In joint letter, Equitable Growth asks Congress to ‘stanch economic bleeding’ in COVID-19 legislative package

Posted on by Maria Monroe
COVID-19 is both a public health crisis and an economic crisis.

Heather Boushey, the president and CEO of the Washington Center for Equitable Growth, along with the leaders of three other Washington-based economic think tanks—the Center for American Progress, the Economic Policy Institute, and the Roosevelt Institute—told U.S. congressional leaders in a letter today that legislation to “stanch the economic bleeding” caused by public health actions to contain the COVID-19 virus must include not only direct cash payments but also substantial increases in programs for families most directly affected as well as other steps to support people, businesses, and the overall U.S. economy.

With economic activity across the nation shutting down, the four think tank leaders said that workers, families, and small businesses will continue to suffer significant losses. They need to be compensated to cushion the blow as well as limit the economic impact of the business slowdown. The organizations called for Congress to provide the following:

  • Direct cash payments to provide an economic lifeline to families
  • Dramatically expanded Unemployment Insurance and Supplemental Nutrition Assistance Program benefits
  • Emergency actions to stem evictions, address homelessness, and prevent crowding of shelters
  • Student debt relief to prevent any resources intended to provide economic stimulus from being absorbed by debt servicing of student loans
  • Financial aid to states, including their health programs, which will be under immense strain as the needs of their residents grow

They also urged that the legislation build in so-called “automatic triggers” so that the emergency measures do not turn off until the economy recovers, and that these triggers return automatically in the next economic crisis. Such triggers in “automatic stabilizer” programs are discussed in Recession Ready, a book produced by Equitable Growth and The Brookings Institution’s Hamilton Project.

The letter also calls on Congress to ensure that any aid package includes benefits to workers and small and medium-sized businesses, as opposed to shareholders, and make companies more resilient after the crisis than they are today.

In addition to Boushey, the authors of the letter were Thea Lee, President, Economic Policy Institute; Neera Tanden, President and CEO, Center for American Progress; and Felicia Wong, President and CEO, Roosevelt Institute. The text of the letter follows:

Download File
Congressional Leadership Letter on COVID19 Stimulus 3.19.20

Dear Speaker Pelosi, Leader McConnell, Leader Schumer, and Leader McCarthy:

COVID-19 and the unprecedented steps being taken to attempt to contain the virus have created an urgent need for Congress and the Administration to act quickly to simultaneously address a public health crisis and an economic crisis. As we ask workers, families and small businesses to shut down activity to prevent spread of the disease, we must also compensate them for their sacrifice and provide them confidence that we will cushion the economic blow.

Direct relief in the form of cash payments to families can provide an economic lifeline in the face of an immediate income shock. These payments can guarantee that all families affected by the economic crisis get at least some aid, and they can provide necessary top-off aid to low-wage workers who might fall through cracks in our too-patchy system of social insurance and safety net programs. Direct payments, however, will not be nearly enough on their own to address this increasingly severe crisis, and must be supplemented with other critical areas of relief. Examples of this relief include dramatically expanded Unemployment Insurance, Supplemental Nutrition Assistance Program benefits, emergency actions to stem evictions and address housing crises so people aren’t on the streets or in crowded shelters, student debt relief to prevent resources intended to provide economic stimulus from being absorbed by unnecessary debt servicing, and financial aid to states, including their health programs, which are under immense strain.

These measures, among other crucial policies, must be included in any package. Without them, direct payments to individuals will only address one element of the current crisis, while leaving many who are bearing the greatest pain with support that falls far short of need. Right now, many families are facing dual layoffs or cuts in hours and cash payments will not make them whole; they need a UI system and other programs that are critical to keep these families from economic ruin. And as we make these changes, we should build in triggers so that these supports do not turn off until the economy recovers and that they will come back on if the crisis returns.

The Administration has ignored these needs in its request, even as it proposes to provide virtually unconditional aid to various industries. Industry-based aid must include provisions to ensure benefits flow to workers and small and medium-sized businesses, do not flow to shareholders, and make companies far more resilient after the crisis than they are today. And these plans must not be allowed to leave out critical areas of relief that absolutely must be included to cushion the blow and reduce the chances of a very severe recession.

