JOLTS Day Graphs: October 2019 Report Edition

Posted on by Austin Clemens

Every month the U.S. Bureau of Labor Statistics releases data on hiring, firing, and other labor market flows from the Job Openings and Labor Turnover Survey, better known as JOLTS. Today, the BLS released the latest data for October 2019. This report doesn’t get as much attention as the monthly Employment Situation Report, but it contains useful information about the state of the U.S. labor market. Below are a few key graphs using data from the report.

1.

The quit rate continued to hold at 2.3% in October, where it has remained for over a year with the exception of a blip in last July.

2.

The ratio of hires to job openings remains below 1.0 as it trended downward in October to 0.79 from 0.85 in September.

3.

As job openings increased by 235,000 in October, to a total of 7.3 million, and unemployment remains low, there continues to be fewer than one unemployed worker per opening.

4.

The Beveridge Curve reveals the continuation of an expansionary labor market, with a low rate of unemployment and a high rate of job openings.

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New measure of county-level GDP gives insight into local-level U.S. economic growth

Posted on by Maria Monroe
Local Area Gross Domestic Product allows policymakers and economists to examine local-level economic conditions.

Since the 1930s and ‘40s, the United States has primarily relied on Gross Domestic Product, or GDP, as the main measure of economic growth and activity. For decades, analysts viewed the upturns and downturns of the GDP growth rate as a reflection of our overall economic well-being. But recent trends in income inequality have enabled the fruits of economic activity to accrue at the top of the income ladder, causing GDP as a measure of the economy to become less and less a reflection of the economy for everyday people. In short, people in the bottom 90 percent of the income distribution are no longer experiencing the same growth as those in the top 10 percent.

Making GDP a more useful metric may require peeling it apart and looking at the data more closely. On December 12, the U.S. Department of Commerce’s Bureau of Economic Analysis released a new measure of economic growth that does just this—Local Area Gross Domestic Product. LAGDP is an estimate of GDP at the county level between the years of 2001—2018. This measure allows policymakers and economists alike to examine local-level economic conditions and responses to economic shocks and recovery.

The new data measurement shows that private-sector industries across the nation have experienced growth since the end of the Great Recession in mid-2009, yet most of this growth 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. (See Figure 1.)

Figure 1

One of the benefits of this new LAGDP measure is that it provides an industry-specific breakdown that shows us how 34 different industries contribute to local economies. The tech industry, for example, contributed a substantial amount to local economies in the major cities of states such as California, Colorado, New York, and Massachusetts since 2001. (See Figure 2.)

Figure 2

Using the data, trends in the manufacturing industry and how manufacturing has contributed to GDP pre- and post-Great Recession are also now more trackable. Looking at the data since 2001, manufacturing output increased overall, but 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. (See Figure 3.)

Figure 3

The new measure gives an insight into the geographic distribution of our nation’s economic activity, but it also highlights just how unequally distributed GDP is. When looking at real GDP (after accounting for inflation) at the county level, LAGDP shows that 20 percent of the nation’s economic growth is concentrated in 11 counties, including the cities of Los Angeles, New York, and Harris, Texas. At the other end of the spectrum, the new data show that 20 percent of GDP is contributed by approximately 2,700 counties with the lowest economic activity. Aggregated GDP measures are not able to paint the picture that 2,700 counties contribute as much to the nation’s economy as 11 of the largest counties in America. (See Figure 4.)

Figure 4

These comparisons don’t mean that workers are more productive in Los Angeles than elsewhere, since the new measurement doesn’t account for population size, which means LAGDP doesn’t capture the overall well-being of families in each county. For instance, Los Angeles contributed 3.8 percent of the national GDP, but LAGDP doesn’t show that approximately 15 percent of its residents are living in poverty. But the data highlights just how vast the urban-rural divide is and how concentrated our economic activity is.

In order to provide a clear picture to policymakers about how the economy works for households at all levels of the income spectrum, we need more disaggregated growth and income data. On its own, the new LAGDP measure has the potential to widen our understanding of the impact industries have on regional economies. Combining this data with disaggregated national income data would facilitate the study of the effects of and relationships between industry growth and income inequality at such levels.

Equitable Growth’s GDP 2.0 project, which proposes that the Bureau of Economic Analysis extend the National Income and Product Accounts to assess national income distribution, is a further step toward better understanding who prospers when the economy grows. In the hands of local policymakers, these tools can guide efficient resource allocation, economic development and investment strategies, and opportunities for growth.

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Lessons from the New Deal of the 1930s for a Green New Deal today

Posted on by Maria Monroe
Hundreds of young people occupy Representative offices in Washington, D.C. to pressure the new Congress to support a committee for a Green New Deal, December 10, 2018.

This post was adapted from remarks delivered at Vision 2020: Evidence for a Stronger Economy, the Washington Center for Equitable Growth’s policy conference, which was held November 1, 2019.

Climate change activists in the United States and around the world can take heart from recent polls that show a majority of Americans in both major political parties and all ages support interventions to reduce greenhouse gases and encourage renewable energy. Ferocious hurricanes, extensive flooding, and destructive fires certainly help underscore the dire situation for the public.

Yet the scale of action and the agenda for change that many Americans endorse is nowhere near as ambitious as what the authors of a proposed array of policies, collectively known as a Green New Deal, are calling for. Their proposals, although in flux, generally call for a total shift to renewable energy within 10 years, as well as the creation of a transformative green economy that will provide decent jobs with benefits, universal healthcare, and more affordable housing and infrastructure investments.

A Green New Deal, in short, is conceived as the opening wedge in a radical shift from a private, market-based neoliberal economy to a more social democratic one, where new federal policies will create a more egalitarian, just, and greener United States. Advocates for this revolutionary change have seized the mantle of the New Deal of the 1930s and 1940s as their inspiration—and for good reason. President Franklin Roosevelt’s New Deal—designed to address the crisis of the Great Depression—remains the gold standard for the federal government taking responsibility in a national emergency, despite all the backtracking since the 1970s.

My research into how ordinary workers in Chicago responded to FDR’s New Deal provides insights into how popular support for a massive set of new federal programs might be mobilized for a change of this magnitude today. And my recent new book, Saving America’s Cities, tracks how the retreat from empowering the federal government fueled the current crisis in affordable housing and crumbling urban infrastructure. Together, I believe there are four key lessons that Green New Dealers can take from the original New Dealers and the eventual breakdown in support of federal government intervention in the U.S. economy beginning in the 1970s.

But first, it’s important to understand why Americans in the 1930s and 1940s came to embrace the New Deal, as we seek parallels to it today.

