Brad DeLong: Worthy reads on equitable growth, January 25-31, 2020

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

  1. Two more weeks to submit letters of inquiry! Equitable Growth’s “2020 Request for Proposals are due by Wednesday, February 12.
  2. This is truly great from Equitable Growth new hire Claudia Sahm: “Why Americans need to know more about the Federal Reserve.”
  3. Equitable Growth’s Heather Boushey at the Aspen Institute. Very much worth watching her “Measure What Matters: Realigning Measures of Economic Success with Societal Well-Being.”
  4. Very smart from Jason Furman, “Data and Privacy in Online Platforms’ Market Power,” in which he writes: “The major digital platforms are highly concentrated and, absent policy changes, this concentration will likely persist with detrimental consequences for consumers. More robust competition policy can benefit consumers by helping to lower prices, improve quality, expand choices, and accelerate innovation. These improvements would likely include greater privacy protections given that these are valued by consumers. However, it is not clear that competition will be sufficient to adequately address privacy and several other digital issues. More robust merger enforcement should be part of the solution to expanding competition, including better technical capacity on the part of regulators, more forward-looking merger enforcement that is focused on potential competition and innovation, and legal changes to clarify these processes for the courts. A regulatory approach that is oriented toward increasing competition by establishing and enforcing a code of conduct, promoting systems with open standards and data mobility, and supporting data openness is essential. This is because more robust merger enforcement is too late to prevent the harms from previous mergers, and antitrust enforcement can take too long in a fast-moving market.”

 

Worthy reads not from Equitable Growth:

  1. At a deep level, the argument over technology, employment, the workforce, and robots requires that we understand how our tools for thought—for augmenting human intellect—have worked, do work, and will work. And this requires that we have good answers to questions such as the ones asked by Michael Nielsen in his slide show “Engelbart: Augmenting Human Intellect,” in which he asks: “Augmenting intellect with paper and pencil: What is 427 x 784? Hard for an unaided human. Even harder: what is 721,269,127 x 422,599,421? Both problems become easy with paper and pencil. This is strange, a priori: wood pulp + wood + graphite = more intellectual capability! We’re used to this, but that doesn’t mean we understand it. What’s actually going on? For what class of problems does paper and pencil help? For what class of problems does it not help (or hinder)? How much can it help?”
  2. Back from nine years ago now—how technology cannot be the successful key to development because it is a force multiplier for both honesty and dishonesty, both fair-dealing and corruption, for competence and incompetence. And the problems of economic development have always been primarily problems of corruption, dishonesty, and incompetence. Read Kentaro Toyama, “Technology Is Not the Answer,” in which he writes: “Information technology amplified the intent and capacity of human and institutional stakeholders, but it didn’t substitute for their deficiencies. If we collaborated with a self-confident community or a competent non-profit, things went well. But, if we worked with a corrupt organization or an indifferent group, no amount of well-designed technology was helpful … We also expect too much from other technologies, institutions, policies and systems.”
  3. If you believe that the proper purpose of markets is to be effective societal decision-making mechanisms for choosing the path to equitable growth, then financial markets raise to special concerns. As John Maynard Keynes put it, the special object of financial markets is then “to defeat the dark forces of time and ignorance which envelop our future.” But here there are two problems: First, people have a very limited ability to form reasonable expectations and make correct judgments, and so the building blocks of which financial markets are constructed are far from adequate. Second, the bandwidth of the signals that are financial market prices is not wide enough to allow for the coordination of expectations and beliefs——even when supply balances demand in financial markets, many people’s expectations will be brutally disappointed even if there are no surprise events in the outside world, and that disappointment of expectations is a cause of major trouble. The Clower-Leijonhufvud UCLA macro school of the 1960s worried intensively about these issues. It was ignored. Now it has only one remaining eloquent standardbearer. Read David Glasner, “My Paper “Hayek, Hicks, Radner and Four Equilibrium Concepts” Is Now Available Online.”
  4. And another very worthwhile piece from the very sharp David Glasner: one that I had missed. Read his “What’s Wrong with DSGE Models Is Not Representative Agency,” in which he writes: “The basic story always treats the whole economy as if it were like a person, trying consciously and rationally to do the best it can on behalf of the representative agent, given its circumstances. This cannot be an adequate description of a national economy, which is pretty conspicuously not pursuing a consistent goal. A thoughtful person, faced with the thought that economic policy was being pursued on this basis, might reasonably wonder what planet he or she is on. An obvious example is that the DSGE story has no real room for unemployment of the kind we see most of the time, and especially now: unemployment that is pure waste … While Solow’s criticism of the representative agent was correct, he left himself open to an effective rejoinder by defenders of DSGE models who could point out that the representative agent was adopted by DSGE modelers not because it was an essential feature of the DSGE model but because it enabled DSGE modelers to simplify the task of analytically solving for an equilibrium solution. With enough time and computing power, however, DSGE modelers were able to write down models with a few heterogeneous agents (themselves representative of particular kinds of agents in the model) and then crank out an equilibrium solution for those models … Chari also testified at the same hearing, and he responded directly to Solow, denying that DSGE models necessarily entail the assumption of a representative agent and identifying numerous examples even in 2010 of DSGE models with heterogeneous agents … But debunking the claim that DSGE models must be representative-agent models doesn’t mean that DSGE models have the basic property that some of us at least seek in a macro-model: the capacity to explain how and why an economy may deviate from a potential full-employment time path … The basic approach of DSGE is to treat the solution of the model as an optimal solution of a problem … The policy message … is that unemployment is attributable to frictions and other distortions that don’t permit a first-best optimum that would be achieved automatically in their absence from being reached. The possibility that the optimal plans of individuals might be incompatible resulting in a systemic breakdown—that there could be a failure to coordinate—does not even come up for discussion. One needn’t accept Keynes’s own theoretical explanation of unemployment to find the attribution of cyclical unemployment to frictions deeply problematic … A modeling approach … attributing … all cyclical unemployment to frictions or inefficient constraints on market pricing, cannot be regarded as anything but an exercise in question begging.”
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“Women’s Work-Life Economics”

Posted on by Maria Monroe

This article, “Women’s Work-Life Economics,” originally appeared in the 2019, Volume 23 of “LERA Perspectives on Work,” a magazine published by the Labor and Employment Relations Association, or LERA.