Our nation will face many constraints in facing this crisis – many of which were the making of past disinvestment in social insurance, safety net programs and public investment. But one constraint it will not face is the federal government’s capacity to finance the necessary relief. That makes it absolutely imperative that policymakers take an “all of the above” approach to stanch the economic bleeding, which includes direct payments to individuals but also additional aid through other critical channels.

Competitive Edge: The future of vertical mergers and the thing called ‘EDM’

Posted on by Maria Monroe

Antitrust and competition issues are receiving renewed interest, and for good reason. So far, the discussion has occurred at a high level of generality. To address important specific antitrust enforcement and competition issues, the Washington Center for Equitable Growth has launched this blog, which we call “Competitive Edge.” This series features leading experts in antitrust enforcement on a broad range of topics: potential areas for antitrust enforcement, concerns about existing doctrine, practical realities enforcers face, proposals for reform, and broader policies to promote competition. Jonathan Sallet has authored this contribution.

The octopus image, above, updates an iconic editorial cartoon first published in 1904 in the magazine Puck to portray the Standard Oil monopoly. Please note the harpoon. Our goal for Competitive Edge is to promote the development of sharp and effective tools to increase competition in the United States economy.

Jonathan Sallet

The previous time federal antitrust agencies issued formal merger guidelines dealing with vertical mergers was in 1984. They and the entire antitrust community have learned a lot in the past 36 years.

Economic analysis of vertical mergers has evolved and been refined, and the thinking at the U.S. Department of Justice’s Antitrust Division and the Federal Trade Commission has similarly advanced. During that time, in a series of consent orders, antitrust enforcement carefully explained how vertical mergers can harm competition in industries ranging from agriculture to aerospace to energy to the internet and telecommunications. In 2019, the Federal Trade Commission, for example, confronted vertical merger issues in its decisions in two merger cases: office supply firm Staples Inc.’s acquisition of Essendant Inc. and UnitedHealth Group’s acquisition of DaVita Medical Group. The UnitedHealth Group/DaVita merger also made history when, for the first time, the Colorado attorney general entered into a separate consent decree in a vertical merger to protect competition in that state.

In January, the Federal Trade Commission and the Department of Justice’s Antitrust Division issued draft Vertical Merger Guidelines to capture their learnings and experience. Importantly, these guidelines paid no mind to the often-claimed and ill-supported notion that vertical mergers are inherently procompetitive. Instead, the two agencies explained carefully that Section 7 of the Clayton Act, which bars mergers “the effect of which may be substantially to lessen competition,” applies just as much to vertical as to other mergers.

Yet, an issue that is, even by antitrust standards, relatively arcane threatens to undo that progress and resurrect the notion that vertical mergers are presumptively procompetitive. The antitrust agencies need to reject that notion—in whatever form it appears.

The issue is called EDM. This is not an acronym for electronic dance music or even a garbled reference to a ‘90s rock band. EDM stands for “elimination of double marginalization,” which sounds harder than it is.

Consider a supplier of television programming and a cable system. The TV programmer makes a profit (which is to say, a margin) on its sales to the cable system, and the cable system makes a profit (another margin) by selling Pay TV packages to consumers. If the price to consumers of the Pay TV package were lowered, then the cable system might sell more and make more and so, too, might the TV programmer. So, that TV programmer might agree to lower its price to the cable system, allowing them to share the burden of lowering their profits but also sharing the extra revenue that comes from selling cooperatively to more consumers at a lower price.

But let’s say, for some reason, the TV programmer and the cable system can’t reach a deal. Then, if the cable system acquires the TV programmer, the merged firm could implement the same strategy by eliminating the margin on the sale of television programming and selling the Pay TV package to consumers at a lower price. This, simply put, is elimination of double marginalization. If EDM actually occurs, then there’s no doubt it’s a competitive benefit that can be weighed against the risk of anticompetitive harm.

That’s what merger analysis does. It looks at the likelihood of competitive harm and then considers whether there are offsetting competitive benefits that negate the risk of harm. These kinds of competitive benefits typically include so-called efficiencies, such as the ability of the merged company to produce more with less.

But now there is doubt whether the agencies will treat EDM the same as other claimed benefits. That’s because the agencies organized the draft Vertical Merger Guidelines in a way that separates EDM from efficiencies. And some comments to the agencies argue that EDM should be assumed, meaning that some such margin reduction will occur. Assuming there will be a reduction in margins is effectively a presumption in favor of EDM.

