New distributional snapshot of U.S. personal income is a landmark federal statistical product

Posted on by Maria Monroe

The U.S. Department of Commerce’s Bureau of Economic Analysis recently released new estimates of how growth in personal income has been divided among high- and low-income earners between 2007 and 2016. This first release establishes the methods that BEA will use to report this data annually, starting as early as later this year. This is a landmark new statistical product that should make us rethink how U.S. economic growth is experienced by individuals and families.

A chart from the agency’s release shows how total personal income growth in each year has been divided by people in each quintile of income. (See Figure 1.)

Figure 1

This graph shows year by year how income inequality is changing in the United States. The blue areas are the portion of overall growth that is accruing to the top 20 percent of income earners. So, 2009–2010 was a year in which growth was relatively equitably divided and income inequality fell, whereas in 2013–2014, the top 20 percent of earners captured a huge share of overall income growth.

Although income inequality could be measured in different ways using the released data, most measures tend to show that inequality has increased only slightly since 2007. That said, the next few years of data will be especially important, particularly as our economy enters a potential recession with the threat of the coronavirus. Current data show that inequality is trending up after falling somewhat during and immediately after the Great Recession, as measured by the share of personal income that accrued to the top 10 percent of income earners. (See Figure 2.)

Figure 2

The share of income received by the top 10 percent dropped by about 2 percentage points during the Great Recession but has since added nearly 3 percentage points, suggesting that the previous expansion might be favoring those at the high end of the income ladder. This data may shed light on how the economy might respond to a potential coronavirus-induced recession.

In the remainder of this column, I discuss a few of the choices BEA made when compiling this data series and how to think about this release in the broader context of existing data series tracking income inequality.

How to think about the distribution of economic growth

It’s helpful to drill down a bit more on Figure 1, which provides a helpful snapshot of who growth benefitted in each year that BEA analyzes. The last bar, for 2015–2016, shows that the top 20 percent of income earners received a bit more than 50 percent of income growth in the economy, which means that in that year, income inequality increased but maybe not by as much as one would think based on this bar.

For inequality to stay the same, and for every income group to experience income growth equal to average income growth, each group must receive a share of growth equal to their current share of income in the U.S. economy. The graphic below shows what the division of growth would look like if every income group was experiencing the headline level of growth. (See Figure 3.)

Figure 3

The division of the 2016 bar indicates that average personal income growth was 1.5 percent and that every quintile of income likewise experienced 1.5 percent growth. In other words, this graph shows an economy with a stable level of inequality. A graph where each quintile earned 20 percent of economic growth would actually lead to falling inequality. Comparing Figures 2 and 3 shows that in most years after the Great Recession, income inequality rose.

To actually reverse the now-four-decade-long rise in income inequality, growth would have to consistently be distributed more equitably than it is in Figure 3.

Why personal income?

The Bureau of Economic Analysis chose to map out in its datasets the distribution of personal income because it is one of its commonly reported indicators in the National Income and Product Accounts. The agency’s table 4 from the release compares personal income to some of the other income concepts that other significant analyses of income use. (See Figure 4.)

Figure 4

The U.S. Census Bureau’s annual income and poverty report, for example, uses money income. The most significant academic dataset that distributes aggregate income is the one developed by economists Thomas Piketty at the Paris School of Economics and Emmanuel Saez and Gabriel Zucman at the University of California, Berkeley. Their Distributional National Accounts target national income. Gerry Auten at the Office of Tax Analysis in the U.S. Department of the Treasury and David Splinter at the U.S. congressional Joint Committee on Taxation also target national income in their data series, which makes adjustments to the dataset developed by Piketty, Saez, and Zucman.

National income includes some components where the distribution of income is not well known, primarily corporate profits. Piketty, Saez, and Zucman make assumptions about how this money is distributed, but these assumptions may be contentious, so distributing personal income is more straightforward and less subject to debate over how income that isn’t directly observed is distributed among the population. No researchers have tried to distribute Gross Domestic Product itself, due to the inclusion in GDP of capital depreciation, for example, where it is even less obvious how the concept should be distributed.

Levels and trends compared to other data series

The new data series released by BEA is arriving into a crowded field. Two sets of researchers have created their own competing distributions of national income, and inequality in incomes is also tracked by the Congressional Budget Office in its distribution of household income report. In the released report, BEA makes comparisons to these datasets. While these are helpful for thinking about how these new data fit into the existing literature, two cautionary notes are useful.

First, it is difficult to compare the levels of income inequality seen in the BEA dataset to existing datasets because the income concept used by BEA is different. It is not obvious whether moving from personal income to after-tax national income as measured by Piketty, Saez, and Zucman or Auten and Splinter should increase or decrease inequality. On the one hand, both of those datasets have post-tax data series that apply government transfers and take out taxes. These additions should be generally progressive, reducing inequality. But the Piketty, Saez, and Zucman and Auten and Splinter datasets also include corporate profits, which we would expect to be a regressive addition, increasing inequality.

Generally, the levels of income inequality for the top 1 percent reported by BEA are low relative to other datasets, at just 12.6 percent of all income in 2016. But the share of economic growth accruing to the top 10 percent of income earners in the BEA data—37.6 percent of income—is more in the middle of the various datasets. This compression at the top of the income distribution could be due to the income concept used, or it could reflect differences in the datasets used to create BEA’s estimates. So, there is some ambiguity about how the levels of income inequality BEA reports compare to others.

The trends that BEA reports for 2007–2016 are similar to trends reported by Piketty, Saez, and Zucman, Auten and Splinter, and the CBO. But because BEA does not extend its estimates into the past prior to 2007, it is again difficult to say how BEA compares to these other datasets. Piketty, Saez, and Zucman and the CBO both report dramatic increases in inequality from 1980 forward, with the pace slowing in the 2000s and 2010s. Auten and Splinter report small increases in inequality in their pre-tax national income series and virtually no increase in inequality in their post-tax series over the same period. BEA has chosen to focus on recent history, so it can’t help us adjudicate these competing claims.

Takeaways

Policymakers and analysts should pay close attention to future releases of BEA’s distribution of personal income. Trends in the share of income held by top earners will indicate whether the benefits of the strong post-Great Recession economy have accrued to Americans broadly or to upper-income Americans more narrowly. Going forward, this new tool should give pause to those who target growth as a catch-all metric to indicate economic success. Too often, growth has been tilted in favor of those who are already doing well.

