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    Middle-Class Pay Lost Pace. Is Washington to Blame?

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    A new paper by liberal economists presents evidence that policymakers helped hold down wages for four decades.One of the most urgent questions in economics is why pay for middle-income workers has increased only slightly since the 1970s, even as pay for those near the top has escalated.For years, the rough consensus among economists was that inexorable forces like technology and globalization explained much of the trend. But in a new paper, Lawrence Mishel and Josh Bivens, economists at the liberal Economic Policy Institute, conclude that government is to blame. “Intentional policy decisions (either of commission or omission) have generated wage suppression,” they write.Included among these decisions are policymakers’ willingness to tolerate high unemployment and to let employers fight unions aggressively; trade deals that force workers to compete with low-paid labor abroad; and the tacit or explicit blessing of new legal arrangements, like employment contracts that make it harder for workers to seek new jobs.Together, Dr. Mishel and Dr. Bivens argue, these developments deprived workers of bargaining power, which kept their wages low.“If you think about a person who’s dissatisfied with their situation, what are their options?” Dr. Mishel said. “Almost every possibility has been foreclosed. You can’t quit and get a good-quality job. If you try to organize a union, it’s not so easy.”The slowdown in workers’ pay increases happened rather abruptly. From the late 1940s to the early 1970s, hourly compensation for the typical worker grew roughly as quickly as productivity. If the value of the goods and services that workers provided rose by 2 percent in a year, then their wages and benefits tended to go up by roughly 2 percent as well.Since then, productivity has continued to grow, while hourly compensation largely flattened. According to the paper, the typical worker earned $23.15 an hour in 2017, far less than the $33.10 that worker would have earned had compensation kept up with productivity growth.In the 1980s and 1990s, economists increasingly argued that technology largely explained this flattening of wages. They said computers were making workers without college degrees less valuable to employers, while college graduates were becoming more valuable. At the same time, the growth in the number of college graduates was slowing. These developments dragged down wages for those in the middle of the income distribution (like factory workers) and increased wages for those near the top (like software engineers).The technology thesis largely relied on a standard economic analysis: As the demand for lower-skilled workers dropped, their wages grew less quickly. But in recent years, many economists have gradually de-emphasized this explanation, focusing more on the balance of power between workers and employers than on long-term shifts in supply and demand.The idea is that setting pay amounts to dividing the wealth that workers and employers create together. Workers can claim more of this wealth when institutions like unions give them leverage. They receive less when they lose such leverage.Dr. Mishel and Dr. Bivens argue that a decades-long loss of leverage largely explains the gap between the pay increases that workers would have received had they benefited fully from rising productivity, and the smaller wage and benefit increases that workers actually received.To arrive at this conclusion, they examine numerical measures of the impact of several developments that hurt workers’ bargaining power — some of which they generated, many of which other economists have generated over the years — then sum up those measures to arrive at an overall effect.For example, when surveying the economic literature on the unemployment rate, Dr. Mishel and Dr. Bivens find that it was frequently below the so-called natural rate — the rate below which economists believe a tight job market could cause inflation to accelerate uncontrollably — in the three decades after World War II, but frequently above the natural rate in the last four decades.This is partly because the Federal Reserve began to put more emphasis on fighting inflation once Paul Volcker became chairman in 1979, and partly because of the failure of state and federal governments to provide more economic stimulus after the Great Recession of 2007-9.Drawing on existing measures of the relationship between unemployment and wages, Dr. Mishel and Dr. Bivens estimate that this excess unemployment lowered wages by about 10 percent since the 1970s, explaining nearly one-quarter of the gap between wages and productivity growth.They perform similar exercises for other factors that undermined workers’ bargaining power: the decline of unions; a succession of trade deals with low-wage countries; and increasingly common arrangements like “fissuring,” in which companies outsource work to lower-paying firms, and noncompete clauses in employment contracts, which make it hard for workers to leave for a competitor.Together, Dr. Mishel and Dr. Bivens conclude, these factors explain more than three-quarters of the gap between the typical worker’s actual increases in compensation and their expected increases, given the productivity gains.If that figure is in the right ballpark, it is a crucial insight. Underlying most of the explanations for anemic wages that Dr. Mishel and Dr. Bivens cite is the idea that wage growth depends on policy choices, not on the march of technology or other irreversible developments. Government officials could have worried less about inflation and erred on the side of lower unemployment when setting interest rates and passing economic stimulus. They could have cracked down on employers that aggressively fought unions or foisted noncompete agreements onto fast-food workers.And if policymakers are to blame for wage stagnation, they can also do a lot to reverse it — and more quickly than many economists once assumed. Among other things, the conclusion of the paper would suggest that President Biden, who has enacted a large economic stimulus and sought to increase union membership, may be on the right track.