More than 50 years ago, President Johnson signed into law the Equal Pay Act. It bans employers from discriminating against employees by paying employees of one sex less than those of the opposite sex for equal work. Yet large gaps remain in the pay of men and women—and pay gaps are even larger for women of color relative to white men. While discrimination and differences in where women work can explain some of the gap, scholars have documented that women’s continued greater responsibility for care—both inside the home and in caregiving jobs—is also an important factor.

There are signs that the care gap is likely to increase—or least not diminish. Changing population structure has led to an increasing demand in care for both the elderly and children, as well as everyone in between. This has posed a particular challenge for women and their families, as women’s earnings are increasingly crucial to family economic well-being, and women primarily also shoulder the caregiving responsibilities in their families. To understand causes as well as solutions, the role of care in the labor market is key in reversing troubling trends and historical gender disparities we see in the economy.

Who provides care and who has access to the supports to provide care are also important factors in a larger economic trend—growing economic inequality. There has been a long-term rise in inequality for families and workers. While total income growth was 2.1 percent in 2014, it was only 0.4 percent for the bottom half of the income distribution and 5.3 percent or the richest 1 percent (Piketty, Saez, and Zucman 2017). Inequality exacerbates the aforementioned trends: women at the top of the income distribution are more likely to have access to benefits such as paid leave that help them balance good jobs in the labor market with family caregiving responsibilities. This means that workers earning hourly wages, those who work in the service industry, and Latinos in particular are less likely to have access to paid time off (Glynn, Boushey, Berg, and Corley 2016).

Evidence demonstrates that increasing market concentration (Rinz 2018) and job-search frictions (Webber 2015) are important causes of rising inequality in pay. Thus, in order to understand trends in women’s pay, we need to explore far more than “women’s choices;” the combination of care work—both inside the home and in caregiving jobs—and rising inequality together create the need for a broader framework. Looking at the labor market through the lens of monopsony can provide such a framework, allowing us to see the intersection of job search, wage offers, and employers who hire women workers.

Monopsony describes any labor market where individual employers have the ability to set wages, rather than wages being determined by competitive forces as predicted by the canonical example of a free market. The classic example is a company town, where the dominant employer does not have to compete with other businesses for hiring workers, and workers are captive to accept pay lower than the value they contribute to the production process. But monopsony occurs any time employers can set wages low and they do not lose all of their workers as a result. This happens when workers face search frictions, due to asymmetrical information, mobility costs, or heterogeneous preferences for work (Manning 2003).

Monopsony is common in some of the largest female-dominated industries. Researchers Elena Prager and Matt Schmitt find that hospital mergers slowed wage growth for affected hospital staff, such as nurses and pharmacists (Prager and Schmitt 2019). There is also evidence that monopsony influences pay for teachers in Missouri (Ransom and Lambson 2011; Ransom and Sims 2010). Nursing and teaching, of course, are among the most common occupations for women.

But there are other factors at play. Another way to think about monopsony is whether workers have options when it comes to job searches and choices. Since women are more likely to have caregiving responsibilities and be secondary income earners in their families, the scope of their job search and mobility may be more limited to a greater degree than for men or for women without caregiving responsibilities and may also make them appear less sensitive to pay when making employment decisions. When women face constraints—such as needing shorter commutes to accommodate family needs (Kimbrough 2016)—this imposes limits on how they make choices.

Using the Longitudinal Household-Employer Dynamics survey from the U.S. Census, Douglas Webber found that, across the economy, women have a lower labor supply elasticity com-pared to men, leading to wages being 3.3 percent lower for women due to monopsony (Webber 2016). He attributes this disparity to the marriage-and-children penalties women face that most men do not. Such dynamics often result in de facto monopsony, where individual employers can subsequently keep women’s wages suppressed because women are limited in their ability to find a job elsewhere.

There are indications from the evidence we have now, however, that looking at care work through the lens of monopsony can help explain trends in women’s pay. Not only are health care and education concentrated labor markets, but also caregiving jobs more broadly may be likely to face monopsony because of the nature of the work itself, where caring for others is a central feature, and social expectations of care workers limit bargaining power.

We can see this in various trends. Caring labor is defined as interactive service work to improve the capabilities of the recipient. It is a sector of the economy that spans both formal paid labor as well as household production within families (Folbre 2012). Additionally, the word “care” is used to describe this work because feelings of concern for the well-being of the care recipient are likely to affect the quality of the services provided (Folbre 2012; Folbre and Weisskopf 1998; Nelson 2011). This type of work, as Kate Bahn notes, offers “intrinsic rewards but also imposes constraints” (Bahn 2015). When there is the expectation that one must care to do work well and that continued interaction and interpersonal connection will lead to better care, workers may also appear to be less pay sensitive, as it is exceedingly difficult to make wage demands in the face of a gendered devaluation of the skill required for this work. Given that (in general) caring labor pays less than occupations with similar required skills without a caring aspect, this may be a key factor in the gender pay gap (England, Budig, and Folbre 2002).