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Brad DeLong: Worthy reads on equitable growth, March 7-13, 2020

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

  1. Coronavirus special by Alix Gould-Werth, “The Only Thing Better than Strengthening Federal Social Supports Now to Prevent a Coronavirus Recession Is Strengthening Them Forever,” in which she writes: “Making sure that people affected by the coronavirus outbreak can be tested at minimal cost clearly makes good public health and economic sense. So do the other steps now being proposed in the House legislation. The current crisis also serves as a wake-up call for U.S. policymakers. Boosting unemployment insurance, strengthening food assistance programs, rolling out national policies on paid sick leave, and administering paid leave are all crucial to shoring up our public health system and economic infrastructure for the long term. In addition to the imperative for immediate emergency assistance, making these fixes permanent (and, in many cases, more expansive) would help us be prepared for whatever calamity comes next for the country or for any one of us individually.”
  2. Coronavirus economic impact by Heather Boushey, “How to Help Workers Laid Off in the Coronavirus Crisis,” in which she writes: “The coronavirus is first and foremost a public health crisis, requiring a public health response. It is also an economic problem, potentially a severe one. With increasing numbers of people in quarantine, millions of Americans avoiding certain kinds of businesses, the canceling of large gatherings, and investors obviously worried about the future, a coronavirus recession seems almost certain. Moreover, the historically high economic inequality that characterizes our economy has created fragilities that exacerbate any shocks to our society. The most urgent economic and health priority for Congress is to ensure that sick workers are able to stay home without fear of losing their jobs or their paychecks. Millions of workers lack access to paid sick days. Yet new research shows that paid sick days can reduce the transmission of flu by 40%. The workers least likely to have paid sick leave are low-income workers who may have a lot of contact with the public, such as deli workers and retail clerks, to name a few. If they’re only “a little” sick, they might go to work because they can’t afford not to, increasing the risk of infecting their fellow workers as well as customers. At the same time, they are also employed by businesses that are likely to feel the economic downturn immediately. The most straightforward way to provide sick pay is for Congress to require that all employers provide it to their employees—and the program needs to be permanent so we’re not scrambling the next time a catastrophe hits. This won’t help gig workers, but Congress can—as House Democrats have proposed—offer emergency extended leave to those who need it, paid for by the federal government, which will cover everyone. Beyond that, we need to take action to avoid or mitigate a painful recession. That job is made much harder by … high economic inequality.”
  3. A podcast on the coronavirus economic impact by Claudia Sahm, “Bloomberg Odd Lots: How To Stop The Recession from Happening Right Now.”
  4. And my coronavirus PowerPoint for my classes: “Coronavirus.”

 

Worthy reads not from Equitable Growth:

  1. Coronavirus Special: What we should have been doing, not just for the past three years, but for the past decade and a half. Read Adam Rogers, “Singapore Was Ready for COVID-19—Other Countries, Take Note,” in which he writes: “Singapore built a robust system for tracking and containing epidemics after SARS and H1N1 … This pandemic—the new disease COVID-19, the virus SARS-CoV-2—is not Singapore’s first epidemiological nightmare. In 2002 and 2003, Severe Acute Respiratory Syndrome, the original SARS, tore out of China and through Asia, killing 33 people in Singapore and sparking wholesale revisions to the city-state’s public health system. “They realized they wanted to invest for the future to reduce that economic cost if the same thing were to happen again,” says Martin Hibberd, an infectious disease researcher now at the London School of Hygiene and Tropical Medicine who worked in Singapore on SARS. So Singapore instituted new travel controls and health infrastructure. Then, in 2009, it got hit again—with H1N1 influenza, the so-called swine flu. “Pandemic flu came from Mexico, an Americas event, and Singapore tried to put in place in 2009 what they learned with SARS,” Hibberd says. “But flu was much more difficult to contain than SARS was, and they realized what they thought they’d learned didn’t work. It was another lesson.” When COVID-19 came around, Singapore was, it seems, ready … Singapore instituted strict travel controls and protocols for identifying sick individuals—to get them help as well as to find the people they’d been in contact with. The Singaporean government posted detailed accounting for how many people had been tested for the virus, and the locations and natures of those people’s social contacts. All these governments instituted strict social distancing measures, like canceling events, closing schools, and telling people to stay home. As a result (at least in part), all have lower numbers of infected people and lower fatalities than China or Italy, proportionately. They “flattened the curve,” as public health experts now say—lowering a probable spike of infections, perhaps pushing that surge of seriously ill people further out in time so that health care systems don’t get overburdened…. These places offer models for what to do next, laying out best practices for how to respond to the pandemic with fewer deaths, to get a case fatality rate closer to South Korea’s apparent 0.8 instead of Italy’s 6.6.” Detailed data can also tell epidemiologists what to expect about the dynamics of the disease, helping guide more targeted responses. “Highly detailed surveillance data will be critical for understanding the outbreak,” says Justin Lessler, an epidemiologist at the Johns Hopkins School of Public Health. “It is this sort of detailed analysis that will be critical for answering key questions about the role of asymptomatic people and children in transmission.”… Hong Kong, Japan, and Singapore all developed their own tests for COVID-19 as soon as the genetic sequences for the virus were published and ramped up production of the materials necessary for those tests. (That’s a sharp contrast with the US, which still doesn’t have enough tests for nationwide use, and may actually be running out of the materials necessary to make them.) Eah country instituted controls over immigration (a controversial move that the WHO recommended against, but that they did anyway). They rejiggered their national financial systems to make sure people didn’t have to pay for tests or treatment. (Easier in places where most health care is already nationalized, to be sure—and in some more progressive American states like California, Washington, and New York. In fact, New York Governor Andrew Cuomo even ordered paid sick leave for quarantined people and free hand sanitizer. Taiwan actually combined its national health care and immigration databases to generate automated alerts based on travelers’ potential for being infected … People in Singapore, for now, get information from multiple government websites, frequently updated, as well as from a government WhatsApp account. People get their temperatures taken before they can enter most buildings, including businesses, schools, gyms, and government agencies, because fever is one of the main symptoms of COVID-19. (According to my sister-in-law, whose family has lived in Singapore for six years, everyone whose temperature is normal gets a sticker, and people are expected to acquire two or three stickers every day.) Hibberd, who’s in Singapore now working on the new coronavirus, says, “On every lift I ride, there’s a notice saying what I have to do. Everywhere you walk there’s information… There’s a confidence in that information, in the government and what they’re saying, and there’s an expectation you should follow it.” The country gives a bit of money to people who don’t have the kinds of jobs that support being out of work—and fines people who don’t follow the rules.”
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Weekend reading: Fighting a new coronavirus recession 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

This is not a drill, writes Claudia Sahm. The U.S. economy is suffering mightily from the lack of certainty surrounding the new coronavirus, and policymakers must act to protect American workers and their families from feeling the effects of the tailspin. Sahm points to Equitable Growth’s book, Recession Ready: Fiscal Policies to Stabilize the American Economy, published with the Hamilton Project last year, providing various policy ideas that can be implemented immediately to both fight a coronavirus recession now and protect and strengthen our economy before the next economic crisis hits. These policy recommendations were studied and tested after the Great Recession of 2007–2009 and would address the economic fallout of the new coronavirus. While it will likely mean spending billions of dollars, Sahm argues, there is no question that it must be done. In order to protect American workers and businesses from long-lasting economic harm, policymakers need to think big, spend lots, and act now.

Earlier this week, House Democrats proposed a package of policies that would be a great step in the right direction to address coronavirus’ impact—from health, safety, and economic standpoints—on the workforce. The only thing better than strengthening these programs now, writes Alix Gould-Werth, would be if these programs were expanded and strengthened permanently. The proposed recommendations include emergency Unemployment Insurance funding, free COVID-19 testing, and, importantly, a new federal paid sick days program that would allow all workers to earn paid leave in the event of an illness and provide an additional 14 paid sick days in emergency situations just like the one we are currently experiencing. Making these supports permanent rather than implementing them for this crisis alone would put in place structures to boost our economy before the next economic downturn, concludes Gould-Werth, ensuring that we are better prepared to deal with it when it inevitably occurs.

