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Labor Day Reflections: Growth Doesn’t Solve Inequality

Published by Anonymous (not verified) on Fri, 10/09/2021 - 11:25pm in
by Taylor Lange

Labor Day, like other holidays of remembrance, is an opportunity to reflect on the past and critically consider the future. Our memory ought to include the foot soldiers of the labor movement, from the 10,000 coal miners who fought in the Battle of Blair Mountain to the steel workers who duked it out with the Pinkertons at Homestead mill. We owe our rights as workers to the bitter struggles of many who preceded us.

Despite the gains of the labor movement, it seems we still have a long way to go. It is well-documented that while the productivity of the American worker has continued to rise, our compensation has risen slower. All that extra surplus has gone right into the bosses’ pockets; Mother Jones would be up in arms by now.

One result of the asymmetric rise in wages and productivity has been worsening income inequality. Some would argue that economic growth will fix the problem. After all, a rising tide lifts all boats, right? Brian Snyder didn’t think so, and neither do I based on the following findings.

Revisiting Kuznets’ Curve

Graph of Kuznets' Curve

Figure 1. The Kuznets curve is a graphical representation of Simon Kuznets’ theory on inequality and economic growth.

The earliest and most influential economist to write about economic growth and income inequality was Simon Kuznets. He compared income data from developing and developed countries from the 1920s through the early 1950s, and found that the poorest 10-20 percent of households in the developed countries were earning a growing share of GDP while the top 10-20 percent were earning less. In developing countries, the reverse occurred; as these countries grew in terms of GDP (and developed in terms of GDP per capita), inequality worsened.

This stark contrast between developed and developing countries led Kuznets to speculate on the relationships between growth, development, and income inequality. He theorized that as a country grew and developed initially, its workforce would switch from agriculture to industry and rural to urban. The cost of migration and learning new skills would cause the laboring class to lose wealth and income while the capital class benefited from the increased output. Afterward, as labor became more skilled, laborers’ share of income would increase. In other words, Kuznets thought that economic growth would worsen income inequality initially, but ultimately lessen it.[i] Graphically, this appears as an inverted “U”—hence its nickname, the “Kuznets curve.”

Kuznets Versus Modern Data

While Kuznets’ analyses were groundbreaking for the time, the times have changed. When we consider the same countries Kuznets did, we discover that his initial findings no longer reflect today’s trends.


Figure 2. Inequality vs. GDP per capita. Inequality is the ratio of income received by the top 10 percent of earners to income received by the bottom 50 percent. Per capita GDP data are from 1960-2018. (Given the growth of per capita GDP during that period, the X axis is also a proxy for time.)

Data from the last 60 years provide insights on how the economy (in per capita terms) and the income share of the wealthiest Americans have grown.[ii] Towards the lower end of GDP per capita, we see that growth accompanies decreased inequality. Those data points happen to come shortly after Kuznets’ famous findings. The trend does not last, though, as inequality starts to increase again around 10,000 dollars of per-capita GDP, and per-capita growth thereafter benefits the wealthy disproportionately.

Keen observers would note that inequality seems to be leveling off, suggesting the USA may be at another turning point like the one predicted by Kuznets. While this is plausible, several supposed turning points appear along the continuum of GDP per-capita growth, and are consistently followed by subsequent increases in inequality. How many bobs at the apple should the late Kuznets get? And, if we have a number of mini-Kuznets curves over time or at different levels of income, is that really a Kuznets curve at all?

While it’s possible that a few more years’ worth of data could see a true decrease in top earners’ shares, it’s likely that deliberate policy choices are mostly to blame for the expanding wealth of the rich.

Policy Arenas and Inequality

So, what are these policies? An extensive examination by the Economic Policy Institute (EPI) sheds some light on many of the major policies that have eroded American labor including:

  1. Trade deficits and outsourcing — Multinational companies and free trade agreements undercut the wages and job security of non-college educated workers in favor of protecting profits. Sending jobs overseas forced the USA to import more, resulting in a trade deficit that was disastrous for U.S. manufacturing.
  2. Erosion of unions and the right to organize — Anti-union sentiments have allowed for corporate attacks on workers’ rights, and a recent Supreme Court decision has been the latest in a series that have eroded workers’ ability to collectively bargain.
  3. Stagnation of the federal minimum wage — The last time the federal minimum wage went up was in 2009; we’re in the longest period without a raise since the minimum wage’s inception. Adjusting for inflation, the minimum of $7.25 is worth 16.5 percent less than it was at inception, which means you can buy even less with it.
  4. Lack of enforcement of wage theft laws — Wage theft occurs when workers are not paid for hours worked, or employers confiscate tips from their employees, among others. A study done by the EPI indicates that workers in ten U.S. states lose an average of 3,300 dollars per worker per year to wage theft.

All of these policies and oversights are symptomatic of a growth-driven mindset aimed at increasing consumption and output. These types of policies echo the adverse working conditions and standards that ignited the American labor movement and should be met with the determined opposition of Samuel Gompers himself!

A Just and Equitable Steady State

Addressing income inequality requires a societal desire for equality, followed by regulatory action of the government. We must be intentional and explicit with policies crafted for an equitable distribution of wealth as well as a sustainable size of economy. As Herman Daly argued, we need institutions that “limit the degree of inequality … since growth can no longer be appealed to as the answer to poverty.”[iii] For that matter, we can’t simplistically assume that degrowth or a steady state economy would ensure fairness either. Income fairness (not necessarily absolute equivalence of incomes or wealth) is a goal worth formulating policy for.

The violence and general unrest that characterized the labor movement is symptomatic of the link between social stability and income equality. Steady staters should consider and craft policy instruments to address income and wealth inequality. After all, how can a state be steady if it isn’t stable?

 

[i] Simon Kuznets, “Economic Growth and Income Inequality,” The American Economic Review 45, no. 1 (1955): 1–28.

[ii] World Inequality Lab, “World Inequality Database” (World Inequality Lab, 2021), https://wid.world/.

[iii] Herman E. Daly, “The Economics of the Steady State,” The American Economic Review 64, no. 2 (1974): 15–21.