“One of the biggest things about the American Rescue Plan,” said Dr. Mishel, referring to the pandemic relief bill Mr. Biden signed, “is first and foremost its commitment to getting to full employment quickly. It’s willing to risk overheating.”The paper’s conclusions suggest that economic programs embraced by President Biden may be useful in raising wages.Stefani Reynolds for The New York TimesSo is the paper’s number plausible? The short answer from other economists was that it pointed in the right direction, but may have overshot its mark.“My sense is that things like fissuring, noncompetes have become very important in the 2000s, along with unions that have gotten to the point where they’re so weak,” said Lawrence Katz, a labor economist at Harvard who is a longtime proponent of the idea that the higher wages earned by college graduates have increased inequality.But Dr. Katz, who has also written about unions and other reasons that workers have lost leverage, said the portion of the wage gap that Dr. Mishel and Dr. Bivens attribute to such factors probably overstated their impact.The reason, he said, is that their effects can’t simply be added up. If excessive unemployment explains 25 percent of the gap and weaker unions explain 20 percent, it is not necessarily the case that they combine to explain 45 percent of the gap, as Dr. Mishel and Dr. Bivens imply. The effects overlap somewhat.Dr. Katz added that education plays a complementary role to bargaining power in determining wages, citing a historical increase in wages for Black workers as an example. In the first several decades of the 20th century, philanthropists and the N.A.A.C.P. worked to improve educational opportunities for Black students in the South. That helped raise wages once a major policy change — the Civil Rights Act of 1964 — increased workers’ power.“Education by itself wasn’t enough given the Jim Crow apartheid system,” Dr. Katz said. “But it’s not clear you could have gotten the same increase in wages if there had not been earlier activism to provide education.”Daron Acemoglu, an M.I.T. economist who has studied the effects of technology on wages and employment, said Dr. Mishel and Dr. Bivens were right to push the field to think more deeply about how institutions like unions affect workers’ bargaining power.But he said they were too dismissive of the role of market forces like the demand for skilled workers, noting that even as the so-called college premium has mostly flattened over the last two decades, the premium for graduate degrees has continued to increase, most likely contributing to inequality.Still, other economists cautioned that it was important not to lose sight of the overall trend that Dr. Mishel and Dr. Bivens highlight. “There is just an increasing body of work trying to quantify both the direct and indirect effects of declining worker bargaining power,” said Anna Stansbury, the co-author of a well-received paper on the subject with former Treasury Secretary Lawrence Summers. After receiving her doctorate, she will join the faculty of the M.I.T. Sloan School of Management this fall.“Whether it explains three-quarters or one-half” of the slowdown in wage growth, she continued, “for me the evidence is very compelling that it’s a nontrivial amount.” More

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    Biden’s Proposals Aim to Give Sturdier Support to the Middle Class

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    Perhaps the most striking difference between the middle class of 50 years ago and the middle class today is a loss of confidence — the confidence that you were doing better than your parents and that your children would do better than you.President Biden’s multitrillion-dollar suite of economic proposals is aiming to both reinforce and rebuild an American middle class that feels it has been standing on shifting ground. And it comes with an explicit message that the private sector alone cannot deliver on that dream and that the government has a central part to play.“When you look at periods of shared growth,” said Brian Deese, director of Mr. Biden’s National Economic Council, “what you see is that public investment has played an absolutely critical role, not to the exclusion of private investment and innovation, but in laying the foundation.”If the Biden administration gets its way, the reconstructed middle class would be built on a sturdier and much broader plank of government support rather than the vagaries of the market.Some proposals are meant to support parents who work: federal paid family and medical leave, more affordable child care, free prekindergarten classes. Others would use public investment to create jobs, in areas like clean energy, transportation and high-speed broadband. And a higher minimum wage would aim to buoy those in low-paid work, while free community college would improve skills.That presidents pitch their agendas to the middle class is not surprising given that nearly nine out of 10 Americans consider themselves members. The definition, of course, has always been a nebulous stew of cash, credentials and culture, relying on lifestyles and aspirations as much as on assets.But what cuts across an avalanche of studies, surveys and statistics over the last half century is that life in the middle class, once considered a guarantee of security and comfort, now often comes with a nagging sense of vulnerability.Salaries for teachers, hospital workers and