Providing access to paid sick leave is the best way to support American workers, especially low-wage workers and those in the service industry with little or no control over their schedules, argues Heather Boushey in an op-ed for the Los Angeles Times. It is also a proven way to reduce the spread of infections, by up to 40 percent. There are other actions that can be taken as well to support workers in the weeks and months ahead, and Boushey runs through some of the recommendations that are most likely to work in the almost-inevitable coronavirus recession heading our way.

We also must consider actions to protect specific industries in our economy from a coronavirus recession: namely, addressing the supply-chain weaknesses that have been exposed. The pharmaceutical, tech, and auto-manufacturing industries in particular are extremely vulnerable to periods of import and export restrictions or shipping and transport constraints, write Susan Helper, John Gray, and Beverly Osborn. Not only will a coronavirus recession impact large corporations, but small and medium-sized businesses will also suffer from supply-chain disruptions. The United States can prevent this in the future by building high-road supply chains, “whose greater collaboration between management and workers along the length of the supply chain would promote sharing of skills and ideas, innovative processes, and, ultimately, better products that can deliver higher profits to firms and higher wages to workers,” the authors continue. Implementing this change will protect U.S. firms, workers, and consumers during future pandemics by smoothing flows in global transportation.

A new working paper in Equitable Growth’s Working Paper Series looks at the paid leave programs in California and New Jersey, and finds that access to these programs increases mothers’ labor force participation following childbirth. In the year of their children’s births, writes Sam Abbott in a post on the research, mothers in California with access to paid leave demonstrated an approximately 20 percent increase in the probability of returning to work—an increase that continues up to 5 years after the birth of a child, according to the study. But the authors of the working paper note that the benefits of paid leave are more pronounced and longer lasting for white, highly educated women in both states than for their more disadvantaged peers. Abbott details why this may be the case, and why this paper comes at an important time, when other states and the federal government are considering various forms of paid leave programs.

Links from around the web

The United States has officially seen the first job layoffs as a result of the new coronavirus, along with a rapid market decline. Tourism and travel industries have been hit hardest, but the service, hospitality, and food industries have also begun to experience layoffs, report Abha Bhattarai, Heather Long, and Rachel Siegel for The Washington Post. And with people staying home, so-called social distancing, and ruptured global supply chains, many expect the worst is still to come. The authors interviewed several workers in various industries who have recently lost their jobs or whose hours have been cut—most of whom are younger, entry-level employees and gig economy workers—on how the uncertainty in their fields has affected them, drawing conclusions about how the wider economy may also be impacted in the weeks and months to come.

As more people globally are infected with the new coronavirus, there is increased pressure to develop a COVID-19 vaccine. But, Gerald Posner writes in an op-ed for The New York Times, big pharma may be an obstacle to that development, due to their concerns with and prioritization of profits and potential liability—meaning a ready-to-use, life-saving vaccine may not be available for at least one year. History shows us that large pharmaceutical companies are not willing to move quickly enough to develop and distribute effective vaccines when a new virus emerges, Posner continues, causing the United States and European allies to rely on other sources such as non-government organizations, academia, and philanthropies when outbreaks of deadly pathogens occur.

All industries will likely be affected by the new coronavirus and the resulting economic crisis, but recent events make it all the more evident that eldercare workers deserve better job benefits and protections than they currently have. As our populations ages, facilities and workers caring for our parents and grandparents are more in demand and have much less support than they should—an issue that is compounded with the outbreak of COVID-19, which is particularly dangerous for older adults, especially those who are more than 80 years old, writes Haley Swenson for Slate. More than ever, we need healthy eldercare workers, and we need to compensate them adequately for their work. “With low pay, demanding hours, and usually, no benefits, it’s easy to see why turnover for home health aides even outside a public health crisis is around 50 percent,” Swenson continues. But as the demand for these workers grows—and there is no sign of that demand slowing down or plateauing in the future—we must address the lack of support for eldercare workers and bolster the industry with public investments and stronger structural benefits before it’s too late.

So-called deaths of despair—or dying by suicide, alcoholism, and drug abuse—have been surging along the age spectrum for Americans without a 4-year college degree, report David Leonhardt and Stuart A. Thompson in The New York Times. A new study attributes the trend to the fact that working-class life is extremely difficult in the United States—more so than any other high-income country in the world. Inequality and healthcare costs have skyrocketed, while industries have shuttered factories and incomes have stagnated. The data show that the rise in deaths of despair has occurred across races and ethnicities as well, though life expectancy remains higher for white people than for their black counterparts, as do income and wealth levels. In a series of charts, Leonhardt and Thompson explain the study’s findings and present some solutions to reverse the trend.

Friday Figure

Figure is from Equitable Growth’s “U.S. economic policymakers need to fight the coronavirus now” by Claudia Sahm.

The U.S. economy is in a tailspin—policymakers must do everything they can to protect workers and their families

Posted on by Maria Monroe

This is not a drill. The infections and deaths from the new coronavirus are climbing rapidly. Public events that bring us together are being cancelled or postponed every day to protect our public health—March Madness, NBA and NHL and MLB games, the St. Patrick’s Day Parade in Chicago, South by Southwest in Austin, and counting. Stock prices plunged again yesterday and were down more than 25 percent from their peak in February. More than $5.5 trillion in household wealth has been erased in only three weeks.

For everyone—especially those who had finally gotten a job—the end of the decade-long economic expansion is a financial tragedy. This month and in the months to come, the incomes of families across the country will fall, making it impossible for some to make ends meet. As a result, spending will fall, hitting the bottom line hard at restaurants, car dealerships, construction companies, and many more. State and local governments will see their revenues dry up, while demands on their social safety net programs surge. State balanced-budget requirements could force a choice between fighting the public health crisis or supporting people in financial crisis.

Bold action from federal policymakers is urgent. Policymakers had advance notice about the new coronavirus, and they did not act. Likewise, they had early warnings of the financial crisis in 2008. People saw the dark clouds gathering. They knew that the music was about to stop. Policymakers, if they had listened, had a chance to act before the Great Recession began. They knew mortgage debt was historically high relative to household income, even before house prices began to decline in 2006. They knew that people were quickly losing confidence in the U.S. economy. Policymakers did not act with urgency. They are repeating that grave mistake today. People will suffer again.

Policymakers have no excuse. We had the unfortunate experience of watching people suffer over a decade ago, first as the housing markets unraveled, then as the financial markets went into free fall, and then as the Great Recession took hold. Fiscal stimulus then was too late, too little, and cut off too soon. Bad policy hurt families then and cast a long shadow into the future.

The thin silver lining for the economic threats we face today is that we know how to fight a recession. We know what economic policies will work. Recession Ready: Fiscal Policies to Stabilize the American Economy, a book recently published by the Hamilton Project at The Brookings Institution and the Washington Center for Equitable Growth, is full of policies to fight a coronavirus recession that will work. The polices are backed by evidence, cutting-edge research, and lived experience.

U.S. policymakers need to act now, go big, and tell people that the federal government has their backs. The government must fight the new coronavirus, and it must fight for people. Above all, it must fight for the families who cannot fend for themselves. Things will get worse in the weeks ahead. Families will suffer, especially workers in low-wage industries, families without health insurance, the people doing gig work, and everyone else who remains marginalized across the U.S. economy.