How Americans came to support the New Deal

Before the New Deal, many of the workers in the steel mills, packing plants, and other industrial workshops of a city such as Chicago lived political lives defined narrowly by their local ward boss, either a Democrat or a Republican—that is, if, as first- and second-generation Americans, they even voted or participated politically at all. For African Americans, the national Democratic Party was the enemy, the party of their southern oppressors and the party to vote against now that they were in the North.

Moreover, within workplaces, unions, to the extent that they existed in the 1920s, were dominated by elite (usually white and native-born) craft workers, who aimed to limit opportunity for the more numerous, less skilled, and commonly immigrant nonunion workers. After the union organizing defeats of 1919, unions held little promise for lesser-skilled industrial workers. To the extent that working-class Chicagoans could depend for survival on any affiliations beyond their own families, it was on the institutions of their ethnic and racial communities—mutual benefit societies, building and loan associations, churches, and neighborhood “Mom and Pop” stores extending credit.

Workers also looked to the paternalistic welfare programs that their employers had instituted in the 1920s to protect themselves against the failed, but still worrisome, unionization drives that had followed World War I. Companies touted such benefits as paid sick leave and vacation, pensions, and employee representation to foster loyalty in their workers, but their unwillingness to put their money where their promises were gave few workers full access to these benefits.

By 1936, the year of President Roosevelt’s first re-election, the world had turned upside down. Faced with a global Great Depression, ordinary working-class Chicagoans, in a few short years, had become enthusiastic adherents of a national Democratic Party with FDR at the helm, voting in much greater—and Democratic—numbers in national elections. That trend also included African Americans, who increasingly replaced the motto “Stick to Republicans because Lincoln freed you” with “Let Jesus lead you and Roosevelt feed you.”

Workers took full advantage of President Roosevelt’s federally funded New Deal programs, benefiting especially from its relief programs but also becoming the rank and file of a massive drive to unionize industrial workers across many sectors, coordinated by the newly founded Congress of Industrial Organizations, or CIO, whose success was made possible by Congress’ passage of the Wagner Act of 1935, which guaranteed the right of private-sector U.S. workers to organize, engage in collective bargaining, and strike. By 1940, one in three workers in Chicago manufacturing would be a union member, whereas 10 years earlier hardly any had been.

The political landscape of Chicago was transformed. Workers who, not many years before, had ignored or shunned the national Democratic Party, had had few connections to Washington, and had been excluded from national unions now identified with the national government and a nationwide party and union.

Lessons from the New Deal era

Given the challenge today to mobilize ordinary Americans for an ambitious climate policy agenda in the 21st century, what can they learn from the original New Dealers, who successfully recruited supporters to such a paradigm-shifting program more than eight decades ago?

First, President Roosevelt and his advisers never had a master plan for the New Deal of the 1930s. Rather, they promoted and implemented a set of new laws and regulations in FDR’s first 100 days as practical fixes to pressing problems. As time went on, programs that worked remained while others died, to be replaced by new initiatives.

When the National Industrial Recovery Act—with its voluntary codes of fair competition and limited encouragement of collective bargaining—proved inadequate and then was ruled unconstitutional, it was replaced with the stronger Wagner Act that offered a clearer path to unionization. And it was not until the so-called Second New Deal beginning in 1935 that a welfare state of Social Security, minimum wages and hours, Unemployment Insurance, and public housing would take shape.

In other words, the New Deal was improvisational and incremental. Furthermore, to minimize the impact of the shift away from state-based federalism to more national management of the polity, many federal programs were operated and dollars were channeled, through states, counties, and cities—injecting federal resources and regulations without marginalizing all existing local sources of political power.

The result was a hybrid governance structure of national statism and persistent localism. President Roosevelt pledged to create “a new deal for the American people,” but he also insisted that he was rescuing capitalism, not overthrowing it. And he never laid out a fully developed blueprint for action. For ordinary Americans, embracing the New Deal did not require signing on to a totally new, radical platform.

Second, this New Deal of the 1930s was more practical than ideological, tolerating constraints imposed by its coalition partners. Most tragically, powerful southern Democrats insisted on excluding agricultural and domestic workers, many of whom were black and Mexican, from the protections of the Fair Labor Standards Act, and rejected much-needed anti-lynching legislation.

But there were also crucial partners on the left. Ideologically motivated, radical activists pushed the New Deal to make deep, structural changes in the U.S. economy and society, orchestrating Communist Unemployed Councils, Socialist Workers’ Committees for Unemployment, hunger marches, and left-wing unions. In the end, despite all the hardships of the Great Depression, the average worker did not buy into an anti-capitalist message. Communist organizer Steve Nelson recalled how he and his comrades had “spent the first few weeks agitating against capitalism,” but then quickly learned to shift to a “grievance approach,” raising “demands for immediate federal assistance to the unemployed, and a moratorium on mortgages.”

In fact, partly inspired by the failed promises of their employers’ welfare capitalism schemes of the 1920s, working-class Americans came to embrace what I have labeled “moral capitalism.” While benefiting from radical leaders, they more often opted for liberal goals, to be achieved by pressuring employers and national leaders to deliver a fairer, more just capitalism, but not to refashion the existing economic order.

But rather than lead the Green New Dealers of today to conclude they must accept the inherent conservatism of ordinary Americans in their agenda setting, this experience of the 1930s should remind us that a radical flank played a crucial role in achieving even a liberal outcome. Left leaders of the CIO worked hard to cultivate what I call an inclusive “culture of unity” in the union movement. They knew that success required it, or else the ethnic and racial divisions that had doomed the 1919 organizing drives would re-emerge. If they did not brazenly call for class solidarity, then white working people might well retreat to their segmented ethnic worlds and express open hostility to African American co-workers.

Applying these lessons to climate policy today

One broad lesson, then, from the New Deal of the 1930s is the necessity of having both a radical flank of idealists to inspire action and a willingness to accept a more gradualist and moderate path to change.

The history of the Roosevelt New Deal, however, offers up three more specific lessons for building support for a Green New Deal. First is the importance of leadership, both at the top and the bottom. Workers admiringly championed President Roosevelt. And committed local leaders, both in the Democratic Party and on the shop floor, effectively managed to bring a national agenda of change back home.

Second, working people were mobilized within existing and new institutions and organizations, not as isolated individuals. Even as churches, ethnic organizations, and the like failed to meet the crisis of the Great Depression on their own, they provided entryways to new solutions. This is perhaps one of the greatest challenges facing progressive policymakers today. Even as people’s social media affiliations have grown, many intermediary institutions—particularly unions, but also churches, clubs, and other centers of social capital—have weakened or even disappeared. The success of the political right might, in fact, be attributed to the greater survival of organizations such as evangelical churches, which provide infrastructure as well as inspiration for conservative politics.

