Brad DeLong: Worthy reads on equitable growth, February 8-14, 2020

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

  1. This is absolutely great news for us here at Equitable Growth, “Longtime Capitol Hill Staffer Named Policy Director at Equitable Growth,” in which “the Washington Center for Equitable Growth today announced that longtime congressional staffer Amanda Fischer has joined the organization as its new policy director. “As our new policy director, Amanda will lead the development of our policy priorities and help position the organization as a go-to resource for understanding the impact of rising inequality in the U.S. economy and what policymakers can do about it,” said Equitable Growth President and CEO Heather Boushey. “Amanda brings a wealth of knowledge and experience that will help advance an evidence-backed policy agenda to promote economic growth that is strong, stable, and broadly shared.” Fischer most recently served as chief of staff for Rep. Katie Porter (D-CA).”
  2. If you are in Washington, DC do whatever you can do to get Equitable Growth’s “Vision 2020 Book Release Breakfast,” where “the Washington Center for Equitable Growth … will be releasing its new book, Vision 2020: Evidence for a Stronger Economy, at a breakfast event on February 18, 2020. Authored by leading scholars across the country, this compilation of 21 essays highlights a range of new ideas and the research behind them. We compiled Vision 2020 so the latest research informs critical election-year economic policy debates and to inspire decisionmakers to take action to address inequality’s subversive effect on broadly shared and sustainable economic growth. Building on many of the key themes and ideas from Equitable Growth’s Vision 2020 conference, this package of policy proposals tackles many of the ways that the increasing concentration of economic resources translates into political and social power.”

 

Worthy reads not from Equitable Growth:

  1. I am trying—without a great deal of success—to figure out how to teach standard economic growth theory better. Some days I feel I am making immense progress. Some days I feel like I am treading water. Some days I feel I am moving in a bad direction. I want feedback. Take a look, and tell me what you think: “Simulating the Solow Growth Model” and “Lecture Notes: The Solow Growth Model.”
  2. One view is that in the world of abundance we would all act as the British upper class acted, as portrayed in the books by Jane Austen. But even there the fear of descending in the class hierarchy—of failing to marry well, or marrying a husband whose gambling and debauchery debts force one out of the leisured-aristocratic lifestyle, or that one’s children might descend in the class hierarchy—is a major motivating factor keeping people acting as though they are still in the kingdom of necessity. Perhaps the lesson is that we will always imagine ourselves in the kingdom of necessity. Perhaps there are no good models for what worthwhile human life would become in an age of true abundance. Read Robert Skidelsky, “Economic Possibilities for Ourselves,” in which he writes: “The most depressing feature of the current explosion in robot-apocalypse literature is that it rarely transcends the world of work. Almost every day, news articles appear detailing some new round of layoffs. In the broader debate, there are apparently only two camps: those who believe that automation will usher in a world of enriched jobs for all, and those who fear it will make most of the workforce redundant. This bifurcation reflects the fact that “working for a living” has been the main occupation of humankind throughout history. The thought of a cessation of work fills people with dread, for which the only antidote seems to be the promise of better work. Few have been willing to take the cheerful view of Bertrand Russell’s provocative 1932 essay “In Praise of Idleness.” Why is it so difficult for people to accept that the end of necessary labor could mean barely imaginable opportunities to live, in John Maynard Keynes’s words, “wisely, agreeably, and well?” The fear of labor-saving technology dates back to the start of the Industrial Revolution, but two factors in our own time have heightened it. The first is that the new generation of machines seems poised to replace not only human muscles but also human brains. Owing to advances in machine learning and artificial intelligence, we are said to be entering an era of thinking robots; and those robots will soon be able to think even better than we do. The worry is that teaching machines to perform most of the tasks previously carried out by humans will make most human labor redundant. In that scenario, what will humans do?”
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Weekend reading: Addressing racial gaps across the economy 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

A new Equitable Growth working paper looks at job displacement—a form of job loss reflecting economic structural changes rather than individual job performance—and its disparities by race over the past 40 years in the United States. The study, Kate Bahn explains in a blog post on the research, is the first academic study of black-white disparities in displacement since the 1990s. Though the researchers find that job displacement has been common for all workers over the past four decades, it also finds that it was more common for African Americans and find that these racial disparities persist even when controlling for whether a worker has a college degree. “When job displacement is so unequal by race,” Bahn concludes, “policy and the U.S. labor market can provide tools and power to push back against the trends found in this new research … which buttresses previous evidence-based findings.”

In a cross-posted article—originally published last year in Generations, a journal of the American Society on Aging—Bahn shows how monopsony affects older women workers, and how this group may be subject to a disproportionate amount of monopsony power, compared to other demographic groups. This, she writes, is because women generally have more care responsibilities, making it harder for them to find jobs, and because monopsony tends to be more prevalent in female-dominated sectors such as teaching and nursing. Bahn reviews research showing that age discrimination also disproportionately affects women, and concludes with several bold policy suggestions for leveling out the playing field, including updating retirement policies, eliminating sex discrimination in labor market decisions, and providing adequate caregiving supports.