There is also an external downward pressure on wages in caring-labor markets because those who need attentive, quality care the most are those who are least able to pay for it: children and the elderly. But the improved capabilities of these populations have both inherent and economic value, such as educating the future workforce and delaying the need for more intensive care as one ages with dignity. There is a role for policy in improving both the pay and provision of caring labor to the benefit of the workers and the recipients. This will subsequently improve economic outcomes of families who have care needs, such as parents who are able to engage in paid market work when they know they can count on access to affordable and high-quality care for their children.

Policies that support this sector of the economy may also improve opportunities for all workers’ labor-market outcomes since providing affordable and high-quality care helps people balance family-care responsibilities with labor-market participation. Framing this as monopsony helps us account for the causes behind lower earnings and estimate the degree to which earnings could be increased without threatening competition in the economy.

Understanding the specific causes of monopsony helps guide effective policy solutions. If women are likely to face monopsony, the policies that limit the effects of monopsony will have a particular benefit to women, like unions and a higher minimum wage, as well as stronger antitrust enforcement in concentrated industries where women are disproportionately represented. David Card, Thomas Lemieux, and W. Craig Riddell (2004) have found that unions mitigate the gender wage gap due to women’s increasing representation among unionized workers (albeit alongside the overall decline in union representation in the United States). Likewise, the theory of monopsony predicts that unions may provide a countervailing market power to employers’ monopsony power (Paul and Stelzner 2018). The same is true of minimum wages: because of women’s overrepresentation among low-wage workers, increases to the minimum wage will disproportionately benefit women and people of color (Huizar and Gebreselassie 2016) and statutory minimum wages will offset wage-setting on the part of the employer (Robinson 1969).

In addition to addressing monopsony explicitly through unions and with minimum wages and better-enforced antitrust laws, policies that increase job mobility and alleviate the dual pressures to care for one’s family and engage in market work will help workforce outcomes for women workers. The economy would benefit from universal family-friendly policies, like the universal family care credit proposed by the advocacy organization Caring Across Generations. If these policies are not universal, like the optional employer-provided policies that workers currently rely on, we will continue to have segmented labor markets with a gulf between those who have access and those who not, limiting the job search of those without access and leading to an increased likelihood of monopsony wages.

The framework of monopsony provides a tool to understand the constraints that workers face in the economy when employers have the power to set wages. This demonstrates how women are particularly limited in their job search, reducing their own economic well-being when they face monopsonistic exploitation and serving as a drag on the economy. But this tool also provides an opportunity to understand what factors have given employers wage-setting power and how we can balance these forces with unions, increased minimum wages, and policies that provide for care needs and balance care responsibilities.

References

Bahn, Kate. 2015. “The ABCs of Labor Market Frictions: New Estimates of Monopsony for Early Career Teachers and Implications for Caring Labor.” Ph.D. Dissertation, New School University.

Card, David, Thomas Lemieux, and W. Craig Riddell. 2004. “Unions and Wage Inequality.” Journal of Labor Research 25, no. 4: 519–559.

England, Paula, Michelle Budig, and Nancy Folbre. 2002. “Wages of Virtue: The Relative Pay of Care Work.” Social Problems 49, no. 4: 455–473.

Folbre, Nancy. 2012. For Love and Money: Care Provision in the United States. New York, NY: Russell Sage Foundation.

Folbre, Nancy, and Thomas Weisskopf. 1998. “Did Father Know Best? Families, Markets, and the Supply of Caring Labor.” In Economics, Values and Organization, edited by Avner BenNer and Louis G. Putterman, pp. 171–205. Cambridge, UK: Cambridge University Press.

Glynn, Sarah Jane, Heather Boushey, Peter Berg, and Danielle Corley. 2016 (Apr.). “Fast Facts on Who Has Access to Paid Time Off and Flexibility.” Report, Center for American Progress.

Huizar, Laura, and Tsedeye Gebreselassie. 2016 (Dec.). “What a $15 Minimum Wage Means for Women and Workers of Color.” Policy Brief, NEL Project.

Kimbrough, Gray. 2016. “What Drives Gender Differences in Commuting Behavior: Evidence from the American Time Use Survey.” Working Paper No. 16-4, University of North Carolina, Greensboro, Department of Economics.

Manning, Alan. 2003. Monopsony in Motion: Imperfect Competition in Labor Markets. Princeton, NJ: Princeton University Press.

Nelson, Julie A. 2011. “For Love or Money: Current Issues in the Economics of Care.” Journal of Gender Studies 14: 1-19.

Paul, Mark, and Mark Stelzner. 2018.“How Does Market Power Affect Wages? Monopsony and Collective Action in an Institutional Context.” Working Paper, Washington Center for Equitable Growth.

Piketty, Thomas, Emmanuel Saez, and Gabriel Zucman. 2017. “Distributional National Accounts: Methods and Estimates for the United States.” Quarterly Journal of Economics 133, no. 2: 553–609.

Prager, Elena, and Matt Schmitt. 2019. “Employer Consolidation and Wages: Evidence from Hospitals.” Working Paper, Washington Center for Equitable Growth.

Ransom, Michael R., and Val E. Lambson. 2011. “Monopsony, Mobility, and Sex Differences in Pay: Missouri School Teachers,” American Economic Review 101, no. 3: 454–459.

Ransom, Michael R., and David P. Sims. 2010. “Estimating the Firm’s Labor Supply Curve in a ‘New Monopsony’ Framework: Schoolteachers in Missouri.” Journal of Labor Economics 28, no. 2: 331–355.