Democrats in the U.S. Congress proposed legislation earlier this week that would fight back. It would support those directly affected by the new coronavirus and those most vulnerable to its many threats. This support is essential. Everyone—from those who cannot afford the medical tests to those who cannot afford to miss work—needs direct, comprehensive help. We must fund these efforts with hundreds of billions of dollars.

The Trump administration has discussed a large cut in payroll taxes for the rest of the year. The president is right to go big, but he needs to go better. A payroll tax cut won’t do it. It will be too slow and its effects too small—so small, most won’t even notice it. Those who don’t have or will lose their jobs won’t get it at all. Most importantly, workers with high incomes will receive the most money. They don’t need it. We need to help people who do. The payroll tax cut is bad policy. We know its shortcomings from the Great Recession. We must not repeat that mistake.

We can do so much better than the administration’s payroll tax cut. We absolutely must get a lot of money to families if the new coronavirus affects them directly. But that is not enough. We need to send money to everyone now. People do not know today if they are going get the coronavirus, miss a paycheck, or lose their job. All these outcomes were unthinkable a month ago. Now, they are real. People are scared. They need a financial cushion right now, and many do not have one. They need some extra money.

Policymakers can deliver, and they must. One effective way is to eliminate the first $500 of withholding for federal income taxes and Social Security payroll taxes for workers in April, May, and June. This policy would increase take-home pay by $500 per month. This novel approach would get money in people’s pockets within weeks. Congress and the Trump administration can do this, and it will work.

Money to all workers is only a front line not a battle plan for a coronavirus recession. We need much more aggressive and durable support for families without breadwinners in the workforce who suffer the most during recessions. That support will require far more than $500 a month in paychecks and more than our current safety net programs offer. We need additional comprehensive social supports. Protections for workers, individuals, and small businesses are grossly insufficient in the United States, and many families cannot handle any drop in income.

Both Democrats in Congress and the president want paid sick leave. Moreover, Democrats have proposed commonsense paid family leave, free medical testing, and other aid that recognizes just how little a buffer most families have to weather this recession. The investment by the federal government in people is worth it, both from a moral perspective and an economic perspective. Today, with the cost of borrowing at historic lows for the federal government, it is also an ideal time to do so.

Perhaps most importantly, we need to enact long-lasting policies that make the U.S. economy more resilient in the years to come. Luckily, we know what works. Economists have studied the previous recession and arrived at a set of policy recommendations in Recession Ready that will make our economy stronger and nimbler when the next crisis hits. Each one was used in the Great Recession and worked. Policymakers can improve upon these programs by making them start automatically when economic indicators say a recession is coming. And those programs will stay in place until people and businesses are back on their feet.

Fight the new coronavirus today. Get automatic stabilizers that always fight a recession in place for the future. Policymakers in the nation’s capital must go deep and wide. They must go now.

New research shows paid leave increases mothers’ labor force participation following childbirth

Posted on by Maria Monroe

Despite women’s rising U.S. labor force participation over the past seven decades, women remain more likely than men to take time off work and modify their work schedules following the birth of a child. For some women, a break from work around childbirth is a temporary period of recovery and bonding before resuming their previous work responsibilities. For others, however, it constitutes a more significant shift away from the workforce to focus on caregiving.

Whether a new mother fully detaches from the labor force at the point of birth—by quitting her job or being fired without pursuing further employment—may determine whether such a break from work is temporary or more long term. That determination about if or when to return to work after childbirth is dependent on a host of personal and economic factors, such as the degree to which a new mother can rely on other adults to provide care, the care needs of her child, her career goals, and her employer’s flexibility.

But one additional factor may be the perceived cost of exiting the labor force, as measured by changes in her family’s expected income after childbirth. Without paid leave, a new mother may opt for a period of unpaid time off during which she and her family could become accustomed to reduced income. Once a family’s household budget has absorbed this reduced income, the perceived cost of staying out of the workforce is likewise reduced. So, when the new mother determines that there is not a pressing financial need, she may delay a return to the workforce indefinitely to focus on childcare.

Access to paid family leave could affect this calculation of the costs and benefits of detaching from the workforce. By providing partial wage replacement during the time at home caring for a new child, paid leave could prevent families from becoming accustomed to the mother’s lack of income, thereby preserving the “cost” of a change in labor market participation. Indeed, when paid family leave is accessible, it facilitates a return to work for some women when they might otherwise remain at home. That is the central finding of a new working paper by economists Kelly Jones and Britni Wilcher of American University, which examines the long-term effects of motherhood on labor force participation in two states with guaranteed paid family leave: California and New Jersey.

The United States remains the only industrialized nation without guaranteed paid family and medical leave, but eight states and the District of Columbia have enacted their own paid leave systems. The first two states to adopt these policies were California in 2004 and New Jersey in 2009. Early research from these states suggest the programs can increase labor force attachment for mothers in the months of leave-taking surrounding childbirth. Few papers to date have examined this effect over the longer term.

Using data from the Basic Monthly Sample of the Current Population Survey, Jones and Wilcher employ an “event-study difference-in-differences” model to compare the labor market participation of new mothers and women without minor children surrounding the implementation of paid family and medical leave. Their findings indicate that, in the absence of paid leave, motherhood is associated with a significant reduction in the probability of labor force participation in the year of a child’s birth and beyond. The authors found no such reduction for new fathers.

In California, for example, this reduction attenuates over time but remains significant up to 11 years following childbirth, after which point the probability of labor force participation for mothers with young children is no longer significantly different from that of women without minor children. (See Figure 1.)

Figure 1

In other words, a mother with a 10-year-old child is more likely to participate in the workforce when compared to a mother of a toddler, but both women are less likely to participate when compared to a woman without a child at home.

In contrast, the probability of labor force participation for new mothers after California implemented paid leave in 2004 is significantly increased when compared to women who gave birth prior to the policy. More specifically, mothers with access to paid leave in the state demonstrate an approximately 20 percent increase in this probability during the year of their child’s birth. This increase remains significant up to 5 years later, suggesting that the availability of state-provided paid family and medical leave can increase labor force participation well beyond the period of initial leave-taking. (See Figure 2.)

Figure 2

The authors identified similar, though more varied, effects in New Jersey. While data limitations preclude the two scholars from following individual women over time, their findings highlight how paid family leave, or the lack thereof, might have a ripple effect on women’s labor force participation in the United States beyond the months surrounding childbirth.

New mothers who detach from the labor force around a birth face several barriers in returning to the job market. Job-specific skills may be lost. Preferences around work may shift with the addition of a new child. And employers may engage in hiring discrimination against new mothers. These factors may make it challenging to find a new job and could discourage a return to the labor market for month or even years. If paid family leave is indeed a factor in preserving a new mother’s connection to the workforce, then it can mitigate these barriers and facilitate a quicker return to work.

This new working paper contributes to mounting evidence that access to paid family and medical leave can improve both labor market outcomes for women and families’ well-being. It also adds to a subset of research around the effects of paid leave on more disadvantaged families. When disaggregating their results by mothers’ race and ethnicity and education level, Jones and Wilcher find that the benefits of paid leave were more pronounced and longer lasting for white, highly educated women in California and New Jersey’s labor market.