Taylor Lange, CASSE's ecological economistTaylor Lange is an ecological economist with the Center for the Advancement of the Steady State Economy (CASSE).

The post Labor Day Reflections: Growth Doesn’t Solve Inequality appeared first on Center for the Advancement of the Steady State Economy.


The Souls of the People

Published by Anonymous (not verified) on Thu, 02/09/2021 - 5:07am in

Photo by Dorothea Lange, Edison, California, 1940: “Young migratory mother, originally from Texas. On the day before the photograph was made she and her husband traveled 35 miles each way to pick peas. They worked 5 hours each and together earned $2.25. They have two young children...Live in auto camp.” Bureau of Agricultural Economics series on agricultural "Community Stability and Instability." National Archives.

[Introduction to The Souls of the People, a forthcoming sixteen-part series on economics and inequality]

Introduction

Even in wealthy countries, notably the United States,1 the poor suffer much more than the wealthy from private debt,2 incarceration,3 the inability to pay for healthcare,4 access to- and outcomes of education,5 have little recourse to workplace bullying6 and sexual harassment,7 worse consequences from substance abuse,8 9 suffer more domestic abuse,10 depression and mental illness,11 suicide,12 homelessness,13 exposure to crime,14 exposure to pollution,15 insecurity, stress and pain,16 and related problems. Many of these problems are getting still worse for the poor, as well as for the middle class as some sink into poverty.17 18 19

Besides these life-changing issues the “little” things also build to weigh down the poor, again notably in the United States. The working poor, if hired,20 are nickel-and-dimed,21 suffer ever more small miseries22 that “like small debts, hit us in so many places, and meet us at so many turns and corners, that what they want in weight, they make up in number” (Kipling; see for example Hard Work, Hard Lives23).

Fines and fees that are of little consequence to the wealthy are onerous to the poor, and essentially criminalize poverty. In 2019 “53 million Americans between the ages of 18 to 64—accounting for 44% of all workers—qualify as ‘low-wage.’ Their median hourly wages are $10.22, and median annual earnings are about $18,000.” (2019)24 Fines and fees can and do send these working poor into a downward spiral.25 26 27

The “spiral of inequality” that Paul Krugman could write about in 199628 has only gotten worse.29 The working poor are losing faith in the system.30 The middle class is indeed shrinking and upward mobility out of poverty decreasing.31 32 And all the while the wealthy hide their assets,33 use law to enrich themselves further,34 protected by the courts or better served by them,35 36 even by the supreme court.37 38

This sixteen-part series, The Souls of the People, will explore these issues and the ideas and economics behind them. The values, origins, economics and philosophy behind the call to “cut government in half in twenty-five years, to get it down to the size where we can drown it in the bathtub” (Norquist). The creation of think tanks specifically to provide a pseudo-intellectual foundation for inequality, and that along with media convince the middle class to vote against their own interests. The rise, reasons for, and effect of beliefs that markets without law allow for full employment and that wage laws cause unemployment. That competition alone can bring about good working conditions. The rejection of progressive taxes, and of the right to avail ourselves of the power and resources of the country through organizing public goods. And most importantly, how all of these are maintained by laws that impoverish the powerless and enrich the powerful, and thus are self-perpetuating. Yet if the laws don’t change, inequality will worsen. If inequality worsens, the laws won’t change. It is hard to know where to start.

And all the while “in the souls of the people the grapes of wrath are filling.”

The souls of the people
The most fatal ailment
Ill fares the land

So long as you are happy
What we yearn to be
The sane and beautiful

The sum of what we have been
A little world made cunningly
Like a sinking star

The cries of the harvesters
The earth with its starkness
Written in blood

To do and die
In this fateful hour
So that we may fear less
The rags of time

_____________

Notes & References

Steinbeck’s 1939 The Grapes of Wrath took its title from Julia Ward Howe’s “Battle Hymn of the Republic,” published in 1862:

Mine eyes have seen the glory of the coming of the Lord
He is trampling out the vintage where the grapes of wrath are stored
He hath loosed the fateful lightning of his terrible swift sword
His truth is marching on

which in turn is an allusion to The Book of Revelation 14:19-20:

So the angel swung his sickle to the earth and gathered the clusters from the vine of the earth, and threw them into the great wine press of the wrath of God.

________

[1] America’s Poor Are Worse Off Than Elsewhere. 2021. Confrontingpoverty.org.

[2] The Private Debt Crisis. 2016. Richard Vague, Democracy, Fall, 42.

[3] Connections Among Poverty, Incarceration, And Inequality. 2020. Institute for Research on Poverty, University of Wisonsin-Madison.

[4] Americans Near Poverty Line Face Significant Gap in Health Care Coverage, May Forego Essential Health Care. 2021. Skylar Kenney. Pharmacy Times, April 9.

[5] The impact of poverty on educational outcomes for children. 2007. Ferguson, H., Bovaird, S., & Mueller, M. Paediatrics & child health, 12(8), 701–706.

[6] Low-Wage Workers and Bullying in the Workplace: How Current Workplace Harassment Law Makes the Most Vulnerable Invisible. 2017. E. Christine Reyes Loya, Hastings International and Comparative Law Review, vol. 40 no. 2.

[7] Low-Wage Workers Aren’t Getting Justice for Sexual Harassment. 2017. Alana Semuels, The Atlantic, Dec. 27.

[8] Understanding the Relationship Between Poverty and Addiction. 2018. St. Joseph Institute for Addiction, June 18th.

[9] Addiction And Low-Income Americans. 2021. Addiction Center.

[10] Moving Families Out of Poverty: Domestic Violence and Poverty. 2001. Deborah Satyanathan and Anna Pollack, Michigan Family Impact Seminars Briefing Report No. 2001-2.

[11] Poverty, depression, and anxiety: Causal evidence and mechanisms. 2020. Matthew Ridley et al, Science Vol 370, Issue 6522.

[12] Poverty may have a greater effect on suicide rates than do unemployment or foreclosures. 2016. UCLA Newsroom, Nov. 16.