A presumption that EDM exists would vastly complicate the ability of federal and state antitrust enforcers to challenge vertical mergers and would lead to underenforcement. That’s because a judge might start by presuming that competitive benefits exist and then would assess whether there’s a risk of competitive harm. The government, in other words, could start off behind.

For five separate reasons, that’s wrong, and the antitrust agencies need to clarify their final guidelines to make plain that claims of EDM are to be presented and assessed the same as any other claimed procompetitive benefit. These five reasons are:

  • Vertical Merger Guidelines will be important to future litigation of vertical merger challenges.
  • The Department of Justice has spoken plainly that merging parties must support and quantify EDM as a defense.
  • The Department of Justice’s view is amply supported by antitrust statute and precedent.
  • Merging parties have the information and incentive to develop facts about their own internal operations, including EDM.
  • Economic models and analysis do not support a contrary conclusion.

Let’s consider each in turn.

Vertical Merger Guidelines will be important to future litigation of vertical merger challenges

As a technical matter, the Vertical Merger Guidelines will apply only to the agency investigations, but the federal courts are sure to look to them for guidance. That’s been the case in horizontal mergers, which have been litigated with some frequency, so the guidance supplied to courts will be even more important for vertical mergers, where litigated challenges have been exceedingly rare. And that means any implication of differential treatment of EDM could adversely impact the federal and state enforcers’ ability to successfully challenge vertical mergers. This also could have the effect of pushing federal and state enforcers toward a more permissive stance toward the vertical mergers that come in the door.

The Department of Justice has spoken plainly that merging parties must support and quantify EDM as a defense

The implication that EDM is a different kind of antitrust animal is demonstrably wrong. The Department of Justice has made plain that if merging parties “want credit for EDM, then they have to do the work, and have the evidence necessary to support it.” Assistant Attorney General Makan Delrahim explained last year very forthrightly that “[o]ur approach at the Antitrust Division is this: as the law requires for the advancement of any affirmative defense, the burden is on the parties in a vertical merger to put forward evidence to support and quantify EDM as a defense.” The Antitrust Division at the Justice Department took the same position in the AT&T Inc./Time Warner Inc. litigation when it discussed “efficiencies—such as the elimination of double marginalization.”

The Department of Justice’s view is amply supported by antitrust statute and precedent

The U.S. Congress designed Section 7 of the Clayton Act to stop anticompetitive conduct before it harms consumers. As the D.C. Circuit Court said in its AT&T/Time Warner opinion, “Congress acted out of concern with ‘probabilities, not certainties’ and charged the courts with ‘halting incipient monopolies.’” That’s why the government wins if it establishes a “reasonable probability” of harm to competition because it doesn’t have to eliminate every possibility to meet its burden. As Assistant Attorney General Delrahim said, “the Antitrust Division is not required to present, in its case-in-chief, evidence rebutting or anticipating the defendants’ affirmative claim that EDM will cause a price decrease.”

Merging parties have the information and incentive to develop facts about their own internal operations, including EDM

The burden of demonstrating EDM belongs on the merging parties because it’s the merging parties that have the information and incentive to develop facts about their own internal operations. The comments of 28 state attorneys general on the draft Vertical Merger Guidelines explain in detail that the merging firms have superior knowledge on topics such as what margins have existed, past actions (such as contracts) that have been considered or tried, the incentives and opportunities to reduce margins in the future, and, of course, how their plans will change as they plan the operations of the merged company. All of this goes to merger specificity, according to the 2010 Horizontal Merger Guidelines issued jointly by the Department of Justice and the Federal Trade Commission: “The Agencies credit only those efficiencies likely to be accomplished with the proposed merger and unlikely to be accomplished in the absence of either the proposed merger or another means having comparable anticompetitive effects.”

For any inquiry into the elimination of double marginalization, facts are critical. As the Department of Justice has said, “it is impossible to tell at first blush whether a vertical merger will eliminate double marginalization and, if it does, how large a savings that would create for consumers.” EDM might be small or nonexistent; indeed, Steven Salop at Georgetown Law School presented eight separate reasons to support that conclusion at the Department of Justice’s Workshop on Vertical Mergers held on March 11, 2020.