There are two potential explanations for why more disadvantaged families are not seeing the same benefits of paid family leave. First, for lower-income families, parental leave may be a luxury that they cannot afford even with paid leave’s wage replacement. In California, a minimum wage worker in 2004 (the year paid family and medical leave was implemented) earned $6.75 an hour, or $270 after a 40-hour workweek. At a 55 percent wage-replacement rate, paid leave would provide these workers with less than $150 of income a week—an amount that is probably too low to incentivize leave-taking.

In short, these lower-paid workers and their families will forgo parental leave, whether paid or unpaid, and any associated labor market outcomes altogether. Instead, these mothers could be returning to work after only a minimal recovery period. A 2012 Department of Labor survey indicates that as many as 1 in 4 women return to work within just two weeks of giving birth.

A second alternative but related explanation may be that lower-income women are indeed participating in parental leave, but their labor force participation is such that there isn’t much room for improvement when paid leave is made accessible. The authors’ data on less-educated women and women of color suggests that some disadvantaged women are already returning to work faster than their more advantaged counterparts in the years following childbirth, probably because their families are more dependent on the income they provide. When this occurs, any return-to-work effects of paid family leave will be more muted.

For these lower-income families, then, labor force participation is not the best measurement of paid leave’s potential benefits, which could instead manifest as greater financial security or improvements in mothers’ mental health.

Taken together, the findings from this new working paper by Jones and Wilcher point to the importance of providing new mothers with access to paid leave and ensuring that such programs are designed to assist all types of families. Research on paid leave programs highlight the importance of thoughtful programmatic design in order to maximize the benefit for working families. Early program evaluations, for example, confirm that California’s initial wage-replacement rate of 55 percent was indeed too low for lower-income families to participate in the program. The state has since adopted a more progressive wage-replacement structure, providing low-income workers with 70 percent of their income while on leave.

This new working paper comes at a critical time, as more states prepare to implement their own paid leave programs and the U.S. Congress is considering legislation, such as the FAMILY Act, that could produce a national paid leave guarantee for all new parents and caregivers. Jones and Wilcher’s work adds to the expanding, though nuanced, evidence base suggesting that paid leave strengthens women’s labor market attachment and contributes to a stronger economy. Policymakers should consider these findings carefully as they debate national paid leave options and their potential to strengthen the relationship between new parents and the labor force.

Posted in Uncategorized

A coronavirus recession is a real threat that U.S. policymakers must address now to avoid it becoming reality

Posted on by David Evans

Four days ago, I wrote in The Hill about how the federal government could fight the rapidly spreading new coronavirus. So much has happened since then. Today, public health officials reported 1,000 people on U.S. soil with the coronavirus—a number certainly far lower than what’s happening on the ground due to pervasive lack of testing in the United States. Several U.S. universities have sent their students home for the rest of the school year. Chicago canceled the St. Patrick’s Day Parade. And more cancellations are on the way.

An immediate fiscal policy response is essential. Policymakers must fight the coronavirus head on and support the workers and families whose finances are threatened, too. Today, volatile equity prices are roiling businesses across the board against the backdrop of market indexes down nearly 20 percent from their historic peak a mere three weeks ago.

Speaking of historic, the yield on 10-year U.S. Treasuries remain below 1 percent. The cost to the federal government to borrow money is negative after factoring for inflation. Financial markets are begging the U.S. Treasury Department to sell more debt. Congress needs to tell it to do so now.

The proposed policies from the Trump administration, including a payroll tax cut and tax breaks for industries the president chooses to favor will fail to protect families from financial distress and everyone from a recession. Specifically, the payroll tax cut will, says Michael Strain at the right-of-center American Enterprise Institute be too little, badly targeted, and ineffective. My tracking of the effects of the payroll tax cut in 2011 and 2012 for households when I was at the Federal Reserve and my research on that program both lead to the same conclusion. Do not do a payroll tax cut. A refundable, lump sum tax credit actually will help families.

The U.S. Congress and the Trump administration must set aside politics. The coronavirus does not care who you will vote for in November. Policymakers need to care about everyone in the path of the coronavirus. Above all, they need to put their money where their thoughts and prayers are. NOW.

Below is an op-ed I wrote for The Hill, which originally published March 7.

Why government leaders must act now to address the next recession

The global spread of coronavirus has sparked new fears among the public and policymakers alike of when the next recession might strike. Despite such concern, unemployment sits at record lows and consumer spending is still solid. More than a decade into the longest expansion on record, we have a good opportunity now to prepare for the next inevitable recession.

States and localities faced unique challenges in the Great Recession. Tax revenues plummeted and, unlike the federal government, states and most localities had to balance budgets. The stark reduction in revenues forced states to slash spending on schools, higher education, and jobs training. But these cuts were just the tip of the iceberg, and the consequences ran deep. Millions of teachers lost their jobs, college tuitions rose, kids had a harder time learning in crowded classrooms, and young adults burdened with student debt were far less likely to buy homes and to start families.

To make matters worse, state and local spending lagged for years, and overall recovery was notably slower than any other recession after the Second World War. The extent of the last recession stokes deep fears of what will happen the next time the country is faced with one. Thankfully, government officials at the federal, state, and local levels have time to plan and prepare. Even better, a solid body of research exists based on the lessons from the Great Recession to better guide policy responses.

The main factor for states and Congress is speed. History and research show a rapid response is the best way to fight back and make a recession shorter and less severe. One way is simply to send people money once the national unemployment rate jumps. Congress should pass legislation now that would automatically send out money at the start of a recession. Having that mandate before a recession will allow us to move faster as soon as it hits. This amount should be meaningful, such as $1,600 for a family of four. If the recession becomes more severe, those checks would go out annually until the national unemployment rate moves back down.

By definition, a recession affects the entire country. Even so, some parts experience the pain more quickly or acutely. Before the Great Recession, the sharp declines in housing prices and home construction began early in Florida, Illinois, Nevada, and Minnesota. Unemployment in all four of those states rose notably in 2007, well before the national rate rose. The residents in those states would have benefited greatly from earlier relief.

An effective way for Congress to support states is to cover a larger share of the costs from Medicaid and the Children Health Insurance Program. This additional federal funding would free up money for other priorities, allowing states to avoid spending cuts and keep more jobs. Researchers from Harvard University, the Brookings Institution Hamilton Project, and the Peterson Institute for International Economics argue that Congress should vote to make this support automatic once a state unemployment rate jumps. By using the state instead of the national unemployment rate, that federal money would then arrive as soon as a state begins to suffer.

State lawmakers should also plan ahead and decide how they would fight the next recession before it hits. They could commit to use extra federal funding, for instance, to send money directly to people in their state or in their hardest hit counties. Such direct payments to people from the state government would be in addition to a national payment, and the timing would be much more properly aligned with local economic conditions.

Another option available to states is to strengthen existing programs to further support people in a recession, such as unemployment insurance and the Supplemental Nutrition Assistance Program. It is inevitable in a recession that many will lose their jobs. States need to make it easy for those people to get unemployment insurance benefits and food stamps. They could relax eligibility requirements or time limits before we enter a recession. States could also raise the dollar amount of food stamps and unemployment insurance checks. Without more support, jobless people and their families will need to sharply reduce their spending, only further depressing tax revenues and making it harder to balance state budgets.