Rinz, Kevin. 2018. “Labor Market Concentration, Earnings Inequality, and Earnings Mobility.” Working Paper No. 10, Center for Administrative Records Research and Applications.

Robinson, Joan. 1969. The Economics of Imperfect Competition. London, UK: Springer.

Webber, Douglas A. 2015. “Firm Market Power and the Earnings Distribution.” Labour Economics 35: 123–134.

Webber, Douglas A. 2016. “Firm‐Level Monopsony and the Gender Pay Gap.” Industrial Relations: A Journal of Economy and Society 55, no. 2: 323–345.

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‘Clean slate for worker power’ promotes a fair and inclusive U.S. economy

Posted on by Maria Monroe
Union and labor activists gathered along Varick Street to urge the NY Wage Board on its first ever meeting to seek a $15 per hour minimum wage, May 20, 2015.

Harvard University’s Labor and Worklife Program, led by Sharon Block and Benjamin Sachs of Harvard Law School, recently launched its “clean slate for worker power” agenda addressing the dual crises of economic and political inequality in the United States. This policy report provides a series of recommendations to build a new vision for how the legal framework regarding organized labor can foster a rebalancing of power so that all workers can share in the gains of economic growth and be empowered in our democracy. Rather than focusing on reforming existing labor law, this clean slate agenda presents a wide-ranging collection of more up-to-date labor law proposals supported by evidence that shows that a vibrant labor movement with a focus on inclusiveness and with a variety of forms of representation can support wage growth and worker well-being across the U.S. income distribution.

This new labor policy initiative follows in the wake of a range of new exciting economics research that demonstrates the role of unions in ensuring labor market equity. In the paper “Unions and Inequality Over the Twentieth Century,” Henry Farber of Princeton University, Daniel Herbst of the University of Arizona, Ilyana Kuziemko of Princeton University, and Suresh Naidu of Columbia University find a clear inverse relationship between union density and income inequality in the United States. Similarly, the increasing attention to the role of monopsony in suppressing wages is seen in a recent Equitable Growth working paper by Mark Paul of the New College of Florida and Mark Stelzner of Connecticut College. The two economists demonstrate how collective action, such as union-led labor strikes, limit the ability of employers to exercise monopsony power and set wages at exploitative levels, yet importantly note that the right to strike relies on government support for labor movements.

These and other recent academic papers looking back into U.S. history and forward into the future of work highlight why the U.S. labor movement plays a role in ensuring workers can bargain to make sure they are paid equivalent to the value they contribute to a growing economy.

In order to ensure that a robust labor movement can address growing economic inequality, economists, policymakers, and union organizers alike also need to grasp the crucial role of racial and ethnic inequality in determining labor market outcomes. In this spirit, the clean slate agenda centers racial and ethnic equality as a goal of a robust labor law framework. This approach is key because historically, the U.S. labor movement has not focused on racial equity. Research needed along these lines could follow the lead of this study from 1990 by the late economist Rhonda Williams of the University of Maryland and legal scholar Peggie Smith of Washington University in St. Louis on Local 35 at Yale University (Local 35 is now part of the larger union UNITE HERE) that found the wage structure of the collective bargaining agreements covering maintenance workers at Yale upheld white male supremacy in wages.

More recent economics research finds that more inclusion of minority workers in the labor movement results in union representation becoming a force for narrowing racial and ethnic wage gaps. Research by the Economic Policy Institute finds that the union wage premium is higher for African American, Hispanic, and Asian workers—17.3 percent, 23.1 percent, and 14.7 percent, respectively—compared to a 10.9 percent union wage premium for white workers. And research by sociologists Jake Rosenfeld at Washington University in St. Louis and Meredith Kleykamp at the University of Maryland find that black workers are more likely to be represented by a union, demonstrating that this is due to “a protectionist theory of the labor movement,” in which marginalized workers are more likely to seek out employment covered by collective bargaining as a protection against racial discrimination.

In short, new evidence-based research shows that the historical legacies of racial inequality and recent rising income inequality and U.S. labor market monopsony all interact with the institutions that support worker power. These findings provide the foundation for establishing new directions for the U.S. labor movement and U.S. labor law.

In order to accomplish the lofty goal of rebalancing worker power, the clean slate for worker power agenda is designed to increase the types of activities organized labor can engage in and expand collective bargaining coverage for workers. The current labor movement relies on establishment-level bargaining, where unions oversee collective bargaining between workers and their immediate workplace if the union has won exclusive representation rights through support of a majority of the workforce in each workplace. This model is ill-equipped to track corporate power in a fissured workplace.

The clean slate agenda proposes graduated representation, which ranges from workplace monitors to partial union representation to exclusive representation. The agenda also establishes a path toward sectoral bargaining based on expanding prevailing wage laws, where the government establishes a floor for wages and benefits in a sector where a set threshold of collective bargaining coverage density is reached. This model would expand both coverage and equity, with easier representation within workplaces and more equity between workplaces.

The clean slate agenda also includes platforms to address the exclusion of certain types of workers from representation, such as incarcerated workers and workers with disabilities who have limited protections under current labor law, and the expansion of the labor movement tool box to include a broader range of union organizing and collective action such as strikes. The agenda also calls for the support of workers to engage in our democracy such as mandating paid time off for civic duties, including voting.

These new proposals in the clean slate agenda would shape the economic forces that determine individual and collective well-being so that the concerns of today’s economy, such as rising monopsony power and persistent racial inequity, are addressed through a rebalancing of power toward the workers who contribute to economic growth. The best evidence-based economic and other social science research underpins the importance of this initiative.