So, for example, as the draft Vertical Merger Guidelines expressly note, the downstream affiliate may not be able to efficiently use the upstream affiliate’s product. Or the new firm may instruct its upstream and downstream affiliates to operate independently. Or the upstream affiliate, which would give up its margin for the good of the new firm, may have limited capacity, which means that it could not produce more units even if its downstream affiliate cuts its retail price. The upshot: Without the ability to produce more units, there would be no incentive to lower retail prices.

And what if the price reduction reduces input sales that the upstream affiliate would have made to other downstream competitors? In that case, the merged firm might raise prices to coordinate higher prices, rather than lowering prices through the elimination of double margins.

Thus, “EDM must be shown to be merger specific to be credited,” which is “a factual question that must be assessed on a case-by-case basis.” For example, in the successful union of Comcast Corp. with NBC Universal, the Department of Justice procured a consent decree limiting the action of the merged firm after considering an EDM defense, but concluding that “[d]ocuments, data, and testimony obtained from Defendants and third parties demonstrate that much, if not all, of any potential double marginalization is reduced, if not completely eliminated, through the course of contract negotiations.”

These are all fact-specific questions that the merging parties are best positioned to answer. They have better access to facts and a healthy incentive to find them. By contrast, according to the Department of Justice, if antitrust enforcers “bore the burden on efficiencies, ‘the efficiencies defense might well swallow the whole of Section 7 of the Clayton Act because management would be able to present large efficiencies based on its own judgment and the Court would be hard pressed to find otherwise.’” Moreover, if the government had the burden of disproving EDM, companies might have the incentive to not cooperate.

Economic models and analysis do not support a contrary conclusion

I recognize the contention that the existence of EDM may be linked to the existence of incentive to harm competition (specifically by raising rivals’ costs). But in their Vertical Merger Guidelines comments, professors Jonathan Baker at American University’s School of Law, Salop at Georgetown Law, Nancy Rose at the Massachusetts Institute of Technology, and Fiona Scott Morton at Yale University tell us that “the economics literature does not support the proposition that there is a reliable relationship between EDM and raising rivals’ costs.” Salop specifically has explained that not all models treat EDM and raising rivals’ costs as linked. And Scott Morton, with Marissa Beck at Charles Rivers Associates, submitted comments in which they carefully reviewed past studies and concluded that vertical mergers are not generally procompetitive and that “the effects of a vertical merger will depend on the specifics of the transaction and markets at issue.”

Conclusion

In sum, as professor Martin Gaynor at Carnegie Mellon University has told the agencies, “EDM is not, in general, a necessary consequence of vertical (non-horizontal) integration. All of this is why, as Carl Shapiro, the government’s testifying expert in the AT&T/TWE case, said in his comments, ‘EDM, like all other efficiencies, must be shown to be cognizable before it can be credited.’”

That’s correct. EDM should be treated like any other claim of competitive benefits arising from a merger, through the analysis traditionally applicable to efficiencies. And that is what, in accordance with the Department of Justice’s repeated views, the final Vertical Merger Guidelines should say.

—Jonathan Sallet is a senior fellow at the Benton Institute for Broadband & Society. He also assists the antitrust work of the Colorado attorney general’s office as a special assistant attorney general. The views expressed here are his own.

The only thing better than strengthening federal social supports now to prevent a coronavirus recession is strengthening them forever

Posted on by Maria Monroe
A computer generated representation of a COVID-19 under an electron microscope.

(This piece has been updated to reflect the passage of revised legislation by the House of Representatives on March 14, 2020. The bill is now under consideration by the Senate.)

The new coronavirus, COVID-19, took the United State by surprise, and leaders across the country are now stepping in to respond. On Saturday, the U.S. House of Representatives passed the Families First Coronavirus Response Act
(H.R. 6201)—legislation designed to protect the health, safety, and economic well-being of the populace and to prevent a coronavirus recession. The package includes several key components, including free testing for COVID-19, emergency Unemployment Insurance funding, provisions to make food assistance more accessible to U.S. workers, paid sick time for workers affected by COVID-19, and public health emergency leave so that workers can care for themselves and their families.

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.

Let’s take each program in turn.