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 week, the BLS released the latest data for December 2019, showing that the quits rate remained relatively steady and the ratio of hires per job opening increased due to the decline in job openings. Raksha Kopparam and Bahn put together four graphics to illustrate these and other trends in the data.

Equitable Growth has a new policy director Amanda Fischer joins us from Capitol Hill, after serving most recently as chief of staff for Rep. Katie Porter (D-CA), and will lead the development of our policy priorities in order to ensure Equitable Growth’s position as the go-to organization for those looking to understand the impact of rising inequality and what can be done about it.

Links from around the web

There is a wide wealth gap between black and white Americans that has persisted despite other racial equality gains that occurred over the past half-century, write Darrick Hamilton and Trevon Logan in Fast Company. Wealth is not just a marker of success in the United States, Hamilton and Logan opine, but it also provides independence and economic security to those who have it. They look at how the legacy of slavery and the years after the Civil War blocked African Americans’ access to wealth, before turning to the effects of racial discrimination in housing and education. And though people of color in the United States have achieved great gains in closing the racial education gap, the racial wealth gap remains—and even grows wider at higher levels of education, leading the authors to conclude that “education alone cannot address the centuries-long exclusion of blacks from the benefits of wealth-generating policies and the extraction of whatever wealth they may have.” The authors then call for a comprehensive reparations program to acknowledge and being to compensate for these grievances.

Maryland is considering a proposal that would fundamentally change how public education is funded to lower the dependency on property taxes. The current system, writes Craig Torres for Bloomberg Businessweek, contributes to and perpetuates inequality through a cycle of lower-income students attending underfunded schools, which produce low-income adults. But the $4 billion proposal in Maryland would increase spending on education by state and local authorities, with proposals such as a full-day system of pre-Kindergarten for 3-year-olds, more family support centers, better counseling and health services for students in high-poverty schools, and higher pay for teachers. The proposal hopes to improve educational outcomes—and, subsequently, better social and economic outcomes—for all the state’s children.

A new study indicates that there is a 70 percent chance that a recession will occur in the next six months, reports Pippa Stevens for CNBC. The researchers behind the study “created an index comprised of four factors and then used the “Mahalanobis distance”—a measure initially used to analyze human skulls—to determine how current market conditions compare to prior recessions.” (Yes, you read that correctly—human skulls.) This measure typically looks at the distance between a point and a certain distribution, Stevens writes, which researchers use to analyze industrial production, nonfarm payrolls, stockmarket returns, and the slope of the yield curve, comparing each to their historical readings. The index is allegedly a reliable indicator of recessions going back to 1916.

The latest merger to be approved—that of T-Mobile US, Inc. and Sprint Corp.—would unite the nation’s third- and fourth-largest wireless carriers and create a telecommunications giant with around 100 million customers. Edmund Lee delves into the union in The New York Times, providing context and the history behind it, as well as its place in the recent wave of mergers that “have reshaped the American business landscape.” While several steps remain before the merger is finalized, the clearance by a federal judge this week was a huge victory for its proponents and a major blow to its opponents.

Friday Figure

Figure is from Equitable Growth’s “JOLTS Day Graphs: December 2019 Report Edition” by Raksha Kopparam and Kate Bahn.

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New research reveals discriminatory disparities by race in U.S. job displacement

Posted on by Maria Monroe

Job displacement is a distinct form of job loss that reflects how structural changes in the economy impact individual workers, not how it may be rooted in an individual’s job performance. Job displacement in the United States today is a consequence of a wide array of structural changes stretching back decades—think automation, globalization, and the impact of information technology—but it may be felt differently by race due to occupational segregation, systemic differences in job tenure, and discrimination in layoff decisions by employers due to ongoing racial discrimination dating back centuries.

In a new Equitable Growth working paper, sociologists Elizabeth Wrigley-Field of University of Minnesota and Nathan Seltzer of University of Wisconsin-Madison use the Displaced Worker Survey of the Current Population Survey to analyze almost 40 years of U.S. data on job displacement disparities by race, producing the first academic study of black-white disparities in displacement since the 1990s. Their findings demonstrate the importance of increasing worker bargaining power and preparing for the next recession to ensure that structural changes in the U.S. economy don’t continue to contribute to racial economic inequality.

It’s important to look at job displacement because it can make a big difference in workers’ long-term outcomes. In an Equitable Growth working paper, Marta Lachowska of the W.E. Upjohn Institute for Employment Research, Alexandre Mas of Princeton University, and Stephen Woodbury of Michigan State University used linked employee-employer information from administrative records to examine how incomes are affected after job displacement. Using this highly accurate data, they find that displacement leads to lower earnings over time.

Specifically, the three economists find lower earnings 5 years after the initial displacement. Those lost earnings are about 16 percent on average, compared to prior earnings—the result of a combination of fewer work hours (explaining 45 percent of those lost earnings) and lower hourly wage rates (explaining the other 55 percent).

These findings call attention to the potential importance of job displacement in black-white labor market inequality. African Americans have higher rates of unemployment and longer spells of unemployment. Occupational segregation by race and gender reinforce racial and gendered wage gaps. And because different occupations are more likely to experience more structural job displacement than others, racial differences in displacement tend to be amplified in some occupations.