[13] HUD: Growth Of Homelessness During 2020 Was ‘Devastating,’ Even Before The Pandemic. 2021. Pam Fessler, NPR.

[14] Urban Poverty and Neighborhood Effects on Crime: Incorporating Spatial and Network Perspectives. 2014. Corina Graif, Andrew S. Gladfelter, Stephen A. Matthews, Sociology Compass Vol. 8, Issue 9 pp. 1140-1155.

[15] How and why are the poorest people most likely to have exposure to toxins? 2021. Medical News Today.

[16] The high costs of being poor in America: Stress, pain, and worry. 2015. Carol Graham, Brookings, February 19.

[17] The Pandemic Stalls Growth in the Global Middle Class, Pushes Poverty Up Sharply. 2021. Rakesh Kochhar, Pew Research Center.

[18] 8 Million Have Slipped Into Poverty Since May as Federal Aid Has Dried Up. 2020. Jason DeParle, New York Times, Oct. 15.

[19] Poverty In America: Economic Realities Of Struggling Families. 2019. Hearing Before The Committee On The Budget, House Of Representatives, June 19.

[20] Concentrated Poverty and the Disconnect Between Jobs and Workers. 2019. David Neumark, EconoFact- The Fletcher School, Tufts University, Jan. 22.

[21] Nickel and Dimed: On (Not) Getting By in America. 2001. Barbara Ehrenreich. Metropolitan/Henry Holt.

[22] Hired: Six Months Undercover in Low-Wage Britain. 2018. James Bloodworth, Atlantic Books.

[23] Hard Work, Hard Lives: Survey Exposes Harsh Reality Faced by Low-Wage Workers in the US. 2013. Oxfam America.

[24] Low-wage work is more pervasive than you think, and there aren’t enough “good jobs” to go around. 2019. Martha Ross and Nicole Bateman, Brookings, Nov. 21.

[25] The Steep Costs of Criminal Justice Fees and Fines. 2019. Noah Atchison and Michael Crowley, Brennan Center for Justice, Nov. 21.

[26] Fees and Fines: The Criminalization of Poverty. 2019. Kiren Jahangeer, American Bar Association.

[27] Fines and fees are a pound of flesh for poor people. 2021. Alexes Harris, Seattle Times, Feb. 25.

[28] The Spiral of Inequality. 1996. Paul Krugman, Mother Jones, Nov/Dec.

[29] Trends in income and wealth inequality. 2020. Juliana Menasce Horowitz, Ruth Igielnik and Rakesh Kochhar, Pew Research Center.

[30] Survey Shows People No Longer Believe Working Hard Will Lead To A Better Life. 2021. InsiderMag summary of the Edelman Trust Barometer 2020.

[31] The costs of inequality: Increasingly, it’s the rich and the rest. 2016. Christina Pazzanese, The Harvard Gazette, Feb, 8.

[32] Squeezing the middle class: Income trajectories from 1967 to 2016. 2020. Stephen Rose, Brookings, Aug, 10.

[33] How the Rich Hide Their Assets. Accessed August, 2021. Ad and discussion for Estate Street Partners, LLC.

[34] How Wealthy People Use the Government to Enrich Themselves. 2017. Jesse Singal, New York Magazine, Dec. 28.

[35] The rich get richer and the poor get prison : ideology, class, and criminal justice. 2010 (9th ed.). Jeffrey H Reiman and Paul Leighton, Allyn & Bacon.

[36] The Importance of Litigant Wealth. 2010. Albert Yoon,, 59 DePaul Law Review 59:2.

[37] How the Supreme Court Favors the Rich and Powerful. 2020. Adam Cohen. Time, March 3; adapted from Cohen’s Supreme Inequality (2020), Penguin Press.

[38] A Court for the One Percent: How the Supreme Court Contributes to Economic Inequality. 2014. Michele Gilman, Utah Law Review, vol. 2014 no. 3.

Black and White Differences in the Labor Market Recovery from COVID-19

Published by Anonymous (not verified) on Tue, 27/07/2021 - 5:56am in

David Dam, Meghana Gaur, Fatih Karahan, Laura Pilossoph, and Will Schirmer

LSE_2021_EI-series-covid-recession_karahan_460

The ongoing COVID-19 pandemic and the various measures put in place to contain it caused a rapid deterioration in labor market conditions for many workers and plunged the nation into recession. The unemployment rate increased dramatically during the COVID recession, rising from 3.5 percent in February to 14.8 percent in April, accompanied by an almost three percentage point decline in labor force participation. While the subsequent labor market recovery in the aggregate has exceeded even some of the most optimistic scenarios put forth soon after this dramatic rise, the recovery has been markedly weaker for the Black population. In this post, we document several striking differences in labor market outcomes by race and use Current Population Survey (CPS) data to better understand them.

Recessions tend to have disproportionately adverse effects on the labor market outcomes of Black workers. For example, in the years leading up to the Great Recession of 2007-09, the unemployment gap between Black and white workers reached as low as 3.4 percentage points, but it peaked at 8.5 percentage points during the aftermath of the Great Recession. The COVID recession has been no outlier in this regard, as shown in the chart below. The unemployment rate rose significantly more for the Black population, pushing the Black-white unemployment gap from 3 percentage points in February to 5.4 percentage points in August. Similarly, while the long expansion following the Great Recession had narrowed the long-standing Black-white participation gap, the pandemic erased these gains. Participation fell more severely for the Black population at the onset of the pandemic and has since recovered more slowly.

LSE_2021_COVID-recession_karahan_ch1-v2-01

The evolution of the unemployment and labor force participation rates is shaped by flows between employment, unemployment, and being “not in” the labor force. For example, the unemployment rate declines if more people find jobs or fewer workers are displaced. Given that a large share of the unemployed are currently classified as temporarily unemployed (namely, those who have been given a date to return to work or who expect to return to work within six months) and that temporarily and permanently unemployed workers tend to find jobs or drop out of the labor force at very different rates, we distinguish between these two groups in our analysis. We use data from the CPS on individuals age 16 and older, and we compute the rate at which Black and white workers transition between employment (E), temporary unemployment (TU), permanent unemployment (PU), and not in labor force (N).

