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.”
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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.

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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.

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What the historically low U.S. unemployment rate means for women workers

Posted on by Maria Monroe

Women’s History Month began with some good news. One of the key indicators reported in the U.S. Bureau of Labor Statistics’ monthly Jobs Report—the unemployment rate—documents an exceptionally good environment for workers in general and for female workers in particular. 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. (See Figure 1.)

Figure 1

During the Great Recession of 2007–2009 and its aftermath, this relatively new phenomenon caught the attention of journalists, researchers, and policymakers, with some commentators even calling the economic downturn a “mancession.”

Some economists attributed men’s relatively higher unemployment rate to women boasting more college degrees. Because workers with higher levels of education tend to receive more intensive on-the-job training, they acquire specific skills that reduce employers’ incentives to lay them off.

Other researchers pointed to the “added-worker effect.” This happens when married women enter the labor force to make up for their husbands’ lost income. Additionally, most economists agree that at least some of the widening of the gender unemployment gap during the 2007–2009 recession was a consequence of men’s concentration in industries that are more exposed to fluctuations in the business cycle. In other words, because men hold the majority of jobs in sectors such as construction, extraction, and manufacturing, and because those sectors tend to be hardest hit by economic downturns, male workers are more likely to be unemployed during recessions.

Yet this trend masks how changes in U.S. occupational structure have also affected women in the labor force. Even as discussions about joblessness, job displacement, and economic anxiety tend to center around the effects of deindustrialization in male-dominated sectors of the U.S. economy, occupations with a predominantly female workforce have also seen a big dip in employment. Office and administrative positions—occupations in which 70.9 percent of workers are women—lost 2.79 million jobs between 2000 and 2019. This drop was only surpassed by the decline in production, which lost 2.89 million jobs in the same 19-year period.

Moreover, many of the new jobs more open to women employees are failing to provide the economic security, earnings, and career-advancement opportunities of the lost positions. The decline in office and administrative-support employment is being offset by strong job creation in other women-dominated industries such as hospitality and healthcare services—two sectors that are projected to keep experiencing big gains in the coming decade—yet many of these are poor-quality, low-wage jobs that offer little in terms of benefits. The shrinking share of middle-skill, middle-wage employment—what economists call “job polarization”—is affecting both male and female workers. (See Figure 2.)

Figure 2

The narrowing of the U.S. gender unemployment gap and the historically low female unemployment rate are evidence of important progress women have made in the workplace. In their research, Albanesi and Şahin show that the main driving force behind the decline in the gender unemployment gap was that women’s labor force participation rate began to catch up to men’s beginning in the 1980s. What sparked the change? Women postponed having children, family leave became more widespread, and the percent of mothers who quit their jobs during and after pregnancies declined. These and other factors made it less likely for women to experience unemployment when trying to return to work.

But it’s also important to highlight that the unemployment rate fails to capture many other factors that interact to shape both male and female workers’ labor market outcomes. Women’s median wage continues to grow more slowly than men’s, and the very occupational segregation that protects women from unemployment during downturns is responsible for much of the persisting gender wage gaps. At the same time, wage growth at the bottom 25 percent of the pay scale, where women are overrepresented, is growing faster than any other groups. These are factors that also need to be considered when looking at the gender unemployment gap going forward, particularly when the next economic downturn arrives.

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U.S. economic policymakers need to fight the coronavirus now

Posted on by Maria Monroe

The human tragedy of the coronavirus is now here in the United States. Nine deaths from the coronavirus have been reported in Washington state so far. Each day, more and more people are falling ill. Tragically, some will die; many others will recover but very well may spread the virus further. Quarantines are likely to be widespread.

The coronavirus is first and foremost a public health crisis. The front lines are the women and men who work at hospitals, community health centers, and pharmacies across the country. Each of us can contribute when we check on our elderly neighbors, make sure our children wash their hands (for 20 seconds with soap!), and take precautions to stay healthy and calm.

The coronavirus is a threat to our economy, too. We are starting to see it here, at the 26,000-feet (and falling) view of our volatile financial markets displayed in our living rooms, on our mobile phones, and on TVs in barbershops across the country. Last week, stocks plunged 11 percent in a single week—the most rapid correction ever. The yields on 10-year Treasuries, a benchmark interest rate for mortgages and other loans in the United States, are now less than 1 percent—the lowest level on record. (See Figure 1.)

Figure 1
Long-term interest rates in the United States fall to lowest level on record
Daily yields on 10-year Treasury bonds, percent change, 1960–2020

Source: Federal Reserve Economic Data, “10-Year Treasury Constant Maturity Rate” (March 3, 2020) available at https://fred.stlouisfed.org/series/DGs10.<br />Note: Shaded areas are recessions.

Low interest rates are good for many people, businesses, and local governments. If they need to borrow money, they will pay less in interest and can generally get a better deal from lenders. Here, the Fed is helping push interest rates lower. In fact, lowering rates is its primary way to provide support during tough times.

Indeed, at times like these—when uncertainty is high and misinformation rampant—lower interest rates are a sign of potential trouble. Unrest in financial markets is the primary reason why interest rates and stock prices are falling. When the Fed cuts rates, it is trying to support the economy and calm financial markets. The Fed does not control the market; it plays an important supporting role. So, why are interest rates hitting all-time lows? Investors around the world are buying up the safest assets available—U.S. Treasury bonds. Unless the government sells more Treasuries, their price—referred to as the yield—will continue to fall. The flight to safety today is a flight from the economic consequences of the coronavirus.

Yesterday, the Federal Reserve acted decisively. It cut the federal funds rate 0.5 percentage points. That may not sound like much, but it is a bold move from an institution known for its caution. As of last Friday, it said in a press release that it was “closely monitoring developments.” No word of a rate cut then. And it cut almost two weeks before its next regular meeting.

The Fed decided two weeks was too long to wait. Its decision to act outside of a meeting in Washington was not business as usual. Moreover, it acted a mere three hours after a phone call with central bank leaders and financial ministers across the globe. An hour later, Fed Chair Jerome Powell held a press conference to explain the decision

Can the Fed do it alone? No. Its policy tools, such as cutting interest rates, 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. But there’s also a role for monetary policy.

And again, saying:

You saw this morning’s G-7 statement of finance ministers and governors. I think that statement does reflect coordination at a high level in a form of a commitment to use all available tools, including healthcare policy, fiscal policy, and monetary policy as appropriate. So, in terms of fiscal policy, again not our role, we have a full plate with monetary policy, not our role to give advice to the fiscal policymakers. But you saw the mention in the G-7 statement as appropriate as well.

It is not Chair Powell’s job to tell the president and Congress what to do. Even so, his words are as close as a Fed official gets to sending out the “Bat Signal” and begging for a fiscal response.

So, 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. If it acts now and joins the Fed in fighting back, the economic consequences will be less severe. We could spare the country from the worst possible outcomes. People and businesses would know that the government has their back and will do whatever it takes to end this crisis. The Great Recession taught us a painful lesson: Policymakers waited too long and were far too timid when they did act. Our country is still paying for those mistakes. It’s time to act. Go big or go home.
  • Provide financial support to people who are suffering. Any person who has the coronavirus, is quarantined, or stays home to care for a loved one needs financial support immediately. The federal government should send them money—a check for $1,000, all at once, not $70 a week. The U.S. Treasury and regulators can also push banks to give people grace on their mortgages, credit card debt, and student loan payments. If that does not work, then give people directly affected a zero-interest rate loan until they are back on their feet. With interest rates at historical lows and demand for safe assets, it will cost the federal government very little to issue more bonds to pay for this program. Do it now.
  • Plan for the worst. The U.S. economy is strong today—thankfully, it was strong before the coronavirus. The global economy was not. The U.S. unemployment rate is at a half-century low. That does not mean that our economy is immune to a pandemic. Congress and the Trump administration must follow the Fed’s lead and prepare for the worst. Everyone is monitoring the fast-moving events. They must be ready to go. Even better, get ahead of economic fallout and act now. To be most effective, policymakers need to coordinate their actions in public health and economic aid. The federal, state, and local governments need to talk and work together. Cooperation has yielded big benefits in the past. We need that today.
  • Have automatic support ready for a recession. A recession occurs when consumers and businesses across the country pull back on spending and when production falls widely. We are not in a recession today, and the financial distress may end up being concentrated in particular regions of the country and not push the entire U.S. economy down. But again, we need to be ready. As soon as the national and local labor markets weaken, support from the federal government needs to start. In any recession, send money directly to people, as soon as the unemployment rate jumps. Other excellent ideas are to send support to states, increase support to the unemployed, and make supplemental nutrition assistance more generous. Do not target it to people who still have jobs, as a payroll tax cut would do. Get the money out to as many people as possible and as fast as possible.

U.S. policymakers can beat the coronavirus, but it will take a rapid healthcare response and bold economic policies. We have no choice. Too many Americans are one paycheck away from financial catastrophe. Four in 10 U.S. adults tell us that if they had a $400 emergency expense, they would have to borrow, sell something, or would not be able to pay it. (See Figure 2.)

Figure 2

Only 1 in 10 adults say they could not pay the expense by any means. But that expectation does not account for the consequences of that adult, or a family member, or co-workers, coming down with the coronavirus. Someone out of work for a week due to the pandemic would very quickly come up $400 short. Borrowing, trying to sell something, or picking up odd jobs is not how we want people to deal with this public health crisis.

If the federal government does not give people financial support now, then we most certainly risk a worse public health crisis. Many people have so little savings that they regularly do not get the medical care that they need. In 2018, one-quarter of adults said that they or a family member went without some form of medical care because they could not pay for it. More than 1 in 10 skipped visiting a doctor in the past year when sick. (See Figure 3.)

Figure 3

The coronavirus is highly contagious. If people cannot afford to go to see a doctor, they could get very sick and they might also spread the coronavirus to others. The federal government needs to give people the financial support they need to get healthy, stay healthy, and keep their family and co-workers healthy. This is a public health crisis—all arms of the federal government need to take coordinated action now.

The never-ending cycle: Incarceration, credit scores, and wealth accumulation in the United States

Posted on by Maria Monroe

There are many events in people’s lives that can suddenly change the course of their future. Being incarcerated, or having a history of incarceration, is one significant event that research shows can mark a person’s life adversely. Black Americans, in particular, are starkly overrepresented among the numbers of persons filling the nation’s prisons in a country with the highest incarceration rate on the planet. Persistent structural racism in law enforcement and the judicial system have targeted black males and created a system best described as one of injustice rather than justice. Because of this, black Americans are more likely to be currently subjected to incarceration, have a history of imprisonment, or have family members who have been incarcerated.

The three of us, in a new working paper, present the first evidence detailing the relationship between an individual’s FICO credit scores, wealth accumulation, race, and incarceration history. Using a sample from Baltimore of white and black individuals with and without a history of incarceration and their FICO score information, our report shows that having a personal incarceration history not only is associated with lower FICO scores but also with lower wealth accumulation.

To conduct this analysis, we surveyed individuals about their backgrounds and family histories and obtained their officially reported FICO scores. Given the stigma connected to incarceration history and the obscurity of the calculation of credit scores, the intersection of these components represents a challenge for researchers who want to evaluate the way that the accumulation of assets, debts, and net wealth connects to the most conventionally used indicator of financial health: credit scores. These challenges are reflected in the number of participants who responded to the survey: 51 people responded, including five respondents without a credit history.

After accounting for response bias, and keeping in mind the number of participants, there appears to be a strong relationship between credit scores, race, and incarceration history. Specifically:

  • Low FICO scores are connected to individuals in households with incarceration history, with blacks having the most considerable difference compared against whites with no incarceration history (more than 200 points difference).
  • FICO scores seem to be segmented by group, with white individuals without incarceration history concentrated at the top of the distribution and black individuals with an incarceration history concentrated at the bottom of this distribution. Blacks without incarceration history were spread across the distribution but with a lower representation at the top.
  • Black individuals with tangible assets such as cars and houses and individuals who have ever been incarcerated regardless of their racial background who also have such tangible assets remarkably do not display any significant improvement of their FICO credit scores.

Although the goal of the report is to identify the relationship between incarceration and wealth accumulation by including an “observable” measure such as FICO scores, the report also uncovers a telling story of discrimination. Never-incarcerated blacks, despite having more assets and less debt, have average FICO credit scores that are similar to whites who have ever been incarcerated. The difference in FICO scores is 77 points on average, or slightly less than half the difference between never-incarcerated blacks and and ever-incarcerated whites (170 points).

This report is a groundbreaking study in the arena of racial differences in wealth accumulation and to the relationship with a traditional measure—FICO scores—used to determine eligibility for access to financial instruments and resources. Two critical criteria are addressed in this study: incarceration history and credit scores. More research needs to be undertaken to move from simple associations to the causal mechanisms that produce a repeating cycle of distress for incarcerated Americans, and black Americans in particular.

—William Darity Jr. is the Samuel DuBois Cook Professor of Public Policy, African and African American Studies, and Economics, and the director of the Samuel DuBois Cook Center on Social Equity at Duke University, as well as a member of the Washington Center for Equitable Growth’s Research Advisory Board. Sarah Gaither is an assistant professor of psychology and neuroscience and a faculty affiliate with the Samuel DuBois Cook Center on Social Equity and the Center on Health and Society at Duke University. Mónica García-Pérez is a professor of economics at St. Cloud State University, the director of the SCSU Faculty Research Group of Immigrants in Minnesota, and the president of the American Society of Hispanic Economists.

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Gross Domestic Product sets the tone of the U.S. economic debate while leaving working- and middle-class families behind

Posted on by Maria Monroe

In a now-infamous incident in 2016, social scientist Anand Menon of King’s College London was discussing the economics of Brexit at a public forum. Upon noting that Brexit was likely to lead to declines in the United Kingdom’s Gross Domestic Product, a heckler called out “That’s your bloody GDP, not ours!” The heckler was crude but essentially correct—GDP is no longer reflective of the fortunes of most people. Rising inequality has created separate economies for the rich and poor: Across the globe, aggregate measures of growth tend to track the fortunes of the former, particularly in the United States. (See Figure 1.)

Now, new research from four political scientists shows that reporters continue to treat GDP growth as a critical metric of economic progress despite the disconnect between the metric and the welfare of most Americans. Because GDP growth most closely reflects rising incomes among the rich, the result is that economic news is most positive when the rich are benefitting. By contrast, the tone of economic news is unrelated to the economic fortunes of middle-income and low-income individuals and their families when top-income growth is accounted for. This research emphasizes the need for new measures of economic progress that more accurately capture progress for people at all levels of income. Equitable Growth has advocated for GDP 2.0, which would break aggregate growth into quintiles or deciles so we could see growth not just on average but also for working- and middle-class Americans.

To see how newspapers cover economic progress, the researchers collected stories about the economy from 32 major U.S. newspapers and used automated sentiment analysis to assign a positive or negative tone to each article, ranging from 1 (positive economic news) to -1 (negative economic news). The resulting measure shows the tone of economic reporting over three-month periods beginning in 1980. And while this measure of tone is closely correlated with the fortunes of the top 1 percent of income earners, it is uncorrelated with income growth in the bottom four quintiles.

In fact, the four researchers—Alan Jacobs of the University of British Columbia, J. Scott Matthews of Memorial University of Newfoundland, Timothy Hicks of the University College London, and Eric Merkley of the University of Toronto—further show that tone mostly follows the fortunes of the top 10 percent of income earners. And this shapes how people view the U.S. economy—the researchers find that people’s responses to questions on the Survey of Consumer Attitudes about economic performance closely track the tone of the news. Survey respondents are more likely to say that business conditions are good, that they had heard favorable economic news, and that the government is doing a good job of managing the economy when the news tone is positive.

Why do reporters seem to follow the fortunes of the rich in reporting good news? The authors argue it is not because journalists are biased or ideological. Instead, it is simply because over time, journalists have learned to use major economic aggregates such as GDP growth or stock market indices to track the state of the economy. And these statistics tend to reflect the fortunes of the rich, as shown in Figure 1.

This research demonstrates how ostensibly neutral decisions about how economic progress is defined can have profound consequences for the economic narratives presented in the news. Because GDP growth is released frequently and prominently and has a long history as an important indicator, journalists rely on it, and the consequence is that the American public is led to believe that the economy is good when, in fact, it may only be good for a narrow slice of people at the top of the heap.

Luckily our statistical agencies are working to address the disconnect between GDP and the economic fortunes of Americans at the middle and lower end of the income distribution. A new BEA release, for which a prototype will be released this week, would report personal income growth for Americans in each decile of the income distribution. So, instead of knowing only that overall growth was, say, 2 percent, we would also have data on the growth experienced by those in the middle of the income distribution or those at the bottom.

If reporters continue to rely on GDP growth as an important measure of economic progress, then they will be misinforming the public. Rising inequality has given the lie to the old expression “a rising tide lifts all boats.” GDP growth does not necessarily reflect a good economy for all or even most Americans. To align the U.S. government’s headline measurements of economic progress with the real fortunes of American families, federal agencies must begin to report on growth and other outcomes up and down the income spectrum.

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Age discrimination in the U.S. labor market is a major economic obstruction

Posted on by Maria Monroe

There is ample evidence that employers in the United States discriminate against older workers, particularly in hiring and firing. Such discrimination is illegal, on paper. In reality, age discrimination goes on routinely because U.S. Supreme Court decisions have undermined the laws passed by Congress to outlaw it and because enforcement resources are inadequate. It’s time for Congress to impose a real ban on age discrimination by strengthening the law and providing robust funding for enforcement.

As in much of the world, the U.S. labor force is getting older. In a 2019 paper reviewing studies on demand for older workers and age discrimination, Steven G. Allen of North Carolina State University notes that the share of the U.S. labor force consisting of workers 55 and older has risen from 12.4 percent in 1998 to 23.1 percent in 2018. This, he reports, is for two main reasons. First, our population is aging, due in part to increased longevity—in 2010, 65-year-old Americans could expect to live another 19 years, a 20 percent increase from four decades earlier—and low birth rates. Second, labor participation rates for older workers are increasing, due to improved health, the better earning opportunities that come with our society’s increased educational attainment, greater work incentives in Social Security, the replacement of defined-benefit pensions by defined-contribution plans, and, possibly, the concerns of seniors that they cannot afford to retire.

The increase in older workers makes age discrimination a problem of growing significance. Age discrimination in hiring, in firing, and on the job is revealed by a variety of research and reports. A recent paper by David Neumark of the University of California, Irvine finds ample evidence of discrimination in hiring by using confidential data about two different hiring processes used by employers in a single restaurant chain.

Produced as part of a lawsuit, the data show that when potential employers knew the age of job applicants from the start, those over 40 were far less likely to be called in for an interview than those under 40. The result was that younger applicants were a whopping 68 percent more likely to be hired. In the other process, when employers did not know the age of applicants, older applicants were invited for interviews at a similar or higher rate than younger ones. Yet during this process, once interviews took place, revealing applicants’ ages, younger people were hired at a 40 percent higher rate.

Discrimination also occurs on the job. A 2018 survey by the American Association of Retired People found that nearly one in four workers age 45 and older had negative comments about their age directed toward them by supervisors or co-workers. And about three in five older workers say they have experienced or seen age discrimination at work.

Finally, a chilling example of how a large employer can systematically lay off older workers to replace them with younger ones is the technology giant IBM Corp., which, for decades, had a reputation of treating its workers well. An in-depth 2018 report by ProPublica shows that the company not only carried out a comprehensive campaign to “correct seniority mix” and “reprofile current talent,” but also managed to evade numerous provisions of federal law in doing so.

Job discrimination, especially in hiring and firing, can have a devastating impact on individual workers. According to a 2018 analysis by the Urban Institute and ProPublica, 56 percent of U.S. workers over the age of 50 reported losing full-time, long-held positions before they were ready to retire, and the researchers suggest that the real figure could be higher. Only 1 in 10 of these workers who experienced a significant drop in earnings ever earned as much again.

The IBM case, which is the subject of a class-action lawsuit, illustrates one of the stereotypes that contributes to many employers’ negative attitudes about older employees—that they are less knowledgeable about, and adept with, new technologies. That was a significant factor in IBM’s decision to lay off so many workers. Other stereotypes, some of which also figured into IBM’s actions, are that older workers have worse interpersonal skills and less physical ability, that they are less flexible and adapt poorly to change, and that they have lower productivity.

These stereotypes are used by many employers as a means of weeding out older job applicants even before they apply for a position. In a 2019 paper, Ian Burn of the Swedish Institute for Social Research, Patrick Button of Tulane University, and Luis Felipe Munguia Corella and David Neumark of the University of California, Irvine use computational linguistics to describe how certain language in ads is associated with age discrimination. The Age Discrimination in Employment Act generally prohibits the use of language in job ads that refers to age, such as “age 25 to 35,” “young,” “college student,” or “recent college graduate.” But the authors used sophisticated linguistic analysis, combined with the data used in a previous paper by Neumark, Burn, and Button, to show that when employers use key phrases associated with stereotypes about older workers, fewer older applicants get called in for interviews.

According to classical economic models, discrimination is a market inefficiency that should harm employers. Those models say that employers must set wages at workers’ “marginal product.” In other words, workers’ wages should reflect the economic value their work creates. Age discrimination, like other forms of discrimination, should be “competed away,” as firms that do not discriminate against older workers, and are therefore more productive, enter and thrive in the market. However, monopsony, or the ability of employers to set wages below marginal product, is gaining increasing attention as a possible factor in lagging U.S. wages. And Equitable Growth Director of Labor Market Policy and economist Kate Bahn describes in a recent article how monopsony may be enabling such discrimination against older women.

Allen’s review of studies on age discrimination looks at the productivity of older workers and finds mixed results. While wages and benefits generally increase with age, productivity might or might not. Allen points to studies that suggest an aging workforce slows down growth of Gross Domestic Product. Yet a European study of physical laborers found that their slower speed was offset by the greater care they took in their work, which resulted in fewer serious mistakes. Also, the value of mentoring younger workers is hard to measure. And older workers have had the opportunity to gain greater experience in the workforce and, perhaps, at a particular firm.

It’s understandable that employers might not want to pay more for mixed productivity results, but again, it’s uncertain what those results are, and, of course, it’s against the law to discriminate. There are steps employers can take to address, say, certain older workers’ lack of immediate familiarity with new technologies—on-the-job training, for example.

Even if some part of discrimination is “rational,” do we want to live in a society where older people are discarded by the labor market, the only channel through which most Americans can make ends meet? As Equitable Growth President and CEO Heather Boushey points out in her book Unbound: How Inequality Constricts Our Economy and What We Can Do about It, labor market discrimination that obstructs certain Americans, including older Americans, from fulfilling their potential creates a drag on productivity and, by extension, economic growth.

There is some risk that older workers crowd out job opportunities for younger workers. Again, Allen’s review of studies finds mixed evidence, with some papers suggesting that employers consider older and younger workers to be substitutes for one another, meaning worker longevity might be harmful to younger workers, but other papers finding no such relationship and therefore no harm to younger workers when older workers stay in the labor force longer. (There is also some anecdotal evidence that younger workers can be the direct victims of ageism, in the form of so-called reverse age discrimination, but more research is needed to determine how serious this problem really is.)

If age discrimination may affect our economic health and certainly affects the well-being of affected older workers, what can we do about it? What is the current law against age discrimination, why is it not working, and how can we minimize discrimination?

Age discrimination has been against the law for more than a half-century. Congress enacted the original Age Discrimination in Employment Act in 1967, at the urging of President Lyndon B. Johnson. The language of the ADEA was based in large part on the employment discrimination title of the Civil Rights Act of 1964, Title VII. (The rationale for not including age discrimination in that bill was that discrimination based on race and religion was thought to be fueled, at least in part, by hostility to those minority groups, whereas older Americans did not face such hostility.) As with Title VII, the prohibitions on employer discrimination in the ADEA included an exception for bona fide requirements, such as casting age-appropriate actors for TV shows and movies. While the ADEA applied initially only to ages 40 to 64, the upper age limit was eventually raised and then abandoned in subsequent legislation.

Two developments have undermined protections against age discrimination: decisions by the Supreme Court and Congress’ weakening of funding for the federal Equal Employment Opportunity Commission, which is charged with enforcing the law against discrimination.

Three major Supreme Court decisions seriously undermined the ADEA. The first, in 1993, enabled an employer to flout the law when it said the plaintiff’s firing at age 62, weeks before he would have been eligible for his pension, was not age discrimination because it was based on length of service. Given the ease with which employers can use length of service as a proxy for age, that decision suggested the Court did not take age discrimination very seriously.

The next decision, in 2009, made it clearer. That year, the Court raised the burden of proof for age discrimination well beyond the burden for proving other forms of discrimination. It ruled that to prove discrimination, a worker would need to show that an action taken against him—in this case, a demotion—was taken only on account of age and that there were no other factors whatsoever. This overruled precedent—specifically, a precedent that still applies for other forms of discrimination—that age discrimination need be only one of the factors relied upon by the employer.

A third decision, in 2018, has an impact that is broader than age discrimination but nevertheless weakens the ability of workers to sue employers who discriminate based on age. The decision essentially enables employers to obtain from workers when they are hired a waiver of their right to engage in class-action lawsuits against their employer. An inability of older workers to sue as a class is yet one more way in which the Court has effectively undermined the ADEA.

Finally, as AARP puts it, the Equal Employment Opportunity Commission is a watchdog that has lost its bark. According to an analysis by Vox, while the commission seeks to maintain a focus on age discrimination, its shrinking staff is overwhelmed by the number of cases.

Members of Congress are fighting back. On January 15, a strong bipartisan majority of the House of Representatives passed the Protecting Older Workers Against Discrimination Act, a bill that would reverse the 2009 Supreme Court decision, Gross v. FBL Financial Services, Inc., returning to the pre-2009 level of proof required to show age discrimination. The bill is now pending in the Senate, where it also enjoys bipartisan support, though a floor vote there is still unlikely.

Congress also has pushed back against President Donald Trump’s recent budget requests to decrease funding for the Equal Employment Opportunity Commission. For fiscal year 2018, the first under President Trump’s leadership, Congress increased the agency’s funding by $15 million. In fiscal year 2019, Congress held that funding steady, rebuffing President Trump’s proposed $15.7 million cut.

There are other things Congress can do. It can respond to the 2018 Supreme Court action by preventing employers from effectively barring collective action by their workers. In addition, Congress should consider giving older workers the legal right to a phased retirement, lowering the stakes for employers that might be reticent to make long-term commitments to older workers and giving workers the chance to delay claiming Social Security. Finally, despite modest funding increases in recent years, the Equal Employment Opportunity Commission needs more money; Congress should raise appropriations to a level that would enable the commission to do its job and protect aging workers and others who are victims of discrimination.

Employers as well bear responsibility for eliminating discrimination in the workplace. They should be fighting stereotypes through job training and educational campaigns. And their application processes should be made as age-blind as possible, enabling older workers to compete fairly for positions.

The older our society becomes, the more damage age discrimination will cause. Now is the time for Congress, the Equal Employment Opportunity Commission, and employers to recognize discrimination, ensure that federal law against discrimination is meaningfully interpreted and enforced, and, ultimately, give all workers the ability to make a contribution in the workplace as long as they can do the job. Every worker deserves that opportunity.

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Brad DeLong: Worthy reads on equitable growth, February 22-28, 2020

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

  1. As of the end of February, U.S. stock markets are forecasting a very sharp, sudden recession, with that probability going from near zero a week ago to better-than-even today. That is the only way to make sense of the drop of the S&P 500 over the past week. Thus it is not too late to plan. It is, rather, time to act to offset the likely spending economic contraction that may well be closer on the horizon. Here are the plans we should have made. Read Alyssa Fisher, “Planning for the next recession by reforming U.S. automatic stabilizers,” in which she writes: “Equitable Growth has joined forces with The Hamilton Project to advance a set of specific, evidence-based policy ideas for shortening and easing the impacts of the next recession [in] Recession Ready: Fiscal Policies to Stabilize the American Economy [offering] six concrete ideas … expand eligibility for Unemployment Insurance and encourage take-up of its regular benefits … reduce state budget shortfalls during recessions [by] increasing the federal matching rate for Medicaid and the Children’s Health Insurance Program … eliminate work requirements for supplemental nutrition assistance during recessions … expand federal support for basic assistance during recessions … [create] an automatic infrastructure investment program [to] boost consumer spending during recessions by creating a system of direct stimulus payments to individuals that would be automatically triggered when rising unemployment signaled a coming recession … Congress should consider them now, because when the next recession appears on the horizon, it may be too late.”
  2. Perhaps the greatest harm done by Robert Bork and Richard Posner to American well-being was their extremely aggressive push of the idea that vertical merger integration could never be bad. Read Phil Weiser, “Competitive Edge: The states’ view of vertical merger guidelines in U.S. antitrust enforcement,” in which the Colorado Attorney General writes: “Vertical integration is not always benign and indeed has the potential to create significant anticompetitive harms … Indeed, in some cases, a vertical merger may remove the most likely potential rival to an incumbent firm. Consider, for example, the case of Live Nation Entertainment Inc.’s merger with Ticketmaster in 2010. In that case, Live Nation’s concert promotion and venue business prepared Live Nation to enter into the ticketing platform business, but the merger with Ticketmaster undermined that nascent competition. Indeed, Live Nation had already begun that entry before the merger. This is why a vertically related firm in one market (say, wholesale distribution) might be the natural entity to sponsor entry against a dominant firm in a related market (say, retail sales), and that potential sponsorship could be undermined on account of the merger between the dominant firm and the vertically related one. That is particularly true in evolving or fast-growing sectors such as technology markets. Second, it is important to recognize how vertical mergers, once completed, can be used to undermine existing rivals or raise entry barriers that make future entry materially more difficult. Colorado, like other states, has addressed such dangers.”
  3. If we do not remember our history, we are condemned to repeat it. Read Robynn Cox and Dania Francis, “Improved public school teaching of racial oppression could enable U.S. society to grasp the roots and effects of racial and economic inequality,” in which they write: “There is a lot more to black history than what our schools showcase during the shortest month of the year. Many Americans don’t ever truly discover the depths of the African American experience in ways that fully convey the harm inflicted upon those enslaved before the Civil War and the generations of blacks who continued to suffer from blatant and pervasive racial discrimination over the next 150-odd years. Public schools tend to gloss over the details of enslavement. And most teachers are not properly equipped to handle discussions of this sordid past in their classrooms or to teach their students about the violent resubjugation of blacks in the South after the Civil War via race riots, lynchings, mass incarceration, voter disenfranchisement, and segregation—actions that spread across the nation as African Americans embarked on the Great Migration out of the South beginning in the late 19th century and continuing well into the post-WWII era.”
  4. This is excellent from Kate Bahn and Adia Harvey Wingfield, “In Conversation with Adia Harvey Wingfield,” in which “Director of Labor Market Policy and economist Kate Bahn talks with sociologist Adia Harvey Wingfield, the Mary Tileston Hemenway Professor of Arts & Sciences and associate dean for faculty development at Washington University in St. Louis. Her research examines how and why racial and gender inequality persists in professional occupations. She is the author of several books, most recently Flatlining: Race, Work, and Health Care in the New Economy … Bahn and Wingfield explore: Racial and gender inequality and U.S. labor market outcomes; race, gender, and occupational status; lack of diversity and representation in U.S. services industries; the consequences of lack of diversity for black professionals in the healthcare industry; policies to improve racial and gender inequality in U.S. labor market outcomes; how sociologists can elevate their findings and solutions in economic policymaking; lack of racial diversity in scholarly research; and diversity itself as a research topic.”

 

Worthy reads not from Equitable Growth:

  1. Kevin Drum is correct in his “The Great Income Decline Is Real.” Moreover, real disposable income as economists measure it is not everything. Many for whom real income has risen find that the indicia of middle-class status have moved further out of reach: In his piece, Drum writes: “A little spate of skepticism over the notion that middle-class incomes have been stagnant … a reaction to Bernie Sanders, who certainly has a habit of making things sound a little more catastrophic than they really are. But that’s no reason to doubt the basic fact … Since 1980, the income of every men’s age group has declined except for those ages 55 to 64—and even that age group has been stagnant since 2000 … Women’s incomes have been rising steadily, though they’re still considerably lower than men’s incomes. Now, this is cash income and … it uses CPI-U-RS as its inflation gauge … However, cash income is best if you’re interested in how people view their own financial situation … Middle-class men of prime working age have been on a slow downward slide for 40 years, and an even steeper slide since 2000 … Just about everyone has good cause to be frustrated and unhappy. That’s especially true since the affluent have been doing so well during the same period. Frankly, it’s sort of a miracle that people aren’t more pissed off than they are.”
  2. One of the big lessons that Paul Krugman’s 1999 paper on the liquidity trap ought to have taught economists and central bankers is that inflation targeting has absolutely no place in a financial crisis, or any time interest rates have any provability of approaching the zero lower bound. Yet remarkably few were able to grasp that lesson then. And a great many still refuse to learn that lesson now. Read Wolfgang Münchau, “The ECB Should Ditch Its Inflation Target,” in which he writes: “The ECB remains critical for the eurozone’s cohesion, if not survival … Over the course of this year, the ECB will put its entire monetary policy strategy on the table … Under European law, the ECB’s primary target is to deliver price stability. The lack of precision was deliberate. It was supposed to give central bankers room for interpretation and manoeuvre—room the ECB chose not to use. In late 1998, the ECB adopted its first inflation targeting regime. Four years later, it modified it to an annual inflation rate of close to, but below, 2 per cent … The ECB’s research staff have recently published a fascinating 300-page working paper that has a direct bearing on this discussion. Its goal has been to shed some light on the successes and failures of the ECB’s policies over the past 20 years. The paper tries to establish how the ECB’s policies affected the economy. The surprise result was that the effect on inflation was smaller than previously thought, but the impact on economic growth larger. This finding suggests that a policy based only on inflation targeting is not very effective at a time like this. My own preferred target would be based on nominal gross domestic product—economic activity measured in actual euro prices. You can think of it as a metric of both economic activity and inflation folded into one.”
  3. John Taylor thinks that the main threat to economic freedom is the Business Roundtable. At least, that is the only threat to economic freedom that he names in his “The New-Old Threat to Economic Freedom.” And the point is really weird. In all long-term win-win economic relationships the duties of managers and representatives are always diffuse: they are agents not just of their formal principals but of all those whose participation is essential to the value creation process. Recognizing this is not a threat to freedom. And I do not understand what kind of mind thinks it is. Here is what Taylor writes: “Achieving economic freedom is difficult: one always must watch for new obstacles … Many such obstacles are simply arguments rejecting the ideas that underpin economic freedom … Even the Business Roundtable is weighing in, announcing last August that U.S. corporations share ‘a fundamental commitment to all of our stakeholders,’ including customers, employees, suppliers, communities, and, last on the list, shareholders. That is a significant departure from the group’s 1997 statement, which held that ‘the paramount duty of management and of boards of directors is to the corporation’s stockholders; the interests of other stakeholders are relevant as a derivative of the duty to stockholders.’ Moreover, as that earlier statement was right to point out, the idea that a corporate board “must somehow balance the interests of stockholders against the interests of other stakeholders” is simply ‘unworkable.’”
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