African American workers also are more likely to lose jobs during business cycle downturns because they are “last hired, first fired.” Yet research also finds that even though blacks are more likely to be the first fired when there are layoffs, there is insufficient evidence this is due to being more likely to have been more recently hired than their white counterparts.

Despite these well-established features of racial disparities in U.S. labor market outcomes, there has not been any recent research that examines how job displacement between African American and white workers has changed over time. To estimate what factors are associated with these displacement disparities, Wrigley-Field and Seltzer use the Displaced Worker Supplement of the Current Population Survey, fielded every 2 years, from 1984 to 2018. They conduct a so-called decomposition to estimate the proportion of displacement attributable to differences in job displacement among African Americans and whites within occupations, such as whether African Americans workers are more likely to be fired within a firm when it is downsizing, and between occupations when occupational segregation is such that African American workers are overrepresented in occupations that are declining.

The two scholars find that job displacement is common for all workers over these past four decades as the U.S. economy shifted and modernized, but it was more common for African American workers. In particular, the ratio of black-to-white displacement probabilities, or the likelihood that a worker is displaced, increased markedly for men, while declining for women. African American workers’ disproportionate representation in the public sector, which is more protected against job displacement, declined over this period of time, but this only partially explained the patterns observed.

To understand what factors are associated with these job disparities in the likelihood of being displaced, Wrigley-Field and Seltzer control for human capital characteristics such as the protective status of college in reducing the likelihood of displacement, which they find has decreased over time. They find that racial disparities in displacement persist when controlling for whether a worker has earned a college degree. Ultimately, being white became as important a factor in protecting against possible displacement as having a college degree.

These patterns suggest the possibility that employers may discriminate in layoff choices. These findings are bolstered by research by Adam Storer and Daniel Schneider of University of California, Berkeley, and Kristin Harknett of University of California, San Francisco. They examine Shift Project data in an Equitable Growth working paper on what explains racial and ethnic inequality in the services sector. Storer, Schneider, and Harknett find that segregation among workers between firms—where white workers are privileged in terms of job quality within sectors—and racial discordance between workers and managers explain differences in job-quality outcomes.

Specifically, they review research showing that workers who are managed by someone of their same race are more likely to have better outcomes in terms of lower likelihood of quitting or being dismissed from a job. In their estimations, this discordance helps explain some of their measures of poor job quality, such as differences in the race or ethnicity of the worker and the manager, which they find explains 23 percent of the racial/ethnic gap in the cancellation of shifts and 28 percent of the gap in being able to get time off.

This body of research demonstrates the ways in which racial discrimination may impact decisions within the firm beyond wage discrimination after a worker has been hired, which further contribute to racial labor market inequality. This body of research also demonstrates the need for worker movements to fight back against racial discrimination to reduce the likelihood of disparities in job displacement, as well as a robust social safety net to diminish the negative impacts of displacement.

Union collective bargaining agreements can establish procedures for coping with job displacement that reduce the impact of potentially discriminatory preferences among managers and employers. Black worker centers, such as those that are part of the National Black Worker Center Project, call specific attention to the barriers to long-term economic well-being through persistently higher rates of unemployment and overrepresentation in low-wage work. Elevating and supporting this movement work centers the needs of African American workers who have faced disparities in job displacement at the intersection of structural changes to the economy and systemic racism.

Countercyclical economic policies such as those featured in Recession Ready: Fiscal Policies to Stabilize the American Economy serve two roles, both in ameliorating the severity of an economic downturn and subsequent job displacement and in helping workers and their families cope when they do face the potentially negative economic consequences of displacement. The proposals include direct stimulus payments to individuals, investing in infrastructure to support job growth and boost economy activity, and stabilization policies such as improving the Temporary Assistance for Needy Families program and Supplemental Nutrition Assistance Program, among other proposals.

These tools strengthen the U.S. economy and give workers direct support, as well as potentially more bargaining power, when searching for a job in the event of experiencing job displacement. When job displacement is so unequal by race, policy and the U.S. labor movement can provide tools and power to push back against the trends found in this new research on racial inequality by Wrigley-Field and Seltzer, which buttresses previous evidence-based findings.

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“How Monopsony Impacts Older Women Workers”

Posted on by Maria Monroe

This article, “How Monopsony Impacts Older Women Workers,” originally appeared in the Fall 2019 Volume of “Generations,” a journal of the American Society on Ageing, or ASA. This cross posting includes parenthetical citations, with the full references included at the end of article.

Employers in an anti-competitive labor market will have power over workers to suppress their pay and to dictate the quality of their working conditions. Research shows that big firms that dominate labor markets, leaving workers no practical choice other than to accept their job offers, tend to pay workers less than they would have in dynamic markets. Nurses who can work only at a local hospital, teachers who cannot leave a school district because their families cannot relocate, coal miners who must reside in mining towns—all of these workers exist in classic markets where employers have the upper hand. This phenomenon, called “monopsony,” has gained a lot of attention recently (Manning, 2003; Bahn, 2018).

Monopsony occurs when employers are able to exploit labor market conditions to pay workers less than the value they contribute. Mounting evidence suggests more workers are subject to big employer power and that employer power has suppressed workers’ pay.