The rate at which workers find jobs out of unemployment has declined for both Blacks and whites this year, with the level of job-finding significantly lower for Blacks until a recent reversal. Breaking down the job-finding rate into transitions from permanent and temporary unemployment clarifies the disparate experiences of Black and white workers (see chart below). Blacks have lower job-finding rates from both permanent and temporary unemployment but have seen a more gradual decline in job‑finding as the recession has progressed. In recent months, the white job-finding rates from both permanent and temporary unemployment have dropped below the corresponding Black job-finding rates. If the current job-finding rates were to continue, all else the same, we would expect a somewhat faster decline in the Black unemployment rate.

LSE_2021_COVID-recession_karahan_ch2-v2_Artboard 2

Black and white job loss rates have exhibited a similar pattern. For both Black and white workers, job loss resulting in temporary unemployment peaked in June before declining in recent months, as shown in the chart below. Job loss resulting in permanent unemployment similarly peaked in June. However, for employment loss resulting in both permanent and temporary unemployment, Black workers have experienced significantly higher rates than whites. The Black-white gap in job loss resulting in temporary unemployment widened at the peak of job loss resulting in temporary unemployment, while the gap in job loss resulting in permanent unemployment has been relatively stable throughout the recession.

LSE_2021_COVID-recession_karahan_ch3-v2_Artboard 2

An important feature of the U.S. labor market is that flows out of employment are not always to unemployment; a nonnegligible share of workers drop out of labor force each month. These flows are important determinants of the unemployment and labor force participation rates. Indeed, labor force exit from employment varies significantly for Black and white workers. Until June, the two groups exhibited similar trends as labor force exit from employment dropped. However, in recent months the labor force exit rate for white workers has reverted to pre-pandemic levels, while the labor force exit rate for Black workers has increased dramatically (see chart below). The divergence in Black and white labor force exit rates from employment in recent months suggests that labor force participation for the Black population may remain significantly depressed in the coming months while white labor force participation may recover more quickly, with this combination erasing the gains achieved during the long expansion following the Great Recession.

LSE_2021_COVID-recession_karahan_ch4-v2_Artboard 2

The COVID recession, like most post-war recessions, has had disproportionate effects on the Black population. We trace the rising and persistent Black-white unemployment and labor force participation gaps to the underlying flows between labor market states. For Black workers, a lower job-finding rate and a higher separation rate into unemployment have contributed to the larger increase and subsequent slower recovery of the unemployment rate. While the job-finding and job-loss rates for Black and white workers have converged recently, resulting in a narrowing of the Black-white unemployment gap, the transition rate from employment into nonparticipation for Black workers remains elevated. This relatively high rate of labor force exit for Black workers may lead to a persistently elevated Black-white labor force participation gap and an uneven labor market recovery.

Chart data

Dam_david
David Dam is a senior research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group.
Gaur_meaghan2
Meghana Gaur is a senior research analyst in the Research and Statistics Group.
Karahan_fatih
Fatih Karahan is a senior economist in the Research and Statistics Group
Pilossoph_laura
Laura Pilossoph is an economist in the Research and Statistics Group.
Schirmer_will_2
Will Schirmer is a senior research analyst in the Research and Statistics Group.

How to cite this post:

David Dam, Meghana Gaur, Fatih Karahan, Laura Pilossoph, and Will Schirmer, “Black and White Differences in the Labor Market Recovery from COVID-19,” Federal Reserve Bank of New York Liberty Street Economics, February 9, 2021, https://libertystreeteconomics.newyorkfed.org/2021/02/black-and-white-di....

Related Reading

Economic Inequality Research Series
Economic Inequality and Equitable Growth

Disclaimer

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Fashion Costs The Earth

Published by Anonymous (not verified) on Fri, 18/06/2021 - 3:01pm in

Host, Ross Ashcroft, met up with Journalist and Author, Dana Thomas and Reader in Fashion Marketing, Patsy Perry, to discuss the politics and economics of fashion.

The post Fashion Costs The Earth appeared first on Renegade Inc.

Fashion Costs The Earth

Published by Anonymous (not verified) on Fri, 18/06/2021 - 3:01pm in

Host, Ross Ashcroft, met up with Journalist and Author, Dana Thomas and Reader in Fashion Marketing, Patsy Perry, to discuss the politics and economics of fashion.

The post Fashion Costs The Earth appeared first on Renegade Inc.

Understanding the Racial and Income Gap in Commuting for Work Following COVID-19

Published by Anonymous (not verified) on Thu, 17/06/2021 - 12:40am in

Ruchi Avtar, Rajashri Chakrabarti, and Maxim Pinkovskiy

LSE_2021_Understanding the Racial and Income Gap in Commuting for Work Following COVID-19

The introduction of numerous social distancing policies across the United States, combined with voluntary pullbacks in activity as responses to the COVID-19 outbreak, resulted in differences emerging in the types of work that were done from home and those that were not. Workers at businesses more likely to require in-person work—for example, some, but not all, workers in healthcare, retail, agriculture and construction—continued to come in on a regular basis. In contrast, workers in many other businesses, such as IT and finance, were generally better able to switch to working from home rather than commuting daily to work. In this post, we aim to understand whether following the onset of the pandemic there was a wedge in the incidence of commuting for work across income and race. And how did this difference, if any, change as the economy slowly recovered? We take advantage of a unique data source, SafeGraph cell phone data, to identify workers who continued to commute to work in low income versus higher income and majority-minority (MM) versus other counties.

Data and Background

In line with an earlier Liberty Street Economics post, we use data on race and income composition at the county level from the 2014-18 waves of the American Community Survey to differentiate between low-income and higher income counties, and MM and other counties. We define low-income counties as those that fall in the lowest quartile of the population weighted distribution of median household income. We define MM counties as those in which at least half the population is Hispanic and/or non-Hispanic Black.