Third, the New Deal of the 1930s was most remarkable for how it inspired a generation of Americans to trust the federal government as capable of solving many of the nation’s—and their own personal—problems. That confidence would persist during at least three more post-war decades. Today, however, we are in a very different place. Trust in the federal government has eroded. And as distrust has grown, responsibility has devolved to lower levels of government and has fed the anger and disillusionment that is so visible today. Global warming is not a problem that can be solved easily at lower levels. National—even international—remedies are needed to address climate change and a host of other challenges.

In my recent book, Saving America’s Cities, I analyze how this rejection of the federal government also fueled today’s lack of affordable housing and disinvestment in urban infrastructure. Mounting a Green New Deal—or solving the nation’s housing crisis—will require reawakening people’s confidence in the vision and effectiveness of Washington. The Green New Deal carries the potential of helping to inspire that greater confidence—or of being dismissed by a still-skeptical public as one more federal folly. How shrewdly progressives play that hand may ultimately determine their success.

—Lizabeth Cohen is the Howard Mumford Jones Professor of American Studies and Harvard University Distinguished Service Professor.

Weekend reading: “Inequality runs deep” 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

Economic inequality, on the rise for decades in the United States, is reshaping the wealth and income landscapes so that the gains of prosperity and growth are largely only shared by those at the very top. As a result, income mobility continues to decline, educational achievement gaps continue to rise, and disparities in health outcomes among different income groups continue to grow. Austin Clemens put together eight graphics to illustrate these realities, and why the work Equitable Growth does to study how inequality impacts growth and stability in the U.S. economy—and how American families are affected as well—is so important.

The way the U.S. Bureau of Economic Analysis currently measures economic and income growth using Gross Domestic Product does not accurately account for the lived experience of most people. That’s why our GDP 2.0 project for a new measurement strategy—breaking out growth by income decile—is key to affective economic policymaking and why this week, along with 10 other organizations, we endorsed the Measuring Real Income Growth Act of 2019, which would enable this measurement reform to happen. The bill, sponsored by Rep. Carolyn Maloney (D-NY) and Sens. Chuck Schumer (D-NY) and Martin Heinrich (D-NM), would, for the first time, enable us to see who really prospers when the economy grows.

Various studies show how deeply recessions negatively affect economic outcomes of young college graduates, particularly compared to other age cohorts—that is, younger workers tend to experience higher unemployment rates, lose access to valuable trainings and experience, and suffer more severe income losses. But a new working paper shows that the damage to younger workers is worse and lasts longer than previously thought. Jesse Rothstein summarizes his research findings, writing that “those who enter the labor market during recessions have permanently lower employment and earnings, even after the economy has recovered”—making it even more imperative for policymakers to do more to prepare for and ameliorate future recessions. (If they need any ideas, Equitable Growth and The Brookings Institution’s Hamilton Project recently released a book, Recession Ready: Fiscal Policies to Stabilize the American Economy, arguing for six policies that can do just that.)

More lenient U.S. antitrust rules, caused by fears of what strict regulations might do to innovation and product markets, are extremely costly to consumers. Michael Kades in his Competitive Edge post runs through the example of the pharmaceutical industry, showing that the adoption of the lenient scope-of-the-patent rule cost U.S. consumers more than $60 billion. He also shows that later, stricter antitrust enforcement did not end pharmaceutical settlements, nor did it deter innovation in the industry or prevent generics companies from challenging patents. Thus, he argues, an even stronger rule may be even more effective.

In case you missed it, Equitable Growth recently released its 2020 Request for Proposals, and this year, we have also launched a separate RFP focused exclusively on issues relating to paid family and medical leave. Alix Gould-Werth explains why we opened this second stream, why this issue is such an important one to study, and why it should be looked at now.

We are excited to welcome Tara McGuinness to our Board of Directors. McGuinness has a long history of leadership in organizations that serve the public, and is a strong believer in evidence-backed policies and programs that help local communities. She is currently a senior fellow at New America, a public policy think tank, and teaches public policy at Georgetown University.

Head over to Brad DeLong’s latest worthy reads for his takes on recent must-reads from Equitable Growth and around the web.

Links from around the web

Four decades of economic inequality are driving American cities apart, writes Emily Badger and Kevin Quealy for The New York Times’ The Upshot, using the divergent paths of New York City and Binghamton, NY to illustrate inequality’s effects. In 1980, the gap between the top and the bottom income groups were about equal in both cities, but nowadays, wage inequality is much higher in New York City than in its upstate counterpart. “Economic inequality has been rising everywhere in the United States,” the authors write. “But it has been rising much more in the booming places that promise hefty incomes to engineers, lawyers and innovators. And those places today are also the largest metros in the country: New York, Los Angeles, San Francisco, San Jose, Houston, Washington … [i]n these places, inequality and economic growth now go hand in hand.”

The rise in street protests demanding societal change around the globe are being driven by a new type of inequality, according to a new UN Development Programme report, which notes that shifts around technology, education, and climate change are causing an inequality of opportunity rather than wealth that is increasingly motivating pushes for change. Jason Beaubien of NPR explains that as a result, our 20th century ideas for overcoming wealth inequality—finding ways for underprivileged communities to get better jobs that give them access to a larger slice of the economic pie—may not be relevant anymore for this new cohort of young people, who are “educated, connected, and stuck with no ladder of choices to move up.”

Some good news for workers in Washington state this week: The state Department of Labor and Industries approved the nation’s toughest overtime rules, entitling salaried workers (up to about $83,000 annually) who spend more than 40 hours a week on the job with time-and-a-half pay. The rules will phase in by 2028 and are expected to restore protections for thousands of workers in various job categories and boost the state’s middle class, writes Gene Johnson for AP.

More than 2 million federal workers are likely to receive paid parental leave for the first time in our nation’s history, reports Li Zhou for Vox. A U.S. military budget bill that includes 12 weeks of paid time off for all federal government employees to care for a new child is expected to pass through Congress before the end of the year, and President Donald Trump is expected to sign it. The pending new law will not affect those U.S. workers who are not employed by the federal government—and pales in comparison to other paid leave proposals put forward by Members of Congress—yet this is a definite step forward for a country where neither paid nor unpaid family or medical leave is a guarantee for most workers.

Society bombards us with the image of a two-parent household as the best family structure in which to raise a child. Not only is this held up as the gold standard, but families who deviate from this structure are also often blamed for all manner of societal ills. Perhaps it’s time to look at the research on this, writes Christina Cross for The New York Times. When we do, it becomes clear that access to resources, more than two-parent households, is what matters most for success—especially for African American children, whose social and economic disadvantages are commonly written off as stemming from the prevalence of unconventional family structures in black communities. This is not to say that the two-parent structure is bad by any means, Cross continues, but rather that other solutions would make more of a difference in the lives of black children.

Friday Figure

Figure is from Equitable Growth’s “Eight graphs that tell the story of U.S. economic inequality” by Austin Clemens.