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Why Americans need to know more about the Federal Reserve

Posted on by Maria Monroe
The facade of the Marriner S. Eccles Federal Reserve Board Building, Washington, D.C.

What is the most important policy decision about the U.S. economy this week?

Arguably, it won’t be made in Congress or by the Trump administration. It’s the vote at the Federal Reserve tomorrow.

Tucked away quietly near the Lincoln Memorial, three women and seven men on the Federal Open Market Committee will decide whether to change interest rates. Chances are they will not, leaving the federal funds rate between 1.5 percent and 1.75 percent—a decision that should be good for people and businesses across the country. Supporting the economic expansion could lead to more jobs, higher wages, and broader economic well-being. The connection between this vote by a small group of unelected officials and workers’ paychecks may be surprising and even disconcerting.

To set the stage for why tomorrow’s decision at the Federal Reserve is important for you, let’s start with some facts. Output, income, and jobs overall have increased for 10 years since the end of the Great Recession in mid-2009. That milestone is not as good as it sounds. The recession was very severe—with the unemployment rate reaching 10 percent in 2009. (See Figure 1.)

Figure 1

Furthermore, the recovery was slow and painful. Not until 2015 did the national unemployment rate return to its level at the start of the recession in 2007. More than 8 years to recover was extraordinarily long and destructive. The Federal Reserve does not deserve all the blame, but it did contribute to the policies’ failures. Most of you know the damage personally, even if you had not thought much about this source.

If in the Great Recession, you, a family member, or a friend lost their job, home, or business, I don’t need to tell you how damaging the recession and slow recovery were. Research backs you up. Losing a job creates immense strain on workers and their families at the time and has negative effects for years thereafter. Even if you were spared such losses, the widespread hit to the economy likely had negative effects for you too. Average raises have been meager, wealth remains below its pre-recession level for many households, and, with less financial support from their families, students often took out more college loans.

Now, let’s talk about policy. The Federal Reserve did act swiftly during the Great Recession, pushing the federal funds rate to zero. It acted as lender of last resort to keep financial markets going. It created new tools to support the economy. One can make the case that since the recession, it has done more than any other policymakers. One can also make the case that it missed the signs of the coming financial crisis in the early to mid-2000s and that it used the political capital it had to save Wall Street. Everyone in the country needs banks and financial institutions. Most Americans need jobs too. Here, the Federal Reserve fell short. It did not react with the same commitment to Main Street as Wall Street.

The harm from policymakers not doing everything they could did not affect everyone in the same way. Experiences of Americans, on average, mask the greater distress among some of their fellow citizens. Many groups of people and specific communities were hit harder in the recession and were slower to recover. One glaring example is among many people of color. The unemployment rate among black workers peaked at almost 17 percent, nearly twice the rate of white workers. (See Figure 2.)

Figure 2

Moreover, these disparate outcomes have existed for decades, in good times and bad.

The Federal Reserve has had a dual mandate from Congress since 1977 to pursue stable prices and maximum employment. Its mandate applies to the entire country. But policymakers know—mainly due to the efforts by community groups—that some Americans are less likely to have a job when they want a job. Black and Hispanic workers are among those people who often are not fully employed. Here again, the Federal Reserve could do better. It was not until September 2010 that “maximum employment” was in a statement after its vote. That mention came three decades after Congress set that mandate.

In contrast, every statement mentions inflation. For years, in its policy meetings, there was hardly any discussion about worse outcomes among some groups of workers. Narayana Kocherlakota, a former Federal Reserve official, called attention to this failure. More discussion of the unequal effects of monetary policy has occurred in recent years—both on the committee and in the economics profession. It is hard to point to any actions at the Federal Reserve.

Fast forward to today. The national unemployment rate was 3.5 percent in December 2019. For black workers, it was down to about 6 percent. By the unemployment rate alone, the labor market looks its best in 50 years. Of course, the economy today is not the economy of the 1960s. Too many workers remain on the sidelines. Even so, with inflation stable and low, the Federal Reserve can allow the economy to push forward. The unemployment rate is less today than it thinks it will be over the longer run.

The typical forecast among Federal Reserve officials is for it to move gradually back to 4.1 percent. That’s their best guess; they could be wrong. They have consistently underestimated how low unemployment can go over this expansion. They could be wrong now. No one has a crystal ball, but they should think harder about their systematic mistakes.

I will close on a positive note. They are thinking harder. The Federal Reserve is reviewing its approach to monetary policy. It began the efforts last year. As part of the introspection, it held Fed Listens events across the country. It brought in people from community groups, businesses, colleges, and academia. Federal Reserve officials are still in discussions. They plan to release the findings in June. Tomorrow at the press conference, we might get some glimpses from Fed Chair Jerome Powell as to where they are currently.

The Federal Reserve has a history of halfheartedly pursuing maximum employment. Even so, it is thinking now and will tell us where that thinking may lead. This is progress. Most importantly for all of us, it believes it may need to change how it does monetary policy. It can do better.

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“Taxing Wealth”

Posted on by Maria Monroe

In “Taxing Wealth,” Equitable Growth’s Director of Tax Policy and chief economist Greg Leiserson outlines the case for major reforms to the taxation of wealth in the United States, details four specific approaches to reform, and discusses the economic effects of these approaches and their relative advantages and disadvantages. “Taxing Wealth” is a chapter in Tackling the Tax Code: Efficient and Equitable Ways to Raise Revenue, published by the Hamilton Project and The Brookings Institution. The full chapter can be read on their website. The abstract is included below.

Equitable Growth previously published several resources for policymakers and the public about new ideas for taxing wealth and investment income, including an explainer on wealth taxes (also known as net worth taxes), a detailed report on wealth taxes, and an explainer on mark-to-market taxation.