In order to capture differences in commuting to work behavior across counties, we make use of SafeGraph’s aggregated and anonymized cell phone mobility data. This data determines the typical nighttime location of each mobile device, which is referred to as the device’s “home.” The subsequent mobility that shows time spent away from home is then used to determine the full-time and part-time work behavior. For example, a device that leaves home at 8 a.m. on weekdays, goes to the same location each weekday and returns home at 6 p.m. is typically coded as belonging to a full-time worker, while a device that is seen to spend 3-4 hours during the workday at a location other than the home location is coded as belonging to a part-time worker. We look at variations in these measures across the different counties using data through January 9, 2021.

In the time leading up to the pandemic, we see that SafeGraph captures people going to work both full time and part time. This would include all types of work, both work that needed to be done in the workplace and work that could be done at home if needed. However, when COVID-19 struck, most U.S. states issued shelter-in-place and stay-at-home orders. Almost all occupations and industries that had the ability to work from home, switched immediately to such work-from-home postures. Industries that required in-person engagement, or had a very low work-from-home ability continued to have workers coming in for full-time or part-time work. SafeGraph’s cell phone data enables us to identify the work-from-home and commuting-to-work patterns across counties both before and after the onset of the pandemic. We leverage the differences of these patterns across low-income versus higher income and MM versus other counties in the analysis below.

Differences in Commuting to Work by Income

We now turn to look at the differences in commuting to work as captured by number of devices at work full time and part time, by income. In the graph below, we see no difference in number of devices at work full time between low-income and higher income counties in the pre-COVID period, and a drastic decline in all devices going to work starting in the week of March 15, 2020. However, we see that this decline is much higher for higher income counties, implying that more workers in such counties were able to shift to working from home. In contrast, lower income counties saw a perceptibly smaller decline in the devices at work, suggesting that these counties had a higher incidence of workers who could not transition to working from home and continued to travel to work.

Since our data draws on mobile data, workers voluntarily or involuntarily leaving jobs and staying at home are reflected in the dip in number of devices at home full time. It is noteworthy that high-wage employment declined considerably less than low-wage employment. So if this was the major factor driving the patterns we see below, we would see an opposite pattern. This suggests that the differences in the commuting-to-work patterns between low income and high income counties are more likely to be contributed by differences in abilities to transition to working from home.

Toward the end of April, as states started to reopen (beginning from April 24), we see a recovery in full-time workers who commuted to work, which is faster in the low-income counties. This suggests that workers residing in low-income counties are more dependent on occupations that required commuting to work. From late June onward, we see a slightly downward trend for both low income and higher income counties, before a sharp uptick near the holiday season. While we do not have definitive evidence, a potential explanation for this is that increased demand for retail and services during the holidays required more employees to be physically at work. Under this hypothesis, the larger uptick experienced in the higher income counties could have reflected a greater increase in demand in those counties. The subsequent drop corresponds to the return from the increased pace of activity during the holidays.

LSE_2021_essential-work-inequality_chakrabarti_ch1_v3

Looking at part-time work behavior, we see a similar trend. The differences between low-income counties and other counties only show up as the pandemic hits, with workers in higher income counties more likely to be able to work from home. It is interesting to note that there is a slight upward trend post recovery in both types of counties in part-time work, while the full-time work showed a slight downward trend from July onward. This may suggest a shift from commuting for full-time work to commuting for part-time jobs for some workers in the second half of the year. Relative to the full-time chart, the uptick and subsequent decline around the holiday season in part-time work are not as pronounced.

LSE_2021_essential-work-inequality_chakrabarti_ch2_v3

Difference in Commuting to Work by Race

Turning to the racial differences as shown below, we see less of an overall difference between both MM and other counties across the course of the pandemic. Even before the plunge in full-time work, we see a small gap between MM and other counties in the beginning of March, which is possibly attributable to the fact a lot of firms in majority-nonminority counties started transitioning into work from home even before the shutdowns were announced. MM counties are less likely to have seen such transitioning, and as the chart depicts, also show a smaller decline in the devices at work full-time. Both MM and other counties showed a similar pattern of recovery, although the return to work is higher for MM counties suggesting that jobs held by workers in these counties are more likely to be occupations that required commuting to work and less amenable to remote work. Similar to the chart earlier based on income, we see a sharp uptick and subsequent drop around the holidays that is starker for majority-nonminority counties. The holiday uptick temporarily reduces the gap between the two types of counties, with the gap reopening subsequently.

LSE_2021_essential-work-inequality_chakrabarti_ch3_v3

In comparison to the full-time results presented above, the part-time work shows much smaller differences between MM and other counties throughout the course of the pandemic.

LSE_2021_essential-work-inequality_chakrabarti_ch4_v3

Conclusion

This post aimed to provide a high-frequency analysis of differences in full-time and part-time work commuting behavior. We found important differences in these behaviors across counties that differ by income and demographics. Although all counties experienced a sharp decline in mobility consistent with a sharp decline in commuting to work at the onset of the pandemic, followed by a subsequent partial recovery, low-income and, to a smaller extent, MM counties experienced greater commuting for work in the pandemic period. The difference in commuting between these areas and the rest of the country temporarily narrowed during peak demand times of the year, such as the holiday season. Our results are consistent with low-income and Black and Hispanic-majority communities being less able to substitute work at home for work away from home, contributing to their very high levels of vulnerability to COVID 19.

Chart data

Ruchi Avtar is a senior research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group.

Chakrabarti_rajashriRajashri Chakrabarti is a senior economist in the Bank’s Research and Statistics Group.

Pinkovskiy_maximMaxim Pinkovskiy is a senior economist in the Bank’s Research and Statistics Group.

How to cite this post:

Ruchi Avtar, Rajashri Chakrabarti, and Maxim Pinkovskiy, “Understanding the Racial and Income Gap in Commuting for Work Following COVID-19,” Federal Reserve Bank of New York Liberty Street Economics, February 9, 2021, https://libertystreeteconomics.newyorkfed.org/2021/02/understanding-the-....