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Competitive Edge: Underestimating the cost of underenforcing U.S. antitrust laws

Posted on by Maria Monroe

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

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

Michael Kades

For much of the past three-and-a-half decades, courts across the United States increasingly accepted that strict antitrust rules present far greater dangers than lenient rules. According to this theory, overly strict antitrust rules limit business conduct in two ways. Conduct that is beneficial is wrongly condemned (what is known as a false positive), and the rule deters companies from undertaking procompetitive actions. Further, once an overly strict legal rule is enshrined in precedent, it is difficult to change and has a long-lasting harmful event. In contrast, overly lenient antitrust rules allow anticompetitive conduct to go unpunished (what is known as a false negative), but market forces will correct those problems more quickly than it takes to overturn precedent.

Courts have relied on concern about false positives to limit rules regarding refusals to deal, predatory pricing, and proof of conspiracy, as well increasing the procedural requirements for plaintiffs. This policy, however, has no basis in theory and little empirical support. The evidence that does exist suggests underenforcement is costly. A fuller discussion on this issue (called error-cost analysis) occurs in section 2 of the Washington Center for Equitable Growth’s comments on the Federal Trade Commission’s Hearings Competition and Consumer Protection in the 21st Century.

Recent experience with U.S. antitrust rules and pharmaceutical patent settlements provides further evidence that overly lenient rules are costly, and fears of overly stringent rules can be overstated. Between 2005 and 2013, federal courts adopted a lenient rule that allowed patent holders to pay alleged infringers to stay off the market until the patent expired, fearing the dangers of overenforcement and discounting the dangers of this type of settlement. In 2013, the Supreme Court rejected this approach and subjected settlements to antitrust scrutiny in its Federal Trade Commission v. Actavis Inc. decision. Post-Actavis, some scholars argue that the decision will lead to false negatives in some cases, but others conclude false negatives are very unlikely.

Based on the history of reverse-payment settlements, antitrust rules matter. After the courts adopted the lenient rule, the number of settlements with substantial payments increased dramatically, from zero in fiscal year 2004 to a high of 34 in FY2012. Those deals increased prescription drug costs by $63 billion. After 2013, the problematic deals virtually disappeared, and there is no evidence that this stricter rule prevented settlements, limited innovation, or suppressed patent challenges—the primary policy concerns of courts adopting the scope of the patent test relied upon.

Background on pharmaceutical patent settlements

Competition from low-cost generics is one of the few proven ways to control prescription drug prices. Often, that competition depends on the outcome of patent litigation between the firm that owns the branded drug and the one planning to sell a generic alternative over whether the branded firm’s patents are valid and whether the generic product infringes on those patents. Beginning in the 1990s, branded and generic companies found a new way to settle patent litigation. A branded company would allege that its potential generic competitor’s product infringed on the branded company’s patent, yet the branded company would pay the generic to stay off the market for a period of time, which is known as a pay-for-delay, or reverse-payment, patent settlement.

The anticompetitive threat is straightforward (a fuller discussion can be found here). The generic company is a potential competitor (whether the branded company’s patent blocks competition is uncertain) and receives payment to accept the branded company’s proposed entry date. The agreement eliminates potential competition and protects the branded company’s monopoly. In turn, the payment compensates the generic company for accepting a later entry date, which delays competition. Consumers are worse off because, in an expected sense, they wait longer for competition and pay higher costs for the product.

The combination of the payment and the restriction on the entry of a new generic drug into the market creates the competition concern. A procompetitive settlement reflects the strength of the patent and occurs when the generic company and the branded company settle a patent suit by splitting the remaining time on the patent. If the patent expires in 10 years, for example, then the generic company might receive a license to the patent in 6 years, guaranteeing 4 years of competition. Without a payment, the settlement simply reflects the parties’ estimates of the strength of the patent.

In contrast, a firm that owns the branded drug will pay the generic alternative to accept an entry date only if the settlement delays generic competition beyond what the patent strength warrants. The generic firm will accept a later entry date only if it is compensated. So, in the example above, a branded company would only pay the generic firm if the generic firm agreed to delay entry more than 6 years, and the generic firm would agree to delay entry more than 6 years only if it is paid.

The Federal Trade Commission, private plaintiffs, and state attorneys general brought a series of cases challenging reverse-payment settlements in the late 1990s. According to them, any payment that was more than de minimis raised significant antitrust concerns and was likely anticompetitive. In March 2005, however, the 11th Circuit Court of Appeals, in Schering Plough Corp. v. Federal Trade Commission, reached the opposite conclusion. It suggested that, with limited exceptions, reverse-payment settlements were legal unless the generic company agreed to stay off the market until after the patent expired, also known as the “scope-of-the-patent” rule. Two other circuits shortly thereafter adopted this position.

In adopting this lenient rule, courts expressed concerns about the costs of an overly strict rule. Specifically, the courts variously argued that:

  • An overly strict rule would “discourage settlement of patent litigation” (see Federal Trade Commission v. Actavis, 570 US 136, 170 (Roberts C.J., dissenting)) because litigation can be costly and inefficient, and limiting settlements could, the courts reasoned, just increase costs to everyone.
  • Limiting patent holders’ settlement options could “decrease product innovation by amplifying the period of uncertainty around the drug manufacturer’s ability to research, develop, and market the patented product” (see Schering Plough Corp. v. Federal Trade Commission, 402 F.3d 1056, 1075, 11th Cir. 2005) because if patent holders have fewer settlement options, then the uncertainty of litigation might deter them from investing in research and development.
  • An overly strict rule would “reduce the incentive to challenge patents by reducing the challenger’s settlement options” (see Asahi Glass co. v. Pentech Pharms, Inc., 289 F. Supp. 2d 986, 994, ND Ill 2003) because if generic companies could not resolve patent litigation by getting paid, then they might not undertake their challenges in the first place.

At the same time, these courts were confident that even if settlements with payments were anticompetitive, the market would quickly remedy the situation. Once the branded company paid off one generic competitor, that payment would entice other generic companies to challenge the patent. As one court explained, “Although a patent holder may be able to escape the jaws of competition by sharing monopoly profits with the first one or two generic challengers, those profits will be eaten away as more and more generic companies enter the waters by filing their own paragraph IV certifications attacking the patent.”(See Federal Trade Commission v. Watson Pharms, Inc, 677 F.3d 1298, 11th Cir. 2012) In other words, if the branded company paid off one generic firm to avoid competition, then it would face a host of challengers, each demanding a payment to drop their challenges.

In 2013, however, the U.S. Supreme Court put an end to the scope-of-the-patent era and subjected these types of agreements to traditional antitrust analysis. According to the Supreme Court, an agreement in which the branded and generic companies eliminate potential competition and share the resulting monopoly profits likely violates the antitrust laws, absent some justification. (See FTC v. Actavis 570 US 136, 158) The result: The adoption of a very lenient rule, the scope-of-the-patent test, and the change to the stricter rule-of-reason approach provides insight into the costs and consequences of the two regimes.