We all know it is a matter of when, not if, the next recession strikes. To help ward off the deep and painful effects that could be felt across the country, policymakers at the federal, state, and local levels should take advantage of the still expanding economy and plan now for a downturn.

 

Retool U.S. supply chains to address weaknesses exposed by new coronavirus

Posted on by Maria Monroe

U.S. economic policymakers need to heed the fast-accumulating warning signs as the global coronavirus outbreak exposes weaknesses in supply chains crucial to American economic well-being. As these weaknesses come to light, U.S. policymakers and supply chain managers should take the opportunity to reduce the fragility of the global supply chains that provide the products and services that Americans rely on every day for their health, their jobs, and their overall economic prosperity.

When U.S. pharmaceutical companies are highly reliant on drug manufacturers in China, India, and elsewhere for their final products and the underlying ingredients, then a regional epidemic, or a government decision to stop exports, can deprive millions of Americans of the medicines they need to maintain their health. When U.S. automakers and auto-parts manufacturers cannot make their products without key parts from China, Mexico, and South Korea, a loss of supply from these locations leads to lost jobs and reduced productivity and economic growth. And when global shipping by air and by sea is crippled by inability to deliver goods to and from China, the negative effects can be felt by not just U.S. corporate giants such as Apple Inc., Intel Corp., and Pfizer Inc., but also by numerous small- and medium-sized U.S. firms alongside trucking and rail freight companies and their workers.

Most of these weaknesses were evident prior to the outbreak of COVID-19, the scientific name for the new coronavirus that emerged from an outdoor wet market in the big industrial city of Wuhan in central China. Before this crisis, supply chains were disrupted by crises such as the 2011 Fukushima Daiichi tsunami in Japan and the SARS epidemic in China and Hong Kong in 2002–2003. While long supply chains inevitably increase disruption risk, the typical models used to make global sourcing decisions do not sufficiently consider this risk to individual firms. Such models even more rarely consider the risk to society, including the potential for undercutting labor and environmental standards, when far-away suppliers win bids partially because they suppress wages and pollute the environment.

There’s another way to design supply chains so that all the players—shareholders, workers, and consumers worldwide—are less exposed to the risks and social costs inherent in today’s global supply chains. Specifically, in the United States, private- and public-sector leaders could build “high-road supply chains,” whose greater collaboration between management and workers along the length of the supply chain would promote sharing of skills and ideas, innovative processes, and, ultimately, better products that can deliver higher profits to firms and higher wages to workers.

This approach is decidedly different than today’s mostly “low-road” supply chains that encourage the offshoring of jobs to smog-choked industrial zones abroad packed with poorly paid workers operating with lax safety and environmental rules. Shipping and reshipping of components across the globe is a significant contributor to climate change.

To be sure, foreign ingenuity has contributed much to our prosperity. We are not advocating that U.S. supply chains become 100 percent domestic. But both public and private leaders need to fully take into account the risks of far-flung supply chains.

One small step to encourage decision-makers to design high-road versus low-road supply chains is to encourage a new approach of global sourcing decision-making: Total Value Contribution, a term the three authors of this column propose in a new working paper now under revision for peer-review publication. Our TVC method encourages managers to first consider how decisions affect value drivers, before considering costs. In addition to increasing attention to shareholder profit-maximizing revenue and risk (which are often neglected in traditional approaches), TVC explicitly encourages managers to price-in other things they purport to value—such as safe, reliable, and sustainable global supply chains.

This method helps firms move away from having purchasing agents, whose pay often depends on reducing the purchase price of a good, make sourcing decisions alone. TVC encourages firms to tap into the expertise of their personnel in marketing and engineering, who have information on what customers value and the potential hidden costs and risks of using suppliers whose prices appear low. At the same time, TVC empowers purchasing agents to contribute their expertise on the multidimensional capabilities of the supply base, rather than pushing them to prioritize cost cutting. It also helps firms make sourcing decisions for groups of products, rather than deciding on a case-by-case basis and, only too late, realizing excessive dependence on a single supplier or region.

We believe these changes work to the long-term benefit of the firm. But firms alone do not bear all the costs of these fragile, low-road supply chains. U.S. economic policymakers have a broad array of tools they could deploy to encourage high-road supply chains.

Take pharmaceuticals. U.S. policymakers must realize they have a duty to the American people to make sure that a critical mass of vital drugs and underlying ingredients are produced in the United States. The federal government needs to encourage pharmaceutical companies to base more of their production in the United States and encourage U.S. consumers to understand the value of doing so, even if it means higher prescription prices in the short term.

There are some easy ways to do this. First, require drug companies to indicate on all labeling where both the finished drug and the active pharmaceutical ingredients were made. This transparency will allow consumers to know where their drugs come from and possibly allow domestic drugs to fetch a price premium. Second, institute unannounced inspections of foreign drug facilities; the current practice is to preannounce foreign plant inspections, giving them a regulatory advantage over domestic plants, where inspections are unannounced. Third, pass on the increased costs of oversight and the societal impact of foreign production of drugs to the firms that produce them. The latter two steps will increase the costs of producing overseas. Taken together, these policies would increase the profitability of producing drugs for U.S. consumers in the United States.

The U.S. Congress and the Trump administration acted last week to ensure there are more medical safety products available domestically to protect healthcare workers from the threat of catching and passing on COVID-19. But that is not enough. There will be another pandemic—or several. Climate change increases the probability of other kinds of natural disasters that can disrupt supply chains. Even before these inevitable events occur, this new coronavirus revealed a dangerous national security issue with our pharmaceutical supply chains.

Consider, too, the importance of the U.S. auto industry to our nation’s innovation and manufacturing generally, to our efforts to reduce greenhouse gases, and to consumer mobility. It’s important that we take steps to reduce the vulnerability of these supply chains. One way that can happen is to locate more manufacturing facilities in the United States, so that more innovation occurs within our nation’s borders to develop ever more clean passenger and freight vehicles. There are numerous ways that policymakers can encourage this kind of innovative “reshoring,” including policies that:

  • Nurture supportive ecosystems of innovative small and large firms
  • Provide better access to trained workers, applied R&D, and finance
  • Convene supply chain players to develop a roadmap for products ripe for reshoring
  • Subsidies for innovation and production that help achieve national goals
  • Rewritten trade agreements that protect labor and environmental rights

Then, there are the U.S. shipping companies and their workers moving all of these products around the country and around the globe. The coronavirus pandemic is crippling global trade, with the Baltic Index (an index of global shipping) in the tank and with knock-on effects on U.S. domestic shipping and freight industries. In the past, one-time crises such as the terrorist attacks on New York City on September 11, 2001 or the collapse of the commercial and investment banking sector in 2007–2008 led the federal government to bail out a number of service industries affected by the crises. But in addition to reacting in the moment to these crises, the federal government should craft economic policies that mitigate that risk beforehand, including by making our supply chains more robust.

The current coronavirus outbreak is a clear reason for policymakers to act. High-road supply chains built from global sourcing decisions employing the Total Value Contribution approach—with nudges from policymakers that adjust the measurable costs and benefits of foreign production in favor of domestic—would smooth out product flows in global transportation so that future pandemics would put less risk on U.S. firms, workers, and consumers.