Economists can predict which labor markets are more likely to have monopsonies. Individual employers have more wage-setting power to exploit the situation and pay less where workers have different preferences for the amount of time they work, have spotty and incomplete information about jobs and employers, and face high moving and relocation costs.

What monopsony means for older women

Older women workers may be subject to a disproportionate amount of monopsony power compared to other workers for several reasons. Doug Webber of Temple University uses state-of-the-art data that connects information about workers and where they work—restricted access-linked employer-employee data from the Census—and finds monopsony is a widespread phenomenon that contributes to income inequality. He finds that women workers may be particularly affected, with monopsony lowering women’s earnings 3.3 percent compared to men.

This conclusion makes sense because women may be more likely to face more difficulty in finding a job due to disproportionate care burdens and a higher likelihood of being a secondary income earner whose job search is shaped by the dominant earner, resulting in higher mobility costs. Older women workers are not exempt from care burdens, as they may be caregivers for family members (e.g., an aging spouse or elderly parents) or have their own health needs or constraints that impact how they search for jobs.

Monopsony also is more prevalent in female-dominated occupations such as nursing and teaching, which means these women face wage suppression over their entire careers. The impact of employer dominance on suppressing nurses’ wages is one of the most robust and long-standing findings in monopsony research (Sullivan, 1989; Hirsch and Schumacher 1995).

Recent research from Elena Prager and Matt Schmitt (2019) confirms that hospital mergers reduce nurse wage growth by 1.7 percentage points after a merger. Teachers also have suffered from suppressed wages due to monopsony, which makes sense, as school districts are defined by their geography (e.g., Landon and Robert, 1971; Ransom and Sims, 2010; Ransom and Lambson, 2011).

Lower wages for women throughout their career in monopsony markets translate into lower pension and retirement savings. Thus, an older woman’s choice to retire or to work is less of a choice than that granted to a man, who does not have to accept a poor wage and job conditions because of his (on average) larger retirement saving and pension.

The relationship between ageism and monopsony

While monopsony impacts the gender wage gap overall, age discrimination affects older women in particular. Age discrimination adds to the constraints older women face in the labor market, and makes monopsonistic exploitation even more likely. When workers are limited in the job offers they receive, they will be more likely to accept wages below the value they contribute, technically called their “marginal productivity of labor.”

Research by David Neumark, Ian Burn, and Patrick Button (2016) found evidence for prevalent age discrimination against older women workers (see Neumark’s article on page 51 of this Fall 2019 issue of Generations). Job applicants near retirement age receive callbacks at a 35 percent lower rate than prime-age workers, and most of this bias is experienced by older women workers. As older women have more difficulty receiving job offers, employers are able to offer them lower wages, de facto exploiting this cohort of workers.

Factors like caregiving responsibilities, social institutions such as occupational segregation into female-dominated jobs (healthcare, education, and pink collar jobs such as waitressing and childcare), and employer strategies like age discrimination, create monopsonistic conditions for older women workers and will, ultimately, result in lower wages. Older women, who often are attached to older men, may also be constrained in moving to another location for a better job.

The bottom line is that not having much choice of employers translates into lower lifetime earnings and less ability to save for retirement. Bold labor market policy designed to eliminate sex discrimination can partially offset these outcomes by reducing the constraints faced by women workers through anti-discrimination enforcement, providing caregiving supports to help balance family responsibilities, improving the pay of female-dominated professions, lessening the barriers to unionization, and raising the minimum wage.

Bold retirement policy can help to give older women workers some choices and bargaining power to say not to employers. Universal access to sufficient and secure retirement savings takes the risk away from workers and allows them more freedom in the labor market. Understanding the role of monopsony in the labor market tells us that there is a place for proactive policies to offset a lack of competition, without restricting economic activity.

References

Bahn, K. 2018. Understanding the Importance of Monopsony Power in the U.S. Labor Market. Washington Center for Equitable Growth. tinyurl.com/yxg7uc7h. Retrieved July 16, 2019.

Hirsch, B. T., and Schumacher, E. J. 1995. “Monopsony Power and Relative Wages in the Labor Market for Nurses.” Journal of Health Economics 14(4): 443–76.

Landon, J. H., and Robert, N. B. 1971. “Monopsony in the Market for Public School Teachers.” The American Economic Review 61(5): 966–71.

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

Neumark, D., Burn, I., and Button, P. 2016. “Experimental Age Discrimination Evidence and the Heckman Critique.” American Economic Review 106(5): 303–8.

Prager, E., and Schmitt, M. 2019. “Employer Consolidation and Wages: Evidence from Hospitals” (Working Paper). Washington, DC: Washington Center for Equitable Growth.

Ransom, M. R., and Lambson, V. E. 2011. “Monopsony, Mobility, and Sex Differences in Pay: Missouri School Teachers.” American Economic Review 101(3): 454–9.

Ransom, M. R., and Sims, D. P. 2010. “Estimating the Firm’s Labor Supply Curve in a ‘New Monopsony’ Framework: Schoolteachers in Missouri.” Journal of Labor Economics 28(2): 331–55.

Sullivan, D. 1989. “Monopsony Power in the Market for Nurses.” The Journal of Law and Economics 32(2)(Part 2): S135−78.