The cost of the lenient scope-of-the-patent rule

Information from the Federal Trade Commission allows an estimate of the cost to consumers of the scope-of-the-patent rule. The FTC reports the number of settlements with any compensation and the subset of those with compensation greater than $7 million. Adoption of the lenient scope led to a dramatic increase in settlements with substantial compensation (more than $7 million), which peaked in FY2012 at 33. The Supreme Court’s rejection of that rule virtually eliminated settlements with substantial payments. In fiscal year 2016, only a single agreement occurred. The cost of a lenient rule is not simply that anticompetitive conduct goes unpunished; lenient rules also will encourage more anticompetitive conduct. (See Figure 1.)

Figure 1

One can estimate the cost to consumers of allowing pay-for-delay settlements by multiplying the length of the delay, the lost consumer savings due to delayed generic entry, and the volume of commerce affected. In 2010, the FTC issued a report analyzing pharmaceutical patent settlements. It found that settlements with payments and restrictions on entry delayed generic competition by an average of 17 months relative to settlements without payments. On a yearly basis, consumer lost savings equals 77 percent of the branded drug’s total revenue.

Finally, in information recently provided to Sen. Amy Klobuchar (D-MN), the FTC provided statistics on the total revenue of branded drugs subject to patent settlements with restrictions on generic entry and compensation of more than $7 million. The total cost to consumers equals 1.42 years of delay, multiplied by 77 percent of brand product’s revenue, multiplied by the yearly revenue of the branded drugs covered by settlements with compensation above $7 million. As it turns out, the consumer loss is equal to roughly a year of brand sales, or $63.3 billion. (See Table 1.)

Table 1

This estimate may be conservative. The 2010 FTC report counted even de minimis payments as a form of compensation in measuring the average delay. Such deals likely had little or no delay. So, the average length of delay for deals with payments above $7 million is likely longer than 17 months. Of course, more detailed data would allow for a more precise estimate, but it is clear that reverse-payment settlements during the scope-of-the-patent era increased prescription drug costs substantially (in the order of tens of billions of dollars).

It appears the courts adopting the scope-of-the-patent rule underestimate its cost. As a practical matter, during the scope-of-the-patent period, the market response did not deter the practice. Reverse-payment settlements were profitable and successful either because the payments did not entice additional generic companies to challenge the patent or the branded company could pay off all potential competitors. The Supreme Court, in its Actavis decision, explained that for reasons based on the competitive dynamics in the industry, paying off the first generic challenger removed the most motivated challenger. (See FTC v. Actavis at 155.) And, as one article explained, the incentives for subsequent challenges to litigate were so small that they would settle for little or nothing.

The costs of the stricter rule

Many cases are ongoing, and determining whether a given case is a false positive or a false negative requires a case-specific analysis. But what about concerns that a stricter antitrust rule would prevent settlements, deter generic companies from challenging patents, and lower incentives to innovate? Academics have questioned the relevance of those arguments. Whether those concerns are relevant in a legal sense, there is no empirical evidence that they are occurring.

First, stricter antitrust enforcement did not end pharmaceutical patent settlements. Record numbers of settlements occurred in each of the first 3 years after Actavis (FY2014 to FY2016). Although the Actavis decision deterred the use of payments to resolve patent litigation, parties found other ways to settle their disputes that did not harm competition. (See Figure 2.)

Figure 2

Second, there is no evidence that stricter antitrust enforcement deterred innovation. Although it is difficult to determine the impact on research and development, the pharmaceutical industry has not claimed that it is spending less on research and development because of the Actavis decision. To the contrary, PhRMA, the trade association for branded pharmaceuticals, highlights its increased research and development spending.

Third, the Supreme Court’s adoption of a stricter antitrust rule does not appear to have deterred generic companies from challenging patents, based on the 2016, 2017, and 2018 Lex Machina Anda Patent Litigation Reports. In the 4 years preceding the Actavis decision, under the scope-of-the-patent rule, new patent challenges averaged 271 a year, with a low of 236 cases and a high of 293 cases. In the 4 years after the Actavis decision, the average increased to a 413 new pharmaceutical patent challenges yearly, with a low of 326 cases and a high of 476 cases.

Proving a negative—that the Actavis rule did not deter procompetitive settlements—is challenging. The statistics, although they do not establish causation, suggests that the Actavis rule had little, if any, negative impact. Although one can hypothesize that there would be even more settlements, patent challenges, and innovation in the absence of Actavis, the theories are far less plausible, given the descriptive data offered here and lack of qualitative evidence to support them.

Conclusion

Adoption of the scope-of-the-patent test cost consumers more than an estimated $60 billion dollars, with little to no evidence of corresponding benefits. Going forward, courts should be more concerned about rules in this area that are overly lenient than rules that are overly strict. The drug-making industry responded both to the lenient scope-of-the-patent rule and then again to the stricter Actavis rule. Both of these points suggest that an even stronger rule—one that presumes such payments are anticompetitive—may be more effective. It would eliminate the risk of a bad court decision that would substantially increase prescription drug costs, and it would reduce the cost of enforcement.

More generally, contrary to accepted antitrust principles, underenforcement can cause substantial harm, and there should be no presumption that markets by themselves will limit the harm of anticompetitive activity. At the same time, claims that stricter antitrust enforcement will suppress beneficial conduct are overstated. The before and after lessons of pay-for-delay should be a cautionary tale for courts as they apply antitrust law.

Brad DeLong: Worthy reads on equitable growth, December 7–13, 2019

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

  1. New Equitable Growth hire Claudia Sahm has her very own way to tell policymakers when the economy has entered a recession. See the “Sahm Rule Recession Indicator” published by the Federal Reserve Bank of St. Louis, alongside her explanation of the rule from earlier this year. Her rule is “[triggered by] a 0.5 percentage point increase or more in the three-month moving average of the unemployment rate relative to its low in the prior 12 months.” And when it triggers, the time is right to get stimulus out to households, business, and local governments.
  2. Michael Kades also has indicators for the state of U.S. federal antitrust enforcement. Boy, does he have indicators! Read “The State of U.S. Federal Antitrust Enforcement,” in which he writes: “Criminal antitrust filings have fallen to historic lows … Merger enforcement actions have not kept pace with increased merger filings … Civil nonmerger actions have fallen … U.S. antitrust enforcement resources have fallen … U.S. GDP growth has outpaced growth in antitrust appropriations.”
  3. Those of us who graduated from college in 1982 had some scarring from the 1982-trough recession, but not nearly as much as today’s young workers. Read Jesse Rothstein, “Great Recession’s ‘Lost Generation’ Shows Importance of Policies to Ease Next Downturn,” in which he writes: “Young college graduates in the Great Recession of 2007–2009… [experienced] damage … [that will last] throughout their careers … Workers from these cohorts saw their annual employment rates drop by 2 percentage points to 4 percentage points per year, relative to older workers in the same labor market. Those who were established in the workforce by the beginning of the recession—those who graduated college in 2005 and earlier—essentially returned to prerecession levels of employment by 2014. But those who entered after 2005 have not; their employment rates remain depressed even as the overall market has recovered.”