child care providers are determined largely by the government, and do not necessarily reflect their value in an open market.Philip Keith for The New York TimesBefore the pandemic, unemployment was low and stocks soared. But for decades, workers have increasingly had to contend with low pay and sluggish wage growth, more erratic schedules, as well as a lack of sick days, parental leave and any kind of long-term security. At the same time, the cost of essentials like housing, health care and education have been gulping up a much larger portion of their incomes.The trend can be found in rich countries all over the world. “Every generation since the baby boom, has seen the middle-income group shrink and its economic influence weaken,” a 2019 report from the Organization for Economic Cooperation and Development concluded.In the United States, the proportion of adults in the middle bands of the income spectrum — which the Pew Research Center defines as roughly between $50,000 and $150,000 — declined to 51 percent in 2019 from 61 percent 50 years ago. Their share of the nation’s income shrank even more over the same period, to 42 percent from 62 percent.Their outlook dimmed, too. During the 1990s, Pew found rising optimism that the next generation would be better off financially than the current one, reaching a high of 55 percent in 1999. That figure dropped to 42 percent in 2019.The economy has produced enormous wealth over the last few decades, but much of it was channeled to a tiny cadre at the top. Two wage earners were needed to generate the kind of income that used to come in a single paycheck.“Upper-income households pulled away,” said Richard Fry, a senior economist at Pew.Corrosive inequality was just the beginning of what appeared to be a litany of glaring market failures like the inability to head off ruinous climate change or meet the enormous demand for affordable housing and health care. Companies often channeled profits to buy back stock instead of using them to invest or raise wages.The evidence was growing, liberal economists argued, that the reigning hands-off economic approach — low taxes on the wealthy, minimal government — was not producing the broad-based economic gains that sustained and grew the middle class.“The unregulated economy is not working for most Americans,” said Joseph Stiglitz, a Nobel laureate in economics. “The government has an important role,” he emphasized, in regulating the private sector’s excesses, redistributing income and making substantial public investments.Skeptics have warned of government overreach and the risk that deficit spending could ignite inflation, but Mr. Biden and his team of economic advisers have, nonetheless, embraced the approach.“It’s time to grow the economy from the bottom and middle out,” Mr. Biden said in his speech to a joint session of Congress last week, a reference to the idea that prosperity doesn’t trickle down from the wealthy, but flows out of a well-educated and well-paid middle class.He underscored the point by singling out workers as the dynamo powering the middle class.“Wall Street didn’t build this country,” he said. “The middle class built the country. And unions built the middle class.”Of course, the economy that lifted millions of postwar families into the middle class differed sharply from the current one. Manufacturing, construction and mining jobs, previously viewed as the backbone of the labor force, dwindled — as did the labor unions that aggressively fought for better wages and benefits. Now, only one out of every 10 workers is a union member, while roughly 80 percent of jobs in the United States are in the service sector.And it is these types of jobs, in health care, education, child care, disabled and senior care, that are expected to continue expanding at the quickest pace.Most of them, though, fall short of paying middle-income wages. That does not necessarily reflect their value in an open market. Salaries for teachers, hospital workers, lab technicians, child care providers and nursing home attendants are determined largely by the government, which collects tax dollars to pay their salaries and sets reimbursements rates for Medicare and other programs.They are also jobs that are filled by significant numbers of women, African-Americans, Latinos and Asians.“When we think about what is the right wage,” Mr. Stiglitz asked, “should we take advantage of discrimination against women and people of color, which is what we’ve done, or can we use this as the basis of building a middle class?”Mr. Biden’s spending plans — a $2.3 trillion infrastructure package called the American Jobs Plan, and a $1.8 trillion American Families Plan that concentrates on social spending — aim to take account of just how much the work force and the economy have transformed over the past half-century and where they may be headed in the next.The president’s economic team took inspiration from Franklin D. Roosevelt’s New Deal and the public programs that followed it.After World War II, for instance, the government helped millions of veterans get college educations and buy homes by offering tuition assistance and subsidized mortgages. It created a mammoth highway system to undergird commercial activity and funneled billions of dollars into research and development that was used later to develop smartphone technology, search engines, the human genome project, magnetic resonance imaging, hybrid corn and supercomputers.Mr. Biden, too, wants to fix roads and bridges, upgrade electric grids and invest in research. But his administration has also concluded that a 21st-century economy requires much more, from expanded access to high-speed broadband, which more than a third of rural inhabitants lack, to parental leave and higher wages for child care workers.The basic necessities that make it possible for parents to fully participate in the work force