Webber, D. A. 2015. “Firm Market Power and the Earnings Distribution.” Labour Economics 35: 123–34.

Webber, D. A. 2016. “Firm–level Monopsony and the Gender Pay Gap.” Industrial Relations: A Journal of Economy and Society 55(2): 323–45.

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JOLTS Day Graphs: December 2019 Report Edition

Posted on by Raksha Kopparam

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 December 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 quits rate remain unchanged at 2.3% in December, reflecting workers’ confidence in the labor market despite a slight decrease in job openings by 364,000.

2.

The ratio of hires per job openings increased due to the decline in openings, while the level of hires changed little.

3.

The ratio of unemployed workers to job openings continued to edge up as openings declined for the second month in a row, but remains at less than one unemployed worker looking for a job for each available job opening.

4.

The Beveridge Curve moved downward in December, but continues to reflect an expansionary labor market with low unemployment.

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Brad DeLong: Worthy reads on equitable growth, February 1-7, 2020

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

  1. And it’s monthly jobs day! Read Kate Bahn and Austin Clemens, “Equitable Growth’s Jobs Day Graphs: January 2020 Report Edition,” in which they write: “On February 7, the U.S. Bureau of Labor Statistics released new data on the U.S. labor market during the month of January. Below are five graphs compiled by Equitable Growth staff highlighting important trends in the data. Prime-age employment-to-population ratio increased to 80.6 percent in January, reflecting a healthy labor market 10 years into the expansion.”
  2. Claudia Sahm is making the podcast circuit. Definitely worth listening to. Tune into Tracy Alloway and Joe Weisenthal, “This Is How to Use Fiscal Stimulus to Stave Off The Next Recession,” in which they open with: “There’s a growing consensus that governments need to act more aggressively in using fiscal policy to stave off the next recession, and that monetary policy simply isn’t powerful enough. But how do you actually go about it? What do you spend the money on, and how do you get politicians to disburse it in a timely manner? On this week’s Odd Lots, we speak with Claudia Sahm, a former Fed economist who is now at the Washington Center for Equitable Growth, on ways to systematize and automate an early and aggressive fiscal response to economic weakness. Sahm has achieved fame for her so-called “Sahm Rule” which can provide policymakers with an early warning sign of when a recession might be brewing.”

 

Worthy reads not from Equitable Growth:

  1. The early February report on the change from December to January in the U.S. employment situation is never worth a great deal because there are big and variable seasonal factors that affect both the December and the January levels. But it looks good. The (small) manufacturing recession continues to fail to spill over into the rest of the economy, which continues to add jobs without straining people’s willingness to set to work at current real wage rates. Labor-force participation begins to rise. And it begins to look more and more as though all the claims over the past two decades that labor-force participation for U.S. workers ages 25 to 54 years old was on the decline—that fewer prime-age Americans needed and wanted to work—was simply wrong. It was the awful barely-recovery that started in 2009 that pushed prime-age labor-force participation down from 2010 to 2014, not any secular or structural trends. Check out the U.S. Bureau of Labor Statistics, “Employment Situation Summary,” in which they report: “Total nonfarm payroll employment rose by 225,000 in January, and the unemployment rate was little changed at 3.6 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in construction, in health care, and in transportation and warehousing.”
  2. The repeated waves of automation in manufacturing eliminate—or at least severely reduce the salience of—tasks. Whether those waves amount to “deskilling” on the level of occupations is a subtle and empirical question, for what tasks make up on occupation and how those tasks can shift about without destroying the occupation is a complicated and subtle thing. We do not have a good handle on this, theoretically or conceptually. But here we have the smart and hard-working David Kunst doing useful work. Read his “Deskilling Among Manufacturing Production Workers,” in which he writes: “Has technological progress in manufacturing been skill-biased or deskilling? This column argues that the conventional distinction between white-collar and production workers has concealed substantial deskilling among manufacturing production workers since the 1950s. Automation has reduced the demand for skilled craftsmen around the world, thereby reducing the number of jobs in which workers with little formal education could acquire significant marketable skills.”
  3. Here’s a sophisticated look at some of the issues around the “wealth tax” that we do not (yet) have a good handle on. Read Josh Gans, “Does Being Rich Make You Better at Allocating Capital?,” in which he writes: “While we can all agree that the wealth tax likely deters risk-free saving, where the money actually goes otherwise is quite open. It could go to consumption, which will cause actual resource use in ways that are certainly not in the direction people concerned with redistribution would like although just how much of that there can be given that the wealthy haven’t managed to do that spending previously is arguable. It could go to philanthropy, which is a form of consumption (at least from the point of view of the donator) and is something that could be beneficial (but we have to consider whether the wealthy are the most productive to make those decisions—more on that another time). Or it could go to political influence, which is a mixture of consumption (the naked expression of power) or investment to help them get wealthier (the well-dressed expression of power) but in actuality depends on how much other rich people are spending on these activities in terms of the potential return (a complicated game). Finally, where the money could go is to riskier investment because at the margin this is now more attractive than risk-free investment.”
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Weekend reading: State of the Union’s 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

Ahead of this week’s State of the Union address by President Donald Trump, Equitable Growth released a series of graphs highlighting the way inequality restricts, subverts, and obstructs widespread economic growth in the United States—and how big-picture numbers, such as Gross Domestic Product or the unemployment rate, hide how this inequality is actually affecting average American families and businesses. The graphs show how inequality obstructs intergenerational mobility, how concentrated economic power subverts government institutions, and how inequality distorts microeconomic decisions, which consequently affects the macroeconomy. These are especially important points to remember during and after a major address such as the State of the Union, in which the economy plays a major role: “Any description of today’s economy that does not include a discussion of inequality, its causes, and its effects is at best incomplete and at worst misleading,” the post concludes.