 

Worthy reads not from Equitable Growth:

  1. Kim Clausing’s Open: The Progressive Case for Free Trade, Immigration, and Global Capital is high on my list for very good policy books of the past year. Attempts to achieve social and egalitarian goals by closing off the international economy comes at an extremely heavy price. Clausing is very convincing that that price is rarely worth paying. And that leaves out all of the restrictions on openness that are not aimed at accomplishing egalitarian and social goals. The Institute for Research on Labor and Economics says of the book: “International trade brings countries together by raising living standards, benefiting consumers, and making countries richer. Global capital mobility helps both borrowers and lenders. International business improves efficiency and fosters innovation. And immigration remains one of America’s greatest strengths, as newcomers play an essential role in economic growth, innovation, and entrepreneurship. Closing the door to the benefits of the open economy would cause untold damage for Americans. Instead, Clausing outlines a progressive agenda to manage globalization more effectively, presenting strategies to equip workers for a modern economy, to modernize tax policy for a global economy, and to establish a better partnership between society and the business community.”
  2. If you have not read Barry Eichengreen’s The Populist Temptation: Economic Grievance and Political Reaction in the Modern Era, then you should. Read this review, which remarks: “Looking primarily at the United States, the United Kingdom, and Germany, with some French and Italian interludes … the core of the book is deep research into the convulsions caused by populist agitators and the response from the political establishment. As a historian, but especially an economic one, Eichengreen certainly delivers … Eichengreen’s definition … [of] a multidimensional phenomenon, with multiple perspectives on each dimension … [of] a political movement with anti-elite, authoritarian, and nativist tendencies … has been around ever since the capitalist economy began functioning as it does.”
  3. And I am ashamed that I still have not read Steve Greenhouse’s new book Beaten Down, Worked Up: The Past, Present, and Future of American Labor. Joseph A. McCartin’s review, “The Future of American Labor,” is a worthy read. He writes: “No writer is better equipped than Steven Greenhouse to assess how both American workers and the American labor movement are doing in the early 21st century … Greenhouse has spent the past 5 years freelancing important labor stories and stepping back to write his new book … He opens with a string of disturbing vignettes that illustrate workers’ current struggles, including rampant wage and hour violations, deteriorating workplace-safety enforcement, unpredictable scheduling practices, stagnant wages, retirement insecurity, lack of paid sick or vacation days, and abusive management.”
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New Equitable Growth Request for Proposals for scholars planning cutting-edge research on paid family and medical leave

Posted on by Maria Monroe

How does the availability of paid personal medical leave affect employees’ economic security, health, and other outcomes? How does paid caregiving leave affect the physical and mental health of care recipients and of caregivers? How does paid leave of all kinds affect firm productivity and employee turnover, and how do these impacts vary across leave types, industries, occupations, and the business cycle?

The Washington Center for Equitable Growth has issued a Request for Proposals to academics on campuses around the United States to explore these and other issues relating to paid leave. The RFP, separate from Equitable Growth’s broader annual RFP, seeks “to advance the evidence on how paid leave affects engines of economic growth such as labor force participation, the development of human capital, consumption, and macroeconomic stability.”

Equitable Growth has been interested in the relationship between paid leave and inequality and economic growth since its early days. The organization has funded a number of researchers examining these issues.

Earlier this year the organization announced grants totaling more than $200,000 to two research teams focused on issues related to paid leave. One is exploring the impact of paid medical leave on the prevalence of opioid abuse. The second is studying the effects of state-level paid family and medical leave policies on labor market participation for older workers who care for a spouse.

The United States is the only member nation of the Organisation for Economic Co-operation and Development with no national paid leave system. The absence of such a system is the subject of legislation in Congress and is an important part of the 2020 presidential campaign debate. Several states and the District of Columbia have enacted or implemented paid leave programs or are about to, creating a series of natural experiments that are ripe for researchers who hope to identify the causal impact of paid leave using rich data.

The RFP is focused on three core areas: medical leave, caregiving leave, and employers’ interactions with paid leave.

Equitable Growth supports research that uses many kinds of evidence and is interested in a variety of methodological approaches, as well as research that cuts across academic disciplines. We also support data collection and measure development: Ensuring that researchers have the data sources and measures they need is the first step in getting the answers to key questions related to paid leave.

Questions of particular interest to Equitable Growth relate to how people in need of medical or caregiving leave experience, interact with, and are affected by the paid leave system. Also critical to the policy debates around paid leave are questions related to employers: not only questions about how paid leave affects firm productivity and employee turnover, but also about employer compliance with state laws and whether, how, and why they might be facilitating or impeding employees’ access to paid leave. These investigations into how employers and individuals interact with the paid leave system are foundational to connecting the dots between paid leave, inequality, and broadly shared economic growth.

Equitable Growth’s grant program, now entering its seventh year, includes a portfolio of cutting-edge scholarly research investigating the various channels through which economic inequality may or may not impact economic growth and stability, both directly and indirectly. The organization has provided grants to more than 200 researchers and distributed more than $5.6 million in grants. Earlier this year, in addition to the specific grants related to paid leave, Equitable Growth announced 14 grants to 33 researchers and 13 grants to doctoral student researchers, totaling $1.064 million. Equitable Growth bridges the gap between academia and policy by fostering research that is relevant to today’s policy debates, and by informing policymakers of cutting-edge research.

Paid leave is one of the most significant domestic and economic issues for our country going forward. The research supported by Equitable Growth is already informing and propelling the policy debate around paid leave. This next set of investments will also play a critical role in the paid leave policy conversation.

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Equitable Growth joins 10 other organizations in endorsing the Measuring Real Income Growth Act

Posted on by Maria Monroe

For decades, the approach to economic policymaking in the United States has been conducted under the presumption that “a rising tide lifts all boats,” and that we can therefore rely on measures such as Gross Domestic Product growth to understand how the U.S. economy is performing for American families. This presumption is mistaken.

During this time of high economic inequality, policymakers need new tools to track the progress of the economy and govern accordingly. The “Measuring Real Income Growth Act of 2019,” sponsored by Representative Carolyn Maloney (D-NY) in the House and Minority Leader Chuck Schumer (D-NY) and Senator Martin Heinrich (D-NM) in the Senate, would require breakouts of growth by income decile, making it possible for the first time to see who prospers when the U.S. economy grows.