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Disclaimer

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

February Regional Business Surveys Find Widespread Supply Disruptions

Published by Anonymous (not verified) on Thu, 17/06/2021 - 12:39am in

Jason Bram and Richard Deitz

LSE_2021_feb-bus-survey_bram_460

Business activity increased in the region’s manufacturing sector in recent weeks but continued to decline in the region’s service sector, continuing a divergent trend seen over the past several months, according to the Federal Reserve Bank of New York’s February regional business surveys. Looking ahead, however, businesses expressed widespread optimism about the near-term outlook, with service firms increasingly confident that the business climate will be better in six months. The surveys also found that supply disruptions were widespread, with manufacturing firms reporting longer delivery times and rising input costs, a likely consequence of such disruptions. Many firms also noted that minimum wage hikes implemented in January in both New York and New Jersey had affected their employment or compensation decisions.

Business activity grew modestly in the manufacturing sector but declined in the service sector, according to the latest Empire State Manufacturing Survey and Business Leaders Survey. Declines were particularly pronounced in the construction industry, as well as in leisure and hospitality, while activity in the retail and wholesale trade sectors held fairly steady. Employment rose modestly among manufacturers in the latest survey but continued to decline among service sector firms. Firms in both surveys were optimistic about future conditions, and on net expect activity to be higher in six months. Moreover, more service firms said they expect the general business climate to improve in the months ahead than at any point in the past three years.

Notably, recent months’ surveys point to a pickup in both input and selling price increases, particularly in the manufacturing sector, where input prices rose at the fastest clip in a decade over the past month; a number of manufacturers specifically noted steep escalation in metals prices. Supplier delivery times were longer for manufacturers, with further increases expected in the months ahead. This suggests it is taking longer for firms to get the supplies they need, an issue that was probed more deeply in supplemental questions about supply delays and disruptions. Specifically, the February Supplemental Survey Report indicates that roughly three in four manufacturers and half of service sector firms experienced at least some supply delays or disruptions in early 2021. Within the service sector, delays were particularly common among retail and distribution firms. When firms were asked about the source or reason behind these delays, the most widely cited was that domestic suppliers had either shut down or had had limited supplies themselves. It was also common for firms to see trucking delays and for manufacturers to see foreign supplier shutdowns and delays at the ports.

The February surveys also asked about effects of the latest phase of the minimum wage hike across New Jersey and New York (outside New York City), which took effect January 1. For context, New Jersey’s minimum wage rose $1 to $12, upstate New York’s rose $0.70 to $12.50, and downstate New York’s rose $1 to $14, except in New York City where it was left unchanged at $15. Around 55 percent of manufacturing firms and 40 percent of service firms reported that the increase has had at least some effect on their employment and/or compensation decisions, with about 10 percent of all firms reporting a significant effect. Within the service sector, however, there was a good deal of variation: not surprisingly, businesses in the leisure and hospitality sector— including restaurants, bars, and hotels—indicated the most widespread effects by far, followed distantly by businesses in the transportation and warehousing sector. Compared to this time last year when a prior minimum wage hike took effect in both states, fewer manufacturers reported an impact but there was little change in the share of service firms affected.

The wage hike did not solely affect workers whose wages had to be increased to the new minimum. On average, the hike caused manufacturers to raise wages more than they otherwise would have for about 16 percent of their workforce, and service firms to raise them more than they would have for about 11 percent.

Bram_jason
Jason Bram is a research officer in the Federal Reserve Bank of New York’s Research and Statistics Group.

Deitz_richardRichard Deitz is an assistant vice president in the Bank’s Research and Statistics Group.

How to cite this post:

Jason Bram and Richard Deitz, “February Regional Business Surveys Find Widespread Supply Disruptions,” Federal Reserve Bank of New York Liberty Street Economics, February 17, 2021, https://libertystreeteconomics.newyorkfed.org/2021/02/february-regional-...

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Disclaimer

The views expressed in this post are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.

What Is behind the Global Jump in Personal Saving during the Pandemic?

Published by Anonymous (not verified) on Thu, 17/06/2021 - 12:36am in

Matthew Higgins and Thomas Klitgaard

LSE_2021_personal-savings_klitgaard_460

Household saving has soared in the United States and other high-income countries during the COVID-19 pandemic, despite widespread declines in wages and other private income streams. This post highlights the role of fiscal policy in driving the saving boom, through stepped-up social benefits and other income support measures. Indeed, in the United States, Japan, and Canada, government assistance has pushed household income above its pre-pandemic trajectory. We argue that the larger scale of government assistance in these countries helps explain why saving in these countries has risen more strongly than in the euro area. Going forward, how freely households spend out of their newly accumulated savings will be a key factor determining the strength of economic recoveries.

The pandemic sent consumer spending into retreat, helping drive up saving

Consumer spending plummeted in the United States and other high-income economies with the arrival of the COVID-19 pandemic. The drop was sharpest in the second quarter of 2020, reflecting the strict lockdowns then in place. Spending picked up over the second half of the year, but the recovery was only partial. Consumption was still well below pre-pandemic levels at year-end.

A simple accounting identity can help clarify how changes in spending feed into saving. Since income is either spent or saved, changes in income must be matched by changes in spending and saving.

Change in Income = Change in Consumption + Change in Saving

If income is stagnant, a decline in consumption will result in an equal increase in saving. If income is growing, the same decline in consumption will translate into a larger increase in saving.

The chart below shows how this relationship has played out during the pandemic for the largest high-income economies: the United States, the euro area, Japan, the United Kingdom, and Canada. The triangles represent the percent change in personal disposable income—income after taxes and net transfers—comparing the first three quarters of 2020 with the first three quarters of 2019. The bars show how these changes in disposable income map into changes in consumption and saving, consistent with the identity above.


What Is behind the Global Jump in Personal Saving during the Pandemic?

While consumer spending weakened in all these economies, the magnitude of declines varied widely. U.S. spending held up best, dropping by the equivalent of 3 percent of pre-pandemic personal income. Spending in the United Kingdom fell the most, dropping by nearly 12 percent. Spending elsewhere was down 6 to 7 percent.