In the second installment of her column covering the Federal Reserve, Claudia Sahm discusses another one of the Fed’s responsibilities: encouraging banks to meet the credit needs of the communities where they operate, a mandate under the Community Reinvestment Act. Hearings last week before the House Committee on Financial Services looked into how to modernize the act, which was first enacted in 1977 and updated in 1995 to address the racial and socioeconomic gaps in access to credit in the United States. While these gaps remain, the primary driver for updating the act now are changes in the banking industry and the regulatory burden on banks, as well as banks’ and communities’ desire for more transparency and clarity. In the column, Sahm goes through the history of the act, why it was first put in place, why it is still necessary, and how the act can be improved.

The House of Representatives voted this week on the Protecting the Right to Organize Act of 2019, or the PRO Act, which would make it easier for unions to organize new workers and workplaces, and ensure that U.S. workers receive fair wages and good working conditions. Ahead of the vote, Kate Bahn and Corey Husak released a factsheet about the act and how it would work to fight income inequality. They review the research from Equitable Growth’s network that bolsters the four main points of the act—addressing the power imbalance between workers and owners, clarifying the right to strike under the First Amendment of the Constitution, making it easier for workers to form a union, and preventing employers from misclassifying workers as contractors.

A new Equitable Growth working paper looks at the scope and extent of monopsony across labor markets, and is the first meta-analysis of monopsony measured by labor supply elasticity. In a column summarizing the methodology and findings of the paper, Kate Bahn explains that the researchers looked at two measurements of elasticity—direct and indirect—to show that estimation methods greatly influence findings on monopsony. The researchers also looked at specific empirical tools used to measure elasticity and aspects of research design to determine some best practices for elasticity estimation. Bahn concludes that, despite differences in methodologies, measurements, and results, it is clear that “monopsony is a broad force across labor markets and results in wage markdowns for many workers.”

Each month, the U.S. Bureau of Labor Statistics issues a monthly report on the U.S. labor market, and this week it released the data for January. Kate Bahn and Austin Clemens put together five graphs highlighting these and other important trends in the monthly announcement.

Links from around the web

If you receive health insurance through your employer, what your employer contributes toward your healthcare may actually be (directly or indirectly) taken from your wage, according to health economists. So, asks Austin Frakt for The New York Times’ The Upshot blog, under a Medicare for All plan, when employers don’t have to spend as much to provide you with insurance, does that mean your wage will rise? While research suggests the answer may be yes for many workers, the reality may be more complicated, depending “on the nature of the labor market, which varies across markets and jobs,” Frakt writes, before going into the various possibilities in both the public and private sectors under proposed Medicare expansion plans. Ultimately, he concludes, someone will have to pay, but “to the extent the cost of health insurance is shifted away from employers and to the federal government under Medicare for all, it seems wages would rise, at least for some people.”

A recent study of tax returns shows that the tax code is not race-neutral, reports Michelle Singletary for The Washington Post, and this bias “exacerbates income and wealth inequalities.” Various loopholes, tax breaks, and other benefits disproportionately benefit white households, while African American, Hispanic, and low-income families are left at a disadvantage. While the researchers made clear they do not suggest the Internal Revenue Service is purposefully giving beneficial tax provisions to wealthy white households, they do show that the tax system and specific provisions actively impact economic inequality. Despite the parts of the tax code that typically benefit lower-income minority households, such as the Earned Income Tax Credit, Singletary writes, “the system overall still skews in favor of those who are more well off. … It’s past time to correct provisions that continue to deepen our nation’s wealth divide.”

There has been an almost 40 percent decline in administrative assistant and secretarial jobs since 2000—more than 1.6 million of these jobs have disappeared, reports Rachel Feintzeig for The Wall Street Journal. Feintzeig looks at how this trend affected the accounting and consulting firm Ernst & Young, which, in 2014, piloted a program that made deep cuts to its executive assistant staff. She writes that the U.S. Bureau of Labor Statistics estimates the number of secretarial jobs will decrease another 20 percent by 2028—and another study of six mature economies by McKinsey Global Institute suggests that up to 10 million women will have to change their careers by 2030. This career path is traditionally dominated by women and has had a slower fade-out than jobs in the manufacturing industry, for example, where job losses garner much more news despite the numbers of losses in the two sectors being relatively equal over the past two decades.