“Until we change the way we conceptualize, and therefore measure, economic prosperity, we are unlikely to have very much of it,” said Heather Boushey, President and CEO of the Washington Center for Equitable Growth. “In short, better, fairer growth measures beget better, fairer growth,”

Boushey is joined by ten organizations in endorsing the bill.

Sister Simone Campbell, SSS, Executive Director of NETWORK Lobby for Catholic Social Justice:

“NETWORK Lobby for Catholic Social Justice advocates for federal policies to mend the income and wealth gap in our nation because such policies promote the common good. Current GDP measurement only accounts for the benefit realized by corporations and their stockholders. The common good requires that these measures account for the broader economy by including the impact on working people.”

“New indicators would be an important step forward in assessing how people are benefiting—or not—from economic growth,” she said. “My faith teaches that our major concern should be for those who are left out of our economic flourishing. With this supplemental data we will be able to faithfully respond to the needs of our people. This legislation is an effective measure in support of the common good.”

Barry Lynn, Executive Director, Open Markets Institute:

“There are a huge number of problems with the American economy. But you can’t fix the problems if you don’t see them clearly. And unfortunately, the way the government measures growth makes it hard if not impossible to understand the reasons why America’s working families are falling ever further behind. The Open Markets Institute strongly supports efforts to produce distributional GDP statistics, so we can see who really benefits from America’s growth, and who doesn’t. And hence, to begin to address the real sources of the problem.”

Debra Ness, President, National Partnership for Women and Families:

“The vast and growing inequality in our economy has devastated families and communities. Women and people of color in particular have experienced stagnating—and in some cases worsening—income and wealth gaps. These gaps continue even as GDP has grown, a clear sign that we need to update how we think about and assess the health of our economy.”

“A real measure of economic well-being would tell us more than the total number of goods, services and income the economy produces. We also need to know how it’s distributed among people.”

Mary Kay Henry, International President, SEIU:

“Income inequality is the highest it has been in five decades, with working people of all races bearing the brunt. The Measuring Real Income Growth Act helps government, policymakers, and working families understand how rigged our economy has become. Policies to address income inequality must be grounded in an understanding of who our economy is leaving behind. We need to measure not just how much our economy is growing, but who it is growing for. This bill is a good first step in developing economic indicators that measure how well working families are doing.”

Sabeel Rahman, President, Demos:

“You get what you measure. One of the big reasons our economic policy debates consistently fail to center questions of distribution and inequality is that we have a far too one-dimensional approach to measuring economic progress. Conventional measures of GDP growth tell us nothing about inequality and the increasingly skewed distribution of the gains from growth. Without more explicit metrics and data around distribution, it is very difficult to develop policies, narratives, and political support for measures that combat inequality. The development of distributional GDP statistics is a crucial step toward an economic policy agenda and a public conversation about the economy that takes inequality seriously.”

Janelle Jones, Managing Director for Policy and Research, Groundwork Collaborative:

“Every quarter, when the government releases GDP data, economists, reporters and policymakers focus on one question: ‘Is the economy growing fast enough?’ The real question should be, ‘who is the economy growing for?’ For decades, we have publicly defined a strong economy only by how much we are producing—GDP—and not at all by who is benefitting. True prosperity means not only that there is enough to go around in theory, but that people’s lives are getting better in reality. The Measuring Real Income Growth Act is a long-overdue step to align real-time government data with what policymakers need to know about GDP growth, and whether the economy is working for most Americans.”

Melissa Boteach, Vice President for Income Security and Child Care/Early Learning, National Women’s Law Center:

“For too long, lawmakers have focused on economic growth without stopping to consider who is benefiting from it. But we’ve seen periods in our nation’s history where GDP is rising yet poverty is also rising, where the stock market is soaring, but workers are struggling paycheck to paycheck. Let’s be clear: If the economy isn’t working for working-class families, which are disproportionately headed by women and people of color, then it is not working. Distributional GDP is an important tool to evaluate our progress and hold lawmakers accountable to creating a strong economy—one where the gains of growth are equitably shared.”

Jacob Liebenluft, Executive Vice President for Policy, Center for American Progress:

“Getting economic policy right requires understanding what is actually happening in the economy. If we are to make policy that can build a more equitable and prosperous society, we need data that tells us not only whether the economy is growing, but who is benefitting from that growth.”

Felicia Wong, President & CEO, Roosevelt Institute:

“It is beyond time for policymakers to think about who truly benefits from economic prosperity. The Measuring Real Income Growth Act will contribute enormously to our elected officials’ understanding of how American families, especially people of color and women, are faring in an age of inequality. I’m confident that these metrics will help lawmakers to craft policy that ensures that everyone shares in the prosperity our economy can generate.”

Thea Lee, President, Economic Policy Institute:

“Gross Domestic Product measures how much income the market economy generates each year, but it tells us almost nothing about who receives that income. Requiring government statistical agencies to work to produce regular, official estimates of how GDP is distributed across the entire population would represent an enormous step forward in diagnosing and combating high and rising economic inequality.”

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Great Recession’s ‘lost generation’ shows importance of policies to ease next downturn

Posted on by Maria Monroe

There is considerable research showing that recessions hit young college graduates harder than older graduates. Based on the evidence from research I’ve done for a new working paper, the damage (or “scarring”) is even worse and lasts far longer than anticipated. Indeed, the long-term consequences are comparable in magnitude to the short-run effects, roughly doubling the initial cost. The results suggest that policymakers need to do more to prepare for recessions and ameliorate their severity.

Economists have known for some time that in a recession, young workers, including new college graduates, are more likely to become or remain unemployed, lose access to training and work experience at a time in their careers when they need them most, and suffer from lost income both during unemployment and in the early years following a period of joblessness.

My research for a new working paper, which focuses on young college graduates in the Great Recession of 2007–2009 and its aftermath, suggests that the damage suffered by young workers in recessions lasts throughout their careers. Those who enter the labor market during recessions have permanently lower employment and earnings, even after the economy has recovered.

This long-term scarring argues not only for quicker and stronger action to counter recessions when they occur but also for putting in place policies that can be automatically triggered at the first signs of a recession to limit its depth and duration.

The Great Recession was the worst downturn since the Great Depression and wreaked havoc on U.S. workers and businesses. Unemployment rose by 6.5 percentage points and took nearly 10 years to get back to its prerecession level. Job losses amounted to 8.7 million. Perhaps more importantly, the prime-age employment rate, which measures the percentage of people aged 25–54 who are employed, fell by more than 5 percentage points to its lowest level in 25 years and, despite continuing tightening in the labor market, has not quite fully recovered after 10 years.