—Susan Helper is the Frank Tracy Carlton Professor of Economics at the Weatherhead School of Management at Case Western Reserve University. John Gray is a professor of operations at The Ohio State University’s Fisher College of Business. Beverly Osborn is a Ph.D. student in management sciences at The Ohio State University’s Fisher College of Business.

Brad DeLong: Worthy reads on equitable growth, February 29-March 6, 2020

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

  1. The Federal Reserve appears to be not just the first but the only instrumentality of the federal government to actually do something significant in response to the coronavirus. Since this is overwhelmingly not a monetary policy problem but rather a public health problem, this is really, really, really, really not how things should be. Read Claudia Sahm, “U.S. economic policymakers need to fight the coronavirus now,” in which she writes: “The Fed[‘s] … policy tools … are too blunt to help the people who need it most. People in our country are getting sick, and the most vulnerable workers could lose their jobs if they are too ill to show up. Monetary policy cannot address this gaping public health problem. Yes, the Fed might calm financial markets some. Yes, the Fed might help businesses and borrowers who are taking on debt. The Fed is doing its part, doing what it can. But it needs help. Chair Powell made that clear before the cameras, saying: ‘The virus outbreak is something that will require a multifaceted response. And that response will come in the first instance from healthcare professionals and health policy experts. It will also come from fiscal authorities, should they determine that a response is appropriate. It will come from many other public- and private-sector actors, businesses, schools, state and local governments … This morning’s G-7 statement … reflect[s] coordination at a high level in a form of a commitment to use all available tools.’ What can the federal government do? Here is my proposal, grounded in more than a decade of research and forecasting at the Fed. Act fast. It is time for the federal government—all parts of it—to move swiftly against the spread of the coronavirus and any economic distress it may cause … [p]rovide financial support to people who are suffering … [p]lan for the worst … [h]ave automatic support ready for a recession.”
  2. This looks to be a major advance in our ability to track in near real time the regional evolution of the U.S. economy. If I had seen this pattern of regional growth and decline a decade ago, it would have made me less worried about the gerrymandering that the Constitution has built into the Senate. The people in declining areas are relatively poor, and they have little economic or cultural power, so giving them more political power might have created a fairer overall balance. Yet somehow it does not seem to have worked out that way. Their senators are not fighting for a fairer division of wealth, but seem focused on achieving negative sum goals for the country at large—if we can’t be prosperous, you shouldn’t be prosperous either. Read Raksha Kopparam, “County-level GDP gives insight into local-level U.S. economic growth,” in which she writes: “The U.S. Department of Commerce’s Bureau of Economic Analysis released a new measure … Local Area Gross Domestic Product. LAGDP is an estimate of GDP at the county level between the years of 2001—2018 … Growth since the end of the Great Recession in mid-2009 … is concentrated in the West Coast states and parts of the Midwest. States such as Nevada, West Virginia, New Mexico, and Wyoming have seen a significant number of counties contract in economic output since the recession. One of the benefits of this new LAGDP measure is that it provides an industry-specific breakdown …[t]rends in the manufacturing industry and how manufacturing has contributed to GDP pre- and post-Great Recession are also now more trackable … Manufacturing… [in] clusters of counties on the East Coast and the Midwest suffered contractions. Although overall manufacturing output in North Carolina increased, many counties experienced heavy declines over the past 17 years … 20 percent of the nation’s economic growth is concentrated in 11 counties, including the cities of Los Angeles, New York, and Harris, Texas.”
  3. Young whippersnapper Carmen Sanchez Cumming joins Equitable Growth, and sets to work. Read her “What the historically low U.S. unemployment rate means for women workers,” in which she writes: “Last month’s Jobs Report showed that at 3.5 percent, the share of women who are actively looking for a job but don’t have one continues to be near a 65-year low. At 3.6 percent, men’s unemployment rate is currently slightly above the rate for women. Prior to 1983, that was rarely the case. Research published in 2017 by economists Stefania Albanesi of the University of Pittsburgh and Ayşegül Şahin (at the time with the Federal Reserve Bank of New York and now at the University of Texas at Austin) shows that for most of the post-World War II period and until the early 1980s, women’s unemployment rate was rarely below 5 percent and usually more than 1.5 percentage points above that of their male counterparts. In the ensuing four decades, however, the gender unemployment gap—the difference between the female and male unemployment rates—nearly disappeared except during recessions, when men consistently experience a higher joblessness rate.”

 

Worthy reads not from Equitable Growth:

  1. This is a remarkably large effect. If it holds up, it indicates not just that there are huge benefits to air filters in schools, but that there are huge societal losses from other forms of pollution as well—and that we ought to be spending a lot more on pollution control than we are: Matthew Yglesias, “Installing air filters in classrooms has surprisingly large educational benefits,” in which he writes: “An emergency situation that turned out to be mostly a false alarm led a lot of schools in Los Angeles to install air filters, and something strange happened: Test scores went up. By a lot. And the gains were sustained in the subsequent year rather than fading away. That’s what NYU’s Michael Gilraine finds in a new working paper titled “Air Filters, Pollution, and Student Achievement” that looks at the surprising consequences of the Aliso Canyon gas leak in 2015. The impact of the air filters is strikingly large given what a simple change we’re talking about. The school district didn’t reengineer the school buildings or make dramatic education reforms; they just installed $700 commercially available filters that you could plug into any room in the country. But it’s consistent with a growing literature on the cognitive impact of air pollution, which finds that everyone from chess players to baseball umpires to workers in a pear-packing factory suffer deteriorations in performance when the air is more polluted. If Gilraine’s result holds up to further scrutiny, he will have identified what’s probably the single most cost-effective education policy intervention—one that should have particularly large benefits for low-income children. And while it’s too hasty to draw sweeping conclusions on the basis of one study, it would be incredibly cheap to have a few cities experiment with installing air filters in some of their schools to get more data and draw clearer conclusions about exactly how much of a difference this makes.”
  2. Martin Wolf is usually measured. Martin Wolf is now fearing that the possibility of keeping global warming a mere catastrophe rather than something much worse is slipping out of reach. Read Martin Wolf, “Last chance for the climate transition,” in which he writes: “At the World Economic Forum in Davos this year, two people stood out: Greta Thunberg, the 17-year-old Swedish climate activist, and Donald Trump, the U.S. president. In their messages on climate change, these two could not have been more opposed: panic, confronted with indifference. But one thing they share is that they are not hypocrites: Ms. Thunberg does not pretend we are doing anything relevant; Mr.Trump does not pretend he cares. Most participants in the climate debate, however, pretend to care, pretend to act, or both. If anything is to be done, this must change. Ours remains what it has been since the early 19th century: a fossil-fuel civilization. There have been two energy revolutions in human history: the agricultural revolution, which exploited far more incident sunlight; and the industrial revolution, which exploited fossilized sunlight. Now we must return to incident sunlight—solar energy and wind—along with nuclear power, while maintaining our high standards of living.”
Posted in Uncategorized

Weekend reading: The new coronavirus 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

While the new coronavirus is first and foremost a public health crisis, it is also a threat to our economy, writes Claudia Sahm. The Federal Reserve lowered interest rates by 0.5 percentage points this week in efforts to calm the zig-zagging financial markets and otherwise stabilize the economy. And while the Fed does not control market activity, it does play an important supporting role. Its actions this week were clearly designed to help ease fears and uncertainty in the financial market, as well as help out businesses and individual borrowers taking on debt. But monetary policy cannot act alone here—fiscal policy responses are needed as well. Sahm recommends that Congress and the Trump administration act quickly to tamp the spread of the virus and any economic distress it may cause, and implement automatic economic stabilizers in case of a recession. And, considering that 4 in 10 Americans cannot readily afford a $400 medical expense, it is likewise essential for the federal government to provide people with the financial support they need to get healthy, stay healthy, and keep their loved ones healthy.