A new column series from The Guardian will explore the various obstacles that women in the United States face under capitalism, from why it costs more to be a woman, to why mothers are treated differently in the United States compared to other developed economies, to how social pressure to look and behave certain ways affects women. The first of the “Feminist economics” series, by Noa Yachot and Nicole Clark, introduces many of these issues in the context of an economy that is allegedly working better than ever for women, in which women hold a (very slight) majority of payroll jobs and make up a majority of the college-educated workforce—while also facing higher healthcare costs, lower pay, and more household responsibilities than their male peers.

Friday Figure

Figure is from Equitable Growth’s “The State of the Union speech should not ignore inequality that obstructs, subverts, and distorts the U.S. economy” by Equitable Growth.

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

Posted on by Austin Clemens

On February 7th, the U.S. Bureau of Labor Statistics released new data on the U.S. labor market during the month of January. Below are five graphs compiled by Equitable Growth staff highlighting important trends in the data.

1.

Prime-age employment-to-population ratio increased to 80.6% in January, reflecting a healthy labor market 10 years into the expansion.

2.

Topline unemployment, also known as U3, edged up slightly from 3.5% to 3.6%, and underemployment, or U6, increased from 6.7% to 6.9%.

3.

Wage growth remains tepid at 3.1% year-over-year, despite a low unemployment rate and more jobs being added to the labor force.

4.

The proportion of unemployed workers who have been out of work for more than 15 weeks has been steadily declining since the expansion began, but it has plateaued in the past two years, other than a small increase in January.

5.

White unemployment has been declining slightly over the past few months while African American and Hispanic unemployment has been increasing slightly, showing the stratified labor markets diverging since the fall.

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Factsheet: The PRO Act addresses income inequality by boosting the organizing power of U.S. workers

Posted on by Maria Monroe
SEIU members and Chicago Teachers Union members protest during a rally and march on the first day of a teacher strike, Oct. 17, 2019, Chicago, IL.

The U.S. House of Representatives today will vote on the Protecting the Right to Organize Act of 2019, or PRO Act, the most serious congressional effort to bolster the U.S. labor movement since the failed Employee Free Choice Act of 2009. The PRO Act includes more provisions than its 2009 predecessor to make it easier for unions to organize new workers and workplaces, and ensure U.S. workers receive fair wages and good working conditions. This reflects the increasing recognition of the role a vibrant U.S. labor movement must play in pushing back on the long-term trend of rising income inequality. This concern is echoed by the range of labor market policy proposals from Democratic presidential campaigns.

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Factsheet: The PRO Act addresses income inequality by boosting the organizing power of U.S. workers

The PRO Act would address important structural policy barriers that keep workers from joining unions. Recent research from the Washington Center for Equitable Growth’s network of academics and grantees demonstrates that if the PRO Act did succeed in allowing more workers to fulfill their desire to join unions, this would ensure more equitable and efficient labor markets. Specifically:

The PRO Act would broadly address the current power imbalance between workers and owners in the U.S. labor market.

  • The research: History demonstrates the important role of unions in balancing income inequality. Compiled new historical data shows that there has been an inverse relationship between union density and income inequality from 1936 to the present. Monopsony in particular is becoming an increasing concern in the labor market, where employers have the market power to undercut workers’ wages. Unions play a critical role in tempering this exploitation.
  • Government support for collective action by workers via unions is critical to reducing so-called rents to firms and ultimately will increase overall social efficiency, with more workers employed at higher wages that actually equal their productivity.

The PRO Act clarifies that workers have a right to strike under the First Amendment of the U.S. Constitution.

  • The research: Exposure to the 2018 Red for Ed teacher strikes made families of school-age children more likely to support teacher strikes subsequently and even to consider taking collective action in their own workplaces.
  • Strikes have had many benefits for workers, but their use has declined precipitously since the 1970s. Strikes are the leverage point to ensure that workers have the bargaining power to share in economic growth with their employers. The PRO Act clarifies that the First Amendment encompasses the right to perform a “secondary” boycott or strike in solidarity with another union and further, that striking workers cannot be permanently replaced by their employer.

The PRO Act makes it easier for interested workers to organize into a union through fair elections.

  • The research: A recent study examines what aspects of unions workers would value, finding that nonunionized workers are increasingly interested in union representation in their workplaces and that workers prioritize collective bargaining as a crucial role for unions.
  • The expansion of the ability of unions to organize would give more workers access to collective bargaining over their pay and working conditions. The PRO Act reinforces this by instituting proper restitution for workers when employers violate their rights, punishing illegal election interference, and by facilitating quick and efficient collective bargaining agreements once a union has been formed.

The PRO Act cracks down on employers misclassifying their workers as independent contractors and other abuses.

  • The research: Studies on domestic outsourcing and the fissured workplace shows that businesses subcontracting out their workforce leads to lower wages and fewer opportunities for workers and declining job quality.
  • Independent contracting lowers wages and allows large companies to retain control over their labor force without any responsibility to the workers, especially among franchises in the fast food industry. This has resulted in an unbalanced labor market, tilted toward large employers. The PRO Act would ensure that companies take responsibility for their employees or else make their contractors and franchises truly independent.

Measures such as the PRO Act are part of a broader movement to reform U.S. labor law so that rebalanced worker power ensures broadly shared growth.