Unemployment Insurance

Unemployment Insurance is the major economic program designed to assist workers who lose jobs through no fault of their own and to stabilize the economy in times of macroeconomic downturns. In order to receive partial wage replacement through Unemployment Insurance, a person must have lost a job through no fault of their own and be able to work, available for work, and actively searching for new employment. Unemployment Insurance is a wonderful program, but due to underfinancing and increasing administrative barriers, it is hamstrung in its ability to reach eligible workers. In normal times, this limits Unemployment Insurance’s power to stabilize the U.S. macroeconomy and protect individual well-being. In the context of COVID-19, these problems are compounded by the need for unemployed workers to pound the pavement in search of work or to report to a new job, both of which can pose a public health risk if the job-seeker has symptoms of COVID-19 or is in a high-risk group.

Among other things, the House legislation calls for a needed infusion of resources into the administrative systems of agencies that run Unemployment Insurance programs and in the states that see a 10 percent spike in the unemployment rate. The legislation adapts program features (from work search requirements to experience rating) so that those affected by COVID-19 can access benefits. Getting Unemployment Insurance funds to people who would otherwise be disqualified due to being unavailable for work is key to ensuring that dollars flow into people’s pockets and then into the broader economy.

But unless we make these long-lasting, commonsense reforms to Unemployment Insurance that increase program funding, remove barriers to program access, and improve the already-existing disaster unemployment assistance program, the program will be less effective at helping you or me should we separate from work through no fault of our own or when our country faces the next crisis.

Food assistance

Government programs such as the National School Lunch Program and the Supplemental Nutrition Assistance Program, or SNAP, provide low-income children and adults with lunches at school and money they can use to spend on food for themselves and their families. In addition to keeping bellies full and people healthy, SNAP is one of our nation’s most important economic security programs and is crucial to macroeconomic stability. What’s more, undernutrition can harm our immune systems, which defend against COVID-19, along with other illnesses.

As is the case with Unemployment Insurance, recently introduced and strengthened administrative barriers harm people’s ability to access SNAP. In particular, work requirements are hurdles that prevent vulnerable people from accessing these programs: Many low-wage workers struggle to provide documentation of their frequently fluctuating work hours and changing employment status. This, in turn, depresses take-up rates, making the program less effective at buttressing the economy from economic shocks like the one that could be caused by COVID-19.

The House legislation clears a path for children who participate in the School Lunch Program to continue to receive food when schools are closed and allows states to request waivers that will allow them to provide emergency SNAP benefits. It also waives SNAP work requirements that create a barrier between people in economic need and the food assistance that would help them and the economy broadly. Waiving work requirements is smart policy for individuals in need of food and for us as a nation—injecting money into the Supplemental Nutrition Assistance Program is one of the best ways to ensure that dollars recirculate in the economy. A 2019 study by the U.S. Department of Agriculture examining the program during the Great Recession of 2007–2009 finds a large multiplier effect. Because people who need supplemental nutrition assistance spend that money quickly on the food they need, $1 billion spent on the program generates $1.5 billion of Gross Domestic Product and 13,560 new jobs.

To strengthen SNAP so that it will protect you and me should a personal economic shock hit and protect our country in the case of another crisis, these additional changes should not be a one-time fix. This is one of the best vehicles we have for supporting low-income families and stabilizing the macroeconomy.

Emergency paid sick days

The House legislation requires firms with fewer than 500 employees to provide their workers with 10 emergency paid sick days for health needs related to COVID-19. This policy follows a slew of states and municipalities who have implemented paid sick days and found positive results for workers and for public health. By allowing workers to earn time off to attend to their own medical needs or those of a family member for a small number of days, people can address short-term medical needs without jeopardizing their financial security. This is critical and commonsense policy, necessary to stop the spread of COVID-19 and allow sick individuals to care for themselves.

This policy is an important first step, but by limiting sick time to only needs related to COVID-19, it makes enforcing the policy even more challenging than non-emergency paid sick policies. A requirement that employers allow earned sick leave only works if employers follow it, and—out of ignorance or willful disregard—many employers do not comply with laws on the books. And in a context where diagnostic tests are hard to come by and in which employers can legally deny paid time off to sick workers who may not have COVID-19, it is likely to be difficult to ensure that infected workers receive the paid leave to which they are entitled. Enforceable laws and robust enforcement strategy are necessary to make sure that employer mandates for paid sick days reach all workers, including the most vulnerable, in all times and especially now.