Abstract

The U.S. income tax does a poor job of taxing the income from wealth. This chapter details four approaches to reforming the taxation of wealth, each of which is calibrated to raise approximately $3 trillion over the next decade. Approach 1 is a 2 percent annual wealth tax above $25 million ($12.5 million for individual filers). Approach 2 is a 2 percent annual wealth tax with realization-based taxation of non-traded assets for taxpayers with more than $25 million ($12.5 million for individual filers). Approach 3 is accrual taxation of investment income at ordinary tax rates for taxpayers with more than $16.5 million in gross assets ($8.25 million for individual filers). And Approach 4 is accrual taxation at ordinary tax rates with realization-based taxation of non-traded assets for those with more than $16.5 million in gross assets ($8.25 million for individual filers). Under both the realization-based wealth tax and the realization-based accrual tax, the tax paid upon realization would be computed in a manner designed to eliminate the benefits of deferral. As a result, all four approaches would address the fundamental weakness of the existing income tax when it comes to taxing investment income: allowing taxpayers to defer paying tax on investment gains until assets are sold at no cost.

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What does the research say about the FAMILY Act?

Posted on by Maria Monroe

In the most recent sign of growing interest in a federal paid leave policy, tomorrow at 10:00 a.m., the Committee on Ways and Means will hold a Hearing on Legislative Proposals for Paid Family and Medical Leave. A number of bills from both sides of the aisle will be considered, including the Family and Medical Insurance Leave, or FAMILY Act, H.R. 1185/S. 463, which proposes a comprehensive earned paid family and medical leave policy. The FAMILY Act is the most universal and ambitious of the pending proposals.

Five states have implemented paid leave programs similar to the FAMILY Act: California (2004), New Jersey (2009), Rhode Island (2014), New York (2018), and Washington state (2020), while Massachusetts, the District of Columbia, Connecticut, and Oregon are all in the process of implementing their own paid leave programs. A growing body of research based on these state policies provides helpful insights into the various provisions of the FAMILY Act, which the Washington Center for Equitable Growth has summarized in this fact sheet.

As policymakers continue to debate the appropriate role of government in helping working families balance their caregiving and labor market demands, we hope that resources like these help ground that conversation in the evidence.

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Weekend reading: Closing racial economics gaps and reducing inequality 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

As we commemorated the Rev. Martin Luther King Jr. and his tireless efforts to bring about a more just society this past week, we are also reminded of the heaps of work we still need to do in order to achieve his dream. The economic gaps between black and white Americans, especially with regard to earnings and wealth, remain profound, and black women face even bigger hurdles due to double discrimination based on gender and race. This week, we took a look at how governmental policies have worked to reinforce these gaps in the past and how they can work instead to close them.

Inequality is constricting the U.S. economy and obstructing productivity and growth, which is why Equitable Growth seeks sensible, evidence-backed solutions to address these issues throughout various areas of the economy—from taxes and antitrust to family economic security and labor. Now, we’ll be raising these concerns and seeking answers via Medium, where our President and CEO Heather Boushey just launched an account and will be posting regularly on issues we care about.

More and more economists are coming around to the idea that the United States needs to do more to measure economic well-being than calculate Gross Domestic Product. Austin Clemens reviews a recent event, in which a panel of high-profile economists discussed the shortcomings of using GDP as the sole measure of economic growth. Most of the panelists argued in favor of maintaining the GDP reports as they are and releasing more detailed data separately. Though releasing more in-depth data is a good idea, doing so without altering the much-anticipated and much-discussed quarterly GDP reports would likely mean most people would continue to focus on GDP and ignore the new data. Instead, Equitable Growth proposes a new kind of GDP report, what we call GDP 2.0, in which growth is broken out by income to accurately measure who prospers when the economy grows.

The U.S. Congress is once again considering the Family and Medical Insurance Leave Act, or FAMILY Act. So this week we looked at the five states that have already implemented paid leave programs, as well as the others that are in the process of doing so. Our issue brief explains what the research says about the effects of implementing paid family and medical leave, who typically takes this leave and for how long, wage-replacement options, and job protection during leave periods.

Brad DeLong’s latest Worthy Reads column lays out his takes on must-read content from Equitable Growth and around the web.

Links from around the web

Oftentimes during economic downturns or recessions, colleges and universities can act as a natural shock absorber for young people. As the job market shrinks and people are laid off, enrollment in colleges rises. This was certainly the case during the Great Recession of 2007-2009, and likely will be the case again in the next downturn, writes Susan Dynarski for The New York Times. But during and after the Great Recession, many public colleges couldn’t keep up with higher demand, and either restricted enrollment, spent less money per student, or increased tuition fees—causing many students to enroll in for-profit colleges instead and to take out large loans in order to afford their degrees. The ramifications of this series of events are still being felt today, with high levels of debt and default among young workers. Before the next recession, Dynarski warns, we must ensure that public colleges are adequately supported, which will most likely require federal action.

Nearly 10 million children live in low-opportunity neighborhoods in the United States, meaning they have limited access to good schools, parks, and healthy food options, reports Erica Pandey for Axios. This means an incredibly high number of children are being born into disadvantage, as studies show that where a child is raised affects many aspects of their future lives, including health and economic outcomes. There is also a clear racial divide, continues Pandey, writing that of these 10 million children, 4.5 million are Hispanic and 3.6 million are black. These racial disparities will certainly play a role in maintaining the racial economic gaps.