Harvard University’s Labor and Worklife Program recently released its clean slate agenda, which puts forth principles for new labor laws that would support wage growth and ensure well-being for workers and their families. The research shows that expanding workers’ rights and giving unions more tools to balance power in the labor market would benefit the broader U.S. economy. Adapting U.S. labor policy for the modern context would support an equitable economy for everyone.

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A first-time meta-analysis of monopsony demonstrates its breadth across labor markets

Posted on by Maria Monroe

The role of monopsony in determining wages in labor markets worldwide is increasingly recognized across the economic literature. As economist Arindrajit Dube of the University of Massachusetts Amherst noted during his “Fireside Chat: the Rise of Monopsony Power in the Labor Market” at Equitable Growth’s Vision 2020 conference late last year, the rise in monopsony power is likely due to changing institutional structure and the influence of policies—such as the decline of unionization in the United States and a declining real value of the federal minimum wage—rather than simply increasing corporate concentration.

Monopsony is commonly understood as labor markets with few or only one employer—picture the prototypical isolated mining town on the 19th century U.S. frontier—but that is just one example of the conditions that lead to monopsony. Broadly, monopsony is any time workers are constrained in how they search for and match into new jobs, which economists commonly measure by estimating labor supply elasticity, or how much a worker’s labor supply changes in response to differences in wages. In a new Equitable Growth working paper by Anna Sokolova and Todd Sorensen of University of Nevada, Reno, the two economists examine all the research available around the world estimating labor supply elasticity to conduct a meta-analysis on the scope and extent of monopsony across labor markets.

This is the first meta-analysis of monopsony measured by labor supply elasticity. Sokolova and Sorensen combine the results of different studies to get a broad estimation of the degree of monopsony across the economy. To do this, they review the literature across monopsony studies (and other studies that are not explicitly on monopsony but estimate labor supply elasticity) from 1977 to 2019, including yet-to-be-published recent working papers.

Using Google Scholar, the authors gathered more than 500 papers potentially pertinent to monopsony. Their criteria for inclusion:

  • Studies needed to present elasticity estimates or estimates that allowed for the calculation of elasticity.
  • Each of the studies must report a standard error to measure the predicted accuracy of the estimation.

This resulted in 53 studies with 1,320 estimates of elasticity with standard errors. This breadth of studies is key to the robustness of their meta-analysis.

In addition to collecting data on elasticity estimations, Sokolova and Sorensen gather information on research design, including data, identification strategy, and publication. These last steps inform best research practices and potential biases resulting from research design.

The studies are differentiated between so-called direct measures of elasticity, largely following the model demonstrated by Alan Manning in Monopsony in Motion, which rely on the dynamic job search model looking at transitions into and out of a job, and inverse measures of elasticity, which rely on the relationship between the stock of workers at a given time at a certain wage. The two economists find that direct measures of elasticity are more common in the literature (1,140 of the 1,320 estimates) and find a greater degree of wage-setting power than inverse measures.

Across all studies with direct measures of monopsony, firms have wage-setting power that implies they can underpay workers at a median level of 58 percent, compared to a median implied wage markdown of only 7 percent found in studies relying on an inverse measure of monopsony. This shows that estimation methods greatly influence research findings.

For economists, another useful feature of this paper is that the research by Sokolova and Sorensen also digs into the specific empirical tools that economists use to measure elasticity, among them estimation strategies ranging from linear probability models to binary choices models to hazard models. They also include whether it was published in a top journal, citations, geographic location, demographic variables where available, among other aspects of research design. And they test the degree of publication bias, which refers to selective reporting of estimates, particularly those that confirm prior assumptions.

As the authors contend, the variety of results across these studies can differ due to variation in the underlying features of different markets and economies. The results also can differ due to a reinforcing combination of the effect of methodology, identification strategy, and data features, and due to variation in the rigor of published papers. To account for the difficulty in analyzing which studies are more accurately reflective, Sokolova and Sorensen use a so-called meta-regression analysis by performing so-called Bayesian Model Averaging. Using their measures of study design, the Bayesian Model Averaging estimates a weighted average of the results of all possible models using Posterior Model Probability, which reflects how well each model performs compared to others.

Again, for economists, this novel contribution to the monopsony literature provides a method by which Sokolova and Sorensen can determine “best practices” for elasticity estimation and weight those results accordingly. Given the Bayesian analysis of the parameters of studies that estimate elasticity, the authors conclude that there is strong evidence of monopsonistic competition, resulting in potentially sizeable wage markdowns.

Indeed, the sum of the evidence is clear from the painstaking estimations in Sokolova and Sorensen’s meta-analysis—monopsony is a broad force across labor markets and results in wage markdowns for many workers. It appears to be more common in certain industries such as healthcare. For some workers, the effects on their wages may be massive, with the highest markdown in the studies they compile implying wages are 95 percent lower than would be predicted in a competitive market, where workers could search for and match into jobs seamlessly.

Given these anticompetitive conditions, there are structural constraints on how economic growth is shared between firms and their workers, with workers losing out. In the United States, policies that give workers more power to bargain over their wages and lift the floor on wages and working conditions push back against these structural forces to ensure that the people who create economic value, through producing goods or providing services, are able to share in it.

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