Finally, there is the problem of who is covered by this legislation. The bill includes several “carve outs”—groups of workers who are not eligible for paid sick days. Workers at companies that employ more than 500 people are among the carved-out groups. Thus, many vulnerable workers at the frontlines of food and retail service will be unprotected by the law.

Indeed, Equitable Growth grantees Kristen Harknett at the University of California, San Francisco and Daniel Schneider at UC Berkeley estimate that 5 million workers across the 92 largest companies in retail and food service in the United States lack access to paid sick days, including 347,000 at Walmart Inc. alone. This is a public health hazard that should be addressed in future legislation.

Emergency paid leave

Paid sick days are designed to help workers cope with short-term illnesses, such as the common cold or flu. But for people in high-risk groups, COVID-19 can result in prolonged illness. While the words “paid family and medical leave” often conjure the image of leave to care for a new child, paid leave encompasses much more. The eight states and the District of Columbia that have passed paid leave laws cover leave for one’s own serious medical condition, as well as paid leave to care for an ill or injured family member. There is wide variation in leave length, but typical policies allow for 6 weeks to 26 weeks of leave with partial wage replacement to care for oneself or a family member. What’s more, these programs are funded through a social insurance model, which should make benefits more accessible than through an employer mandate.

The House legislation creates a new federal emergency paid leave benefit program for people affected by COVID-19 that provides partial wage replacement for up to three months. If complications for a COVID-19 patient stretch on beyond their allotted number of sick days, it is important for them to be able to access a system designed to support people with serious medical conditions with partial wage replacement and job protection. It is equally important for their caregivers to be able to access paid caregiving leave, so that they can care for their loved ones without spreading the virus. The rise of COVID-19 shines a light on the need for permanent paid caregiving and medical leave enacted at the federal level. People become seriously ill all the time, and they and their caretakers need paid leave. These policies should be expanded so that no worker in the United States is without them.

A note on program financing

In recognition of the unusual economic moment, the House legislation departs from state and local precedent in terms of funding mechanisms for paid sick days and paid medical and caregiving leave. In states and municipalities with paid sick days, employers build the cost into their business models, and states with paid medical and caregiving leave establish social insurance systems to cover the cost of partial wage replacement. The House legislation requires employers to front the cost for both paid sick days and paid leave, and provides quarterly reimbursement to employers for the compensation they provide employees. Even this may not be enough for businesses struggling to make payroll during economic downturn. To keep business doors open in a time of economic crisis, weekly reimbursement is called for.

It is a tragedy that for decades prior to this current COVID-19 crisis and looming coronavirus recession, Congress failed to give workers the right to earn paid sick days and failed to establish a social insurance program providing wage replacement during personal medical leave and caregiving leave. If these systems were already in place, employers would have paid sick days built into their business models and the government would have built the systems necessary to disburse funds to workers taking time off due to COVID-19.

In the absence of this foresight, we are left with a solution that is coming later than ideal and with a sloppy funding mechanism that employers need to administer at a time when their full attention is needed on the question of how to keep their doors open and their employees on payroll. When we return to normal economic times we should implement permanent, sustainable systems for guaranteed paid sick days and paid caregiving and medical leave so we do not find ourselves in this situation again.

Conclusion

The House legislation responding to the public health and economic threat of COVID-19 is a starting place, and a good one. But in order to prevent a coronavirus recession, we need much more. What comes next should be further permanent expansions of social supports so that we are all protected when the next crisis hits.

JOLTS Day Graphs: January 2020 Report Edition

Posted on by Carmen Sanchezcumming

Every month the U.S. Bureau of Labor Statistics releases data on hiring, firing, and other labor market flows from the Job Openings and Labor Turnover Survey, better known as JOLTS. Today, the BLS released the latest data for January 2020. This report doesn’t get as much attention as the monthly Employment Situation Report, but it contains useful information about the state of the U.S. labor market. Below are a few key graphs using data from the report.

1.

The quits rate held steady at a healthy rate of 2.3% in January, reflecting confidence in the labor market before a major public health and economic crisis.

2.

As jobs openings increased to 7.0 million in January, there continued to be less than one unemployed worker per opening before an expected slowdown of job postings.

3.

As the number of job openings increased in January, the vacancy yield decreased with fewer hires per available opening.

4.

The Beveridge Curve moved upward in January, reflecting a baseline healthy labor market before any potential economic slowdown as a result of the public health crisis associated with COVID-19.

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.