Household saving, in contrast, was up across the board, with increases ranging from 7 percent of pre-pandemic income in the euro area to 16½ percent in Canada. The counterparts to this increase varied widely. In the euro area and the United Kingdom, income stagnated, and higher saving came entirely from declines in consumption. In the United States and Canada, income grew strongly, and saving rose by more than twice the decline in consumption. In Japan, the increase in saving came about equally from lower consumption and new income.

Data through the end of 2020—available only for the United States and Canada—tell a similar story. Saving grew strongly, with the largest contribution from income, and a smaller but still sizeable contribution from lower consumption.

Notably, personal disposable income in the United States, Japan, and Canada grew by more than twice the average pace over the previous several years. The COVID-19 pandemic, of course, brought steep recessions to all high-income economies. This raises a natural question: Why did income growth hold up so well in the United States, Japan, and Canada?

Government support bolstered household incomes

Wages and other labor compensation account for the largest part of household income—more than 60 percent of income before taxes for the economies discussed here. The rest of income comes largely from private sources such as proprietors’ earnings, rents, and investment returns. (The line between labor compensation and proprietors’ income varies across countries, depending on differences in accounting practices and in how businesses are organized.) Net social benefits represent a final key category. This includes government-provided retirement benefits, unemployment insurance, income assistance, and similar programs, net of the taxes going to fund them. For some countries, net social benefits are typically a negative item for aggregate household income, with benefit-related taxes exceeding benefit payouts. What matters for our purposes, though, is how income streams changed over the course of the pandemic to yield the total change in household income.

The chart below provides a breakdown of disposable income growth, comparing the first three quarters of 2020 with the same period a year earlier. (As with our earlier chart, data through the end of 2020 are available only for the United States and Canada, and tell a similar story.) Again, the bars show contributions to this income growth. The gold bar labeled Earnings combines labor compensation, proprietors’ earnings, rents, and investment returns. The blue bar shows the net contribution from social benefits. The small green bar labeled Net other largely consists of changes in income taxes and in private transfers such as workers’ remittances.


What Is behind the Global Jump in Personal Saving during the Pandemic?

Nominal earnings growth was negligible in the United States and negative for all other economies—hardly a surprising development given steep recessions and the resulting sharp rise in unemployment and falloff in proprietors’ income. The positive outturn in the United States seems surprising, and can be traced at least in part to a less severe downturn: Real GDP for the Q1-Q3 period was down about 4 percent in the United States, compared to a decline of more than 6 percent elsewhere.

Higher net benefits made a meaningful contribution to income growth in all economies. But the magnitude of the contribution varied widely, ranging from just under 2 percentage points in the United Kingdom to more than 8 percentage points in the United States and roughly 10 percentage points in Canada. Absent the increase in benefits, disposable income growth would have been barely positive in the United States and Canada and negative elsewhere.

What would saving have been if there had not been these higher net benefits? It is impossible to say for sure. As an accounting matter, households could have maintained the same level of saving by making even sharper cutbacks in consumption spending. But consumption declines were already large and painful. More likely, the buildups in saving would have been substantially scaled back. Moreover, an attempt to maintain saving would be at least partly self-defeating. Deeper consumption cutbacks would have translated into steeper recessions, reducing incomes across the economy—and forcing further cutbacks in consumption or saving. The perverse feedback mechanism, whereby a general increase in saving makes everyone worse off, is known as the Paradox of Thrift.

Government support went beyond social benefits

Government pandemic assistance has gone beyond higher direct transfer payments. The United Kingdom, Japan, and some euro area countries have channeled wage subsidy payments to businesses rather than workers, which means these funds show up in household incomes as wages rather than social benefits. This arrangement helps explain why earnings declines have been small given the depth of recessions. Similarly, in the United States, Paycheck Protection Program funding shows up as proprietors’ income or indirectly as wages, not as social benefits.

A look at the government accounts serves as a check on the scale of support for household incomes. Countries’ integrated macroeconomic accounts show government outlays on subsidies to the business sector. These outlays have risen substantially—by roughly half as much as the increase in social benefit payouts in the United States, the euro area, and Canada, and by four times the increase in benefit payouts in the United Kingdom. No data are yet available for Japan, but indirect evidence indicates that the bulk of pandemic assistance there is captured in the household statistics.

Unfortunately, the data do not allow us to specify what fraction of these funds were eventually paid out to households. But the upshot is clear enough. Government support for household incomes and saving was larger than suggested by the increase in social benefits—dramatically so in the United Kingdom. The euro area continues to stand out for support that is large relative to history, but small relative to what has been enacted elsewhere.

Will households spend down “excess” saving?

How freely households spend out of their newly accumulated savings will be a key factor determining the strength of economic recoveries. Consumer spending would soar if households run down these funds aggressively when economies reopen. The potential upside is underscored by the fact that much of the buildup in savings is being held in easily spendable form. As the chart below shows, household deposit holdings for the five economies discussed here have risen by an amount equivalent to between 6.5 and 13.0 percent of annual disposable income.


What Is behind the Global Jump in Personal Saving during the Pandemic?

A recent Liberty Street Economics post, however, provides reasons for thinking that spending out of recent savings will be relatively modest based on how spending typically responds to an increase in the nation’s wealth. As noted in that post, goods consumption in the United States is already above its pre-pandemic trend. The same is true in other advanced economies. In addition, most consumer spending on services goes to essentials such as housing, utilities, education, and healthcare. There is only so much pop that pent-up demand for services such as travel, restaurant meals, and entertainment can deliver.

This isn’t to discount the upside potential for growth this year and next, particularly for the United States. Data in 2020 already place the scale of U.S. government support for households toward the upper end of the advanced economy range. The additional U.S. fiscal package passed in December boosted household incomes and savings starting in January, and the much larger package passed in March will add even more.

Matthew HigginsMatthew Higgins is a vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.

Thomas KlitgaardThomas Klitgaard is a vice president in the Bank’s Research and Statistics Group.