A working paper released this week shows how Gross Domestic Product data determine how reporters and journalists present the economic debate to the public—despite the disconnect between the numbers presented each quarter and the lived experience of most Americans. Austin Clemens describes the research, which looked at economic articles from more than 30 newspapers across the United States since 1980 and finds that the tone of the articles closely correlates with the fortunes of the top 1 percent of income earners—while being uncorrelated with income growth for the bottom four quintiles of income earners. This bias is not due to the ideological leanings of reporters but rather to their reliance on numbers such as GDP to track the state of the U.S. economy. Clemens explains how this groundbreaking study shows we desperately need a new measurement of economic growth that doesn’t just reflect increasing incomes among the rich. Luckily, the U.S. Bureau of Economic Analysis recently released a prototype of the first-ever statistics measuring how U.S. personal income is distributed across the income ladder. Read our press release on the new tool.

Another new working paper looks at the relationship between an individual’s FICO credit score, wealth accumulation, race, and incarceration history. The authors, William Darity, Jr., Sarah Elizabeth Gaither, and Monica Garcia-Perez, looked at a sample from Baltimore of white and black individuals with and without a history of incarceration, as well as their credit score information. They found that having a personal history of incarceration is not only associated with lower credit scores but also with lower wealth accumulation—which affects more black Americans than white Americans, given that blacks are overrepresented in the U.S. prison population. But even outside of incarceration, black Americans are still at a disadvantage: The authors, who also penned a blog post about the research, find that blacks who have never been incarcerated, “despite having more assets and less debt, have average FICO credit scores that are similar to white who have ever been incarcerated.”

March is Women’s History Month, and it started with some good news for women in the workforce: The U.S. unemployment rate shows an exceptionally good environment for workers in general, and female workers in particular, writes Carmen Sanchez Cumming. Only 3.5 percent of women are actively looking for a job and can’t find one, a 65-year low, and the gender gap in unemployment is narrow, with unemployment for men at 3.6 percent. But how has this trend actually affected women in the economy? Though the media often reports on jobs lost in production and manufacturing—two areas dominated by male workers—Sanchez Cumming explains that typically female-dominated jobs in office and administrative support have likewise been lost in high numbers, and the female-dominated fields with increasing openings, such as hospitality and healthcare, do not provide jobs with high security or strong benefits.

Age discrimination is rampant in the U.S. economy, particularly with regard to hiring and firing, writes David Mitchell. Although it is technically illegal, age discrimination persists due, in part, to several decisions by the U.S. Supreme Court that have undermined laws to prevent it and to a lack of enforcement resources. As our population ages and workers remain in the labor force longer, this issue is of growing importance and requires our attention, says Mitchell. He reviews recent studies proving that age discrimination is widespread in hiring, firing, and on the job, and argues that Congress must pass a law to protect older workers that actually stands a chance of being followed by employers and enforced by the Equal Employment Opportunity Commission.

Links from around the web

The new coronavirus is very likely to do meaningful damage to the U.S. economy, writes Neil Irwin for The New York Times’ The Upshot. It may even send us into a recession the likes of which we are unprepared to reverse because “this particular crisis is ill suited to the usual tools the government has to stabilize the economy.” Lowering interest rates can help lower borrowing costs and tax rebates can put money into consumer’s pockets, Irwin continues, but neither option can restock empty store shelves or produce goods made in temporarily shut-down factories. This recession would be caused by a so-called supply shock, or the reduction in our economy’s ability to make things—particularly pharmaceuticals and electronics, two industries with complex global supply chains—which could lead to a demand shock. And while economic policy can’t do much about a supply shock, it can help prevent a resulting demand shock.

The lack of paid sick leave in the United States will only make the new coronavirus outbreak worse, “leaving many with little choice but to go to work while ill, transmitting infections to co-workers, customers and anyone they might meet on the street or in a crowded subway car,” writes Christopher Ingraham for The Washington Post. Looking at a study of cities with paid sick leave and rates of influenza, Ingraham shows how the implementation of a paid leave program reduces infection rates by as much as 40 percent, relative to those cities without paid sick leave programs. This issue is most prevalent in some services industries, where workers such as those who prepare our food and care for our children and the elderly intermingle with two populations at high risk of developing serious and potentially life-threatening illnesses as a result of viral infections. As the new coronavirus continues to spread throughout the United States, Ingraham argues that the issue of paid leave is more important than ever for policymakers to consider.

If women in the United States earned the minimum wage for all the unpaid labor they do around the house and in caregiving, they would have earned $1.5 trillion in 2019. Globally, women’s unpaid labor is worth almost $11 trillion—or more than the combined revenue of the 50 largest companies on the Fortune Global 500 list. These staggering statistics come from Gus Wezerek and Kristen R. Ghodsee in The New York Times. This unpaid labor is neither included in GDP calculations nor factored into other measures of economic growth, Wezerek and Ghodsee write, probably because it is widely assumed this work should be done within the family and for free. Though in the United States, the gender gap in who performs this unpaid labor has narrowed, women still perform a disproportionate amount of it, on top of their full-time jobs.

In 2019, Target Corporation raised the minimum wage it pays its employees to $13 per hour, and it plans to raise wages again this year, to $15 per hour. But as Michael Sainato reports for The Guardian, the wage increases have led to hours being cut (and benefits being lost as a result) and workloads being doubled. Target rolled out its so-called modernization plan last year to increase efficiency, but workers argue that the plan is largely a response to Amazon.com Inc.’s market domination, saying Target now expects them to be both warehouse workers and customer-service workers—in fewer hours per week. Sainato speaks to several Target employees from across the United States about their experience after the wage hike last year, most of whom said their incomes have gone down due to the reduction in hours and many of whom no longer qualify for employer-provided insurance as a result.

Friday Figure

Figure is from Equitable Growth’s “U.S. economic policymakers need to fight the coronavirus now” by Claudia Sahm.

Posted in Uncategorized

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

Posted on by Raksha Kopparam

On March 6th, the U.S. Bureau of Labor Statistics released new data on the U.S. labor market during the month of February. Below are five graphs compiled by Equitable Growth staff highlighting important trends in the data.

1.

The prime-age employment rate declined slightly in February, but has been trending upward sharply over the past year.

2.

Unemployment by race was little-changed in February, as large increases in job growth haven’t led to decreases in racial/ethnic unemployment gaps.

3.

Wage growth remains sluggish at 3.0% year-over-year, despite a surge in employment growth over the past few months.

4.

Employment growth continues to be strongest in service sectors like education, health care, and hospitality, while manufacturing and retail experience plateauing or declining employment growth.

5.

An increasing proportion of unemployed workers are re-entering the labor force or voluntarily leaving their jobs to seek new work.

Posted in Uncategorized