And yet, the long-term damage, while less visible, will cause more financial and career losses to cohorts of workers who entered the labor market during this period.

To obtain my results, I used the U.S. Census Bureau’s monthly Current Population Survey. I used the data to determine the degree to which poor employment rates of young graduates following recessions can be attributed to transitory shocks (the reduced demand for workers in the immediate wake of the recession) versus permanent differences that last long after the recession is over. In other words, once the overall labor market recovered, would there continue to be significant differences in employment outcomes (after adjusting for normal age differences) between those who entered during the recession and those who entered prior? (See Figure 1.)

Figure 1

Figure 1 shows the drop in employment rates around recessions (white areas) for different cohorts of college graduates ages 22 to 40, with the years on the x-axis indicating the year a cohort entered the workforce. These estimates net out effects that are common to workers of all ages during the recession and disappear after the recession is past; they show only differences in outcomes for new graduates relative to older workers. The sharp downward slope for younger cohorts (those entering the workforce more recently) shows how much harder hit they were by the Great Recession than other workers. Workers from these cohorts saw their annual employment rates drop by 2 percentage points to 4 percentage points per year, relative to older workers in the same labor market. Those who were established in the workforce by the beginning of the recession—those who graduated college in 2005 and earlier—essentially returned to prerecession levels of employment by 2014. But those who entered after 2005 have not; their employment rates remain depressed even as the overall market has recovered.

These findings raise an important question. Is the damage permanent, or will the affected cohorts recover as they age, thus making the damage only temporary? Evidence from past recessions is informative here. In each of the recessions of the past several decades, graduates who entered the market during the period of economic weakness were scarred, just as seen in Figure 1. They recovered part of the damage in the years following the recession, but only part—half of the damage to recession cohorts has been permanent, manifesting as lower employment rates throughout their careers than for cohorts that graduated in better times.

For the Great Recession graduates, I estimate based on past recessions that this permanent scarring will reduce the average individual’s post-recession employment throughout his or her career by a total of approximately one week. Moreover, my research also shows that those scarred by recessions will earn lower wages when they are employed—about 2 percent less through the early years of their careers.

On an individual level, these losses might seem relatively small. Taken together, as an entire cohort of workers, they represent a very substantial loss of potential earnings.

How policymakers can ameliorate the consequences of the next economic downturn

Recessions are inevitable, even if economists can’t predict their timing or severity. One of the many mysteries of economic policymaking is why Congress and successive administrations have not done more to prepare in advance for upcoming recessions.

To be sure, there are already federal programs, known as automatic stabilizers, that act as counter-cyclical measures. Unemployment Insurance is a good example. When the economy slows and joblessness rises, more people receive these benefits, propping up their ability to spend and thus pumping additional money into the economy. The tax system acts in a similar way—removing less money from the economy as workers earn less.

Yet these existing automatic stabilizers are rarely sufficient. By the time policymakers act in the middle of a downturn, the system has already failed millions of workers (along with their families) who may have lost their jobs unnecessarily and/or suffered avoidably long periods of unemployment. There is no need to wait for emergency legislation. To reduce the damage to workers and families, we need to have plans in place before recessions arrive to speed recoveries and cushion those affected until the recovery comes. Such measures are especially effective when targeted to those with the greatest marginal propensity to consume—those who live from pay/benefit check to pay/benefit check.

Equitable Growth and The Brookings Institution’s Hamilton Project released a book recently, titled Recession Ready: Fiscal Policies to Stabilize the American Economy, that makes the case for six policies that either strengthen existing stabilizers or add new measures to be triggered when unemployment begins rising with a consistency that has always proven to signal a coming recession. We ought to consider these and other ideas now, before the next recession hits.

While it will be some time before conclusive data are available, my research clearly suggests that as a group, the young people who graduated just before, during, or immediately following the Great Recession will find it harder to be employed and will receive measurably lower wages and annual earnings throughout their careers. This has also been true of past recessions. This adds up to massive damage to the affected individuals, their families, and our economy, and argues strongly for measures to ameliorate the impact and length of future downturns.

—Jesse Rothstein is an associate professor of public policy and economics at the University of California, Berkeley and a member of the Washington Center for Equitable Growth’s Research Advisory Board.

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McGuinness brings experience building organizations and supporting data-driven policy to Equitable Growth board

Posted on by Maria Monroe
Tara Dawson McGuinness joins Equitable Growth’s Board of Directors

Tara Dawson McGuinness, a senior fellow at the public policy think tank New America and a senior adviser to its National Network and Public Interest Technology programs, has joined the Washington Center for Equitable Growth Board of Directors.

McGuinness, who also teaches public policy at Georgetown University, has a long history of leadership in building both governmental and nongovernmental organizations that serve the public and local communities. She is a champion of evidence-backed policy and program implementation that creates a feedback loop for citizens in the policy process. She recently completed, for example, an effort focused on landscaping public policies and programs that would decrease inequality and increase mobility for Americans.

Prior to joining New America in 2017, McGuinness served as a senior advisor in the Obama White House in several capacities. She ran the organizing and communications effort to sign up Americans for Obamacare after President Barack Obama signed the Affordable Care Act into law, helping 15 million people gain access to health insurance. She later oversaw the federal government’s initiatives to support cities and towns at the White House Office of Management and Budget.

McGuinness also directed the White House Task Force on Community Solutions, which facilitated interagency efforts to use data in new ways to tackle entrenched poverty at the community level. She oversaw federal teams working with local leaders in Detroit, Baltimore, Flint, Michigan, and elsewhere.

McGuinness writes frequently about the potential impact of data in helping cities and communities address problems. “A hallmark of successful public problem solvers today,” she wrote in the Stanford Social Innovation Review with co-author Anne-Marie Slaughter, “is their ability to use data (big and small) to measure problems, to learn what works and what doesn’t, and to make improvements as soon as they are necessary.” McGuiness and Slaughter added:

The opportunity for data use in public problem solving … can take the form of analytics … or performance management dashboards … or low-cost evaluation methods. Those making the most transformational change across the United States have a culture of measurement and reassessment, with data as the central ingredient. It is not the data, per se, that add value, but their ability to tighten the feedback loop between people receiving services and those … steering them.

McGuiness is currently writing a book on the intersection of data, human-centered design, and the importance of delivery in public policy to be published in 2021.

Prior to her work in the Obama Administration, McGuinness was the executive director of the Center for American Progress Action Fund. She has also worked at the National Democratic Institute and on Capitol Hill. McGuinness is a graduate of the University of Pennsylvania in urban studies.

Equitable Growth is excited about the leadership and expertise McGuiness brings to our organization. Her expertise examining and implementing data-driven, evidence-backed ideas and policies are central to our mission to promote strong, stable, and broad-based economic growth.

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