How to cite this post:

Matthew Higgins and Thomas Klitgaard, “What Is behind the Global Jump in Personal Saving during the Pandemic?,” Federal Reserve Bank of New York Liberty Street Economics, April 14, 2021, https://libertystreeteconomics.newyorkfed.org/2021/04/what-is-behind-the...

Disclaimer

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Women’s Labor Force Participation Was Rising to Record Highs—Until the Pandemic Hit

Published by Anonymous (not verified) on Thu, 17/06/2021 - 12:35am in

Jaison R. Abel and Richard Deitz

LSE_2021_womensLFP_deitz_460

Women’s labor force participation grew precipitously in the latter half of the 20th century, but by around the year 2000, that progress had stalled. In fact, the labor force participation rate for prime-age women (those aged 25 to 54) fell four percentage points between 2000 and 2015, breaking a decades-long trend. However, as the labor market gained traction in the aftermath of the Great Recession, more women were drawn into the labor force. In less than five years, between 2015 and early 2020, women’s labor force participation had recovered nearly all of the ground lost over the prior fifteen years. Then the pandemic hit, erasing these gains. In recent months, as the economy has begun to heal, women’s labor force participation has increased again, but there is much ground to be made up, especially for Black and Hispanic women. A strong labor market with rising wages, as was the case in the years leading up to the pandemic, will be instrumental in bringing more women back into the labor force.

Participation Was Closing In on a Record High before the Pandemic Hit

Women’s labor force participation climbed steadily until around the year 2000, shown in the chart below for prime-age women, reaching a peak of 77.3 percent. Then, between 2000 and 2015, the labor force participation rate fell a steep four percentage points to 73.3 percent, slightly less than the corresponding decline for prime-age men during this period. This decline in women’s labor force participation has been well documented, with researchers attributing it to a combination of demand side factors, such as reduced job opportunities due to trade and technology, and supply side factors, such as demographic shifts and greater access to programs such as disability insurance and the Supplemental Nutrition Assistance Program (SNAP). What may be less well known—and certainly less studied—is that between 2015 and 2020, prime-age women’s labor force participation increased by 3.5 percentage points, nearly erasing the entire decline of the prior fifteen years. This increase was nearly three times greater than that seen for men.


Women’s Labor Force Participation Was Rising to Record Highs—Until the Pandemic Hit

What brought more women into the labor market? It is unlikely that many of the structural factors that contributed to the prior period’s decline—such as the displacement effects of trade and technology or demographic shifts—changed quickly enough to bring such a rapid change in trajectory. In fact, many of these economic forces continued to put downward pressure on labor force participation. Rather, a historically strong labor market with rising wages for a sustained period were a likely cause. After a period of sluggish growth and slack labor markets in the immediate aftermath of the Great Recession, real wages began picking up strongly in 2015, as shown in the chart below, which plots real average hourly earnings. This strong growth in wages suggests that labor markets tightened considerably during this period, pushing up wages and bringing more women (and men) into the labor market.


Women’s Labor Force Participation Was Rising to Record Highs—Until the Pandemic Hit

Then the pandemic hit. Women’s labor force participation fell by well over three percentage points in just two months, between February and April 2020, reversing nearly all of the gains made between 2015 and 2020. This sharp decline is partly attributable to an increase in childcare responsibilities due to in-person school and daycare closings during the pandemic, a responsibility that tends to fall disproportionately on women. Participation has since recovered as economic conditions have improved and schools have begun to reopen, though as of March, a year into the pandemic, the labor force participation rate for prime-age women remains almost two percentage points off its pre-pandemic level.

An Uneven Experience

These ups and downs in labor force participation have not occurred equally among all women, as the chart below shows. Black women saw a decline of around five percentage points between 2000 and 2015, compared to a decline of roughly three to four percentage points for Hispanic and white women. When participation began to increase again between 2015 and early 2020, both Black and white women came close to recovering all of the ground that was lost and were approaching record highs. Hispanic women—whose labor force participation tends to be relatively low—saw participation exceed its previous peak by a full percentage point by early 2020.


Women’s Labor Force Participation Was Rising to Record Highs—Until the Pandemic Hit

However, when the pandemic hit, Black and Hispanic women saw much more sizeable declines in participation than white women, 5.2 and 5.9 percentage points, respectively, compared to 3.3 percentage points. The sharper decline may be due at least in part to higher rates of COVID infections among these groups, school closings leaving students at home requiring care that occurred at higher rates in communities where people of color are in the majority, as well as these groups being less able to telecommute during the pandemic. And, as of March 2021, labor force participation rates for these two groups remains 3.2 and 3.1 percentage points below pre-pandemic peaks, compared to about 1.4 percentage points for white women. Thus, Black and Hispanic women have more than twice the ground to make up compared to white women.

Looking Ahead

Will women’s labor force participation reach the highs that were seen before the pandemic hit? As more people are vaccinated and the economy continues to recover, and, importantly, as in-person schools and daycare fully reopen, participation should continue to rise, possibly quite rapidly. As was the case before the pandemic, a strong labor market with rising wages for a sustained period will help set the stage for another comeback in women’s labor force participation, particularly if more flexible work arrangements brought on by adapting to work during the pandemic persist.

Jaison R. AbelJaison R. Abel is an assistant vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.

Richard DeitzRichard Deitz is an assistant vice president in the Bank’s Research and Statistics Group.

How to cite this post:

Jaison R. Abel and Richard Deitz, “Women’s Labor Force Participation Was Rising to Record Highs—Until the Pandemic Hit,” Federal Reserve Bank of New York Liberty Street Economics, May 10, 2021, https://libertystreeteconomics.newyorkfed.org/2021/04/womens-labor-force....

Related Reading

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Understanding the Racial and Income Gap in Commuting for Work Following COVID-19 (February 2021)

Black and White Differences in the Labor Market Recovery from COVID-19 (February 2021)

Disclaimer

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Workers Matter and Government Works: Eight Lessons from the Pandemic

Published by Anonymous (not verified) on Mon, 24/05/2021 - 5:28am in

Maybe it’s wishful thinking to declare the pandemic over in the US, and presumptuous to conclude...

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