Despite what the Trump administration says, it is becoming more clear with each day that the enormous tax cuts provided to the wealthy and to large corporations in the 2017 Tax Cuts and Jobs Act will not end up paying for themselves. So why are we still hearing this line of argument? “The claim that tax cuts don’t cost money is a lie that won’t die, because proponents of tax cuts have learned that many voters like to hear it,” writes The New York Times Editorial Board. “Two years later, the results are in. The annual federal budget deficit has topped $1 trillion.”

If there is one thing most people across the political spectrum nowadays can agree on, it is to be mad at tech companies, explain Nancy Scola and Cristiano Lima for Politico, “from Democrats who want to break up the ‘big four’ of Apple, Amazon, Google and Facebook to Republicans—including [President Donald] Trump himself—who think the industry and its products are biased against conservatives.” But one congressman in particular, Rep. David Cicilline (D-RI), who also happens to be the chairman of the House subcommittee on antitrust, is wading heavily into the fray. Last year, he announced that a (rather surprising, considering the partisan times we are living in) bipartisan group of House members were opening an investigation into whether digital markets are illegally anti-competitive. And though his chances of “fundamentally revamping the country’s antitrust laws or resetting regulators’ approach to Silicon Valley [are] slim,” Scola and Lima write, he seems more than willing to take on the heavy burden of trying.

Friday Figure

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

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Brad DeLong: Worthy reads on equitable growth, January 18-24, 2020

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

  1. This feature, started by Equitable Growth alumnus Nick Bunker, is always one of my monthly must-reads. The JOLTS data set is a uniquely valuable source of information. Read the latest from Raksha Kopparam and Kate Bahn, “JOLTS Day Graphs: November 2019 Report Edition,” in which they write: “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 … This report doesn’t get as much attention as the monthly Employment Situation Report … Below are a few key graphs using data from the report.”
  2. Here’s a very relevant chart, titled “Racial Income Inequality in the U.S. Has Changed Little in the Past 48 Years,” from Robert Manduca’s 2018 report “How rising U.S. income inequality exacerbates racial economic disparities.”
  3. David Rotman at MIT Technology Review noted Heather Boushey’s book Unbound: How Inequality Constricts Our Economy and What We Can Do About It in his “The Best Books in 2019 on the Economy We Live in,” in which he writes: “The year 2019 produced some evidence-based antidotes to the trendy political narratives of robot domination and the collapse of capitalism. I’m struck by the number of truly brilliant books on economics this year. My list of favorites is below … Unbound: How Inequality Constricts Our Economy and What We Can Do about It, by Heather Boushey: Think rising levels of inequality are just an inevitable outcome of our market-driven economy? Then you should read Boushey’s well-argued, well-documented explanation of why you’re wrong.”

 

Worthy reads not from Equitable Growth:

  1. I am teaching a brand-new course this semester—brand new for me, that is, and I have stolen the concept and the readings and the organization from Harvard’s Melissa Dell. It is looking at the history of “economic growth”—both the process and the idea: “The History of Economic Growth: Econ 135.”
  2. The very sharp David Glasner on how Arthur Burns did a really lousy job as Fed Chair and left his successors with a horrible mess. Read his “Cleaning Up After Burns’s Mess,” in which he writes: “After prolonging monetary stimulus unnecessarily for a year, Burn erred grievously by applying monetary restraint in response to the rise in oil prices. The largely exogenous rise in oil prices would most likely have caused a recession even with no change in monetary policy. By subjecting the economy to the added shock of reducing aggregate demand, Burns turned a mild recession into the worst recession since 1937-38 recession at the end of the Great Depression, with unemployment peaking at 8.8 percent in Q2 1975. Nor did the reduction in aggregate demand have much anti-inflationary effect, because the incremental reduction in total spending occasioned by the monetary tightening was reflected mainly in reduced output and employment rather than in reduced inflation … When President Carter took office in 1977, Burns, hoping to be reappointed to another term, provided Carter with a monetary expansion to hasten the reduction in unemployment that Carter has promised in his Presidential campaign. However, Burns’s accommodative policy did not sufficiently endear him to Carter to secure the coveted reappointment … A year after leaving the Fed, Burns gave the annual Per Jacobson Lecture to the International Monetary Fund. Calling his lecture “The Anguish of Central Banking,” Burns offered a defense of his tenure, by arguing, in effect, that he should not be blamed for his poor performance, because the job of central banking is so very hard. Central bankers could control inflation, but only by inflicting unacceptably high unemployment. The political authorities and the public to whom central bankers are ultimately accountable would simply not tolerate the high unemployment that would be necessary for inflation to be controlled: “Viewed in the abstract, the Federal Reserve System had the power to abort the inflation at its incipient stage fifteen years ago or at any later point, and it has the power to end it today. At any time within that period, it could have restricted money supply and created sufficient strains in the financial and industrial markets to terminate inflation with little delay. It did not do so because the Federal Reserve was itself caught up in the philosophic and political currents that were transforming American life and culture.”
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President and CEO Heather Boushey shares insights on inequality and growth via Medium

Posted on by Maria Monroe

Washington Center for Equitable Growth President and CEO Heather Boushey today posted her debut article, “Why we need an economy that works for everyone — and how to get it,” on Medium, an online publishing platform for long-form content.

In the article, Boushey makes the case that widespread economic inequality in the United States—now at its highest level in more than 50 years, according to the U.S. Census Bureau—constricts, subverts, and distorts the economy. She also discusses some of the solutions required to reverse this longstanding trend in order to increase the productivity and well-being of U.S. families. In the piece, she writes:

The good news is, equitable growth is achievable. The research and shifts in economic thinking point to the conclusion that we should focus on reducing the capacity of those with high concentrations of resources to subvert our markets and our democracy. Addressing the acceleration of economic concentration has the power to unleash innovation, spur productive investment, and lower prices for consumers. Similarly, creating a more progressive system of taxation and levying higher taxes on those at the very top would raise revenues, creating opportunities to make more comprehensive public investments, which are crucial to growing the economy and tackling inequality.

