Maria Monroe

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

Equitable Growth round-up

It’s more important than ever to make sure those who do get back to work are protected against the backdrop of weekly Unemployment Insurance claims data showing that 1 in 4 American workers filed for UI benefits since the coronavirus pandemic began in mid-March. The most effective way to do so will be to contain the coronavirus through vigorous testing and contact tracing, Heather Boushey writes, noting that failing to do so will risk another spike in cases of and deaths from COVID-19, the disease spread by the new coronavirus, as well as prolong an already painful recession. Protecting those on the front lines of the battle against coronavirus will protect the rest of us—not offering these workers the safety they deserve risks our health and our economy. Boushey provides proposals to make sure workers feel safe returning to their jobs, including mandated paid sick days and personal protective equipment to essential workers, among others.

One group of essential workers that is gaining prominence in the discussions around protecting front-line workers is warehouse workers, who often are forced to accept unfair scheduling practices and are being exposed to COVID-19 at high rates due, in part, to unsafe work conditions and a lack of employer-provided protections. Back in February, Equitable Growth hosted a convening on scheduling practices in the U.S. warehouse sector, bringing together advocates, researchers, and warehouse workers to find solutions to job-quality issues facing the industry. Sam Abbott and Alix Gould-Werth explain how scheduling practices and poor work conditions affect job quality in the warehouse sector and discuss how researchers interested in studying this sector can engage in these areas of study.

Income inequality is higher and rising faster than policymakers probably realize, write John Sabelhaus and Somin Park. Using data from the Survey of Consumer Finances and comparing them to the widely used Congressional Budget Office measures of household income, Sabelhaus and Park show that CBO estimates don’t consider two main drivers of income inequality: uncaptured noncorporate business income and the gap between realized and unrealized capital gains income. Incorporating the Survey of Consumer Finances addresses these shortcomings, the co-authors explain, highlighting how these two areas can shed light on income inequality’s growth over the past few decades and the dynamics of inequality in the United States.

Equitable Growth has launched a new lecture series, which will be virtual for the time being, discussing evidence-based research on policy ideas to ensure sustainable and broad-based economic growth. The first lecture in the series featured a conversation between Boushey and Claudia Sahm, director of macroeconomic policy, on specific ways to deal with the health and economic crises caused by the coronavirus outbreak. Sahm urged bold actions by policymakers to prevent economic freefall and save lives. She also discussed the role of the Federal Reserve, automatic stabilizers for the economy, and targeting relief to the most vulnerable households and communities.

Equitable Growth announced its two new Dissertation Scholars this week. This program provides financial and professional support to doctoral candidates as they write their dissertations, bringing the scholars to Washington to gain familiarity with the policy process and current policy discussions. Congratulations to Angela Lee of Harvard University and Matthew Staiger of the University of Maryland, College Park, who will be joining Equitable Growth for the 2020–21 academic year!

Links from around the web

Essential workers are putting their lives and the lives of their loved ones at risk to keep the rest of us safe, healthy, and fed. They deserve more than basic protections and the minimum wage, argues Suresh Naidu in The Washington Post. But many are not being provided with adequate pay or what they need to feel safe at work—and have almost no leverage to get it. With unemployment at its highest rate since the Great Depression, these workers can’t quit or move to other jobs. Even with expanded Unemployment Insurance from the Coronavirus Aid, Relief, and Economic Security Act, those who leave their jobs voluntarily are not eligible to receive benefits. Employers currently wield a lot of power in the labor market, writes Naidu, and they have been using it to keep hazard pay low and worker safety protections minimal at best. We owe it to these front-line fighters to push for better working conditions and higher pay, and Naidu offers several ideas of how to do so.

The latest stimulus bill proposed by House Democrats offers much-needed relief to struggling Americans in many ways. But, writes Ezra Klein on Vox, it’s missing an important policy proposal that would be the most effective, surefire way to ensure continued support during the coronavirus recession and recovery: automatic stabilizers. The main idea behind automatic stabilizers is to provide support to those who need it based on the economic conditions of the day, not political whims or arbitrary expiration dates, explains Klein. The policy is popular with people across the political spectrum, and has broad support from researchers and economists (including Equitable Growth, whose book, Recession Ready, published last year with The Hamilton Project, focuses on various automatic stabilizer proposals). Klein investigates the reason automatic stabilizers were removed from the stimulus package and why they’re actually cheaper than the alternative.

All the recent concern about high inflation after the coronavirus recession is probably misplaced, says Neil Irwin in The New York Times’ The Upshot blog, and may actually risk us ignoring or not adequately addressing the crisis at hand. Though he says it’s worth looking into the concerns about inflation, especially considering how widespread these concerns are, he adds that it’s also difficult to predict what will happen with inflation rates—and it shouldn’t be the worst-case scenario for policymakers. “In many ways,” continues Irwin, “an inflation surge in the early 2020s would be a signal that all the efforts being taken now (to flood the financial system with cash, to prop up smaller businesses and aid unemployed people) had worked—preventing a deflationary spiral akin to what happened in the Great Depression.”

We’ve said it before, and we’ll probably say it again: Millennials are economically the unluckiest generation in U.S. history. They entered the workforce during and after the Great Recession of 2007–2009, never really had a chance to recover from that downturn, and are now being hit by a recession again, right when they should be entering the peak years of their careers, earnings-wise. Andrew Van Dam put together several charts for The Washington Post highlighting how the average millennial’s economic and labor force experience will have lasting negative effects on their earnings, wealth, and other economic milestones such as homeownership.

Friday figure

Figure is from Equitable Growth’s Twitter feed after this week’s release of Unemployment Insurance claims data.

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