For more on inequality and growth from Boushey’s perspective, be sure to follow her on Medium.

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What does the research say about the FAMILY Act provisions?

Posted on by Maria Monroe

In February 2019, the Family and Medical Insurance Leave Act was reintroduced in the 116th Congress as H.R. 1185/S. 463. Five states have implemented paid leave programs: California (2004), New Jersey (2009), Rhode Island (2014), New York (2018), and Washington state (2020), while Massachusetts, the District of Columbia, Connecticut, and Oregon are all in the process of implementing paid leave programs. This fact sheet examines these existing paid leave programs in light of Congress’ consideration of the FAMILY Act.

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What does the research say about the FAMILY Act provisions?

Here is the evidence from the states on the effects of leave-taking:

  • The research suggests paid parental leave has a range of positive outcomes for children and parents. One in 10 first-time mothers who work during pregnancy go back to work within the first month of their child’s life. In the absence of paid leave, too many families face an impossible choice between economic security and the health and well-being of their family. A growing body of research suggests that paid parental leave can improve a range of early child outcomes including infant mortality, low birth weight, preterm births, breastfeeding rates, and pediatric head trauma, as well as later-in-life outcomes, including lower rates of attention deficit/hyperactivity disorder, obesity, ear infections, and hearing problems. (Census/Equitable Growth)
  • Early research on paid caregiving leave shows a diverse set of positive outcomes for both care recipients and caregivers. A growing body of evidence suggests that caregiving leave supports positive outcomes for care recipients, including mental and physical health outcomes for disabled children with a family caregiver receiving paid leave. Evidence from California suggests that paid caregiving leave reduced nursing home occupancy among the elderly, possibly because enhanced access to family caregivers reduced nursing home stays. Research also suggests positive emotional health outcomes for paid leave for parents of children with special needs, as well as positive emotional and physical health outcomes for family caregivers providing care to aging relatives. (Equitable Growth)
  • The demand for paid medical leave is high, and early research findings suggest positive labor market outcomes for those who take it. The vast majority of claims recipients are taking paid leave for their own medical needs. In the first 10 years of California’s program, workers registered more than 9 million medical leave claims, as compared to nearly 1.6 million parental leave claims and 175,198 caregiving claims. A recent study on paid medical leave in Rhode Island suggests that recipients who received paid leave along with vocational rehabilitation services were more likely to return to work and to receive higher wages than those who were not in the program. (Equitable Growth)
  • The research to date demonstrates that comprehensive paid family and medical leave has minimal impacts on employers. Data from California find no evidence that employee turnover at firms increases or that wage costs rise when paid leave-taking occurs. In New York, New Jersey, and Rhode Island, two-thirds of employers were supportive of their state’s paid leave programs, and another 15 percent to 20 percent were neutral. (Bedard and Rossin-Slater/Equitable Growth)

Here’s the evidence from the states on who needs leave:

  • Research tells us that today’s families include a diverse range of caretaking relationships. In addition to the 3.9 million babies born annually in the United States, nearly 18 million individuals in the United States are family caregivers for an individual over the age of 65 who needs help because of a physical, cognitive, or emotional limitation. For many, parental caregiving responsibilities don’t stop once a baby is old enough to leave with a childcare provider—children with disabilities and/or physical illnesses need care throughout childhood. For instance, more than 16,000 children are diagnosed with cancer in the United States annually; cancer and birth defects are the two most commonly listed reasons for a care claim in California’s program. (American Society of Clinical Oncology)

Here’s the evidence from the states on the length of leave:

  • Research suggests that maternity leave entitlements under 1 year can have significant positive impacts for women and children. Leave entitlements under a year can improve job continuity for women and can increase their employment rates and wages several years after childbirth. For instance, extensions in job-protected maternity leave up to 1 year in Canada led to a 22 percent increase in the probability that a mother returned to her prechildbirth employer. The International Labour Organization’s standard for the duration of maternity leave has been 14 weeks since 2000, and 98 out of 185 counties with paid leave policies and available data meet or exceed this standard. (Baker and Milligan/International Labour Organization)
  • Data from state programs indicate that recipients only take as much medical leave as their condition warrants, which is typically less than 12 weeks. Medical leave lengths vary depending on the specific needs of the condition, e.g. cancer treatment may require a longer leave than recovery from a broken ankle. (Bedard and Rossin-Slater)

Here’s the evidence from the states on wage replacement:

Here’s the evidence from the states and Great Britain on job protection:

  • The evidence suggests that job-protected leave may have positive impacts on women’s labor market outcomes. Job protection and wage replacement work together to promote both short- and long-term employment outcomes for mothers. The expansion of job protection for maternity leave in Great Britain finds that job protection had even stronger impacts than wage replacement on long-run maternal employment rates and job tenure, while wage replacement had stronger effects in the short run. The study, however, also finds that the introduction of job protection for maternity leave may have had negative impacts for mothers on other measures of career success such as promotions to managerial positions. It is important to note that the British case examined the expansion of a maternity leave-only policy, rather than a broader paid family and medical leave policy that would extend job protections to all categories of care leave. The impacts of broader job-protected leave may look quite different in the case of the FAMILY Act, which simply extends FMLA’s broad job protections to apply to paid parental, medical, and caregiving leave. (Stearns)

This fact sheet summarizes evidence from the research literature to discuss key provisions of the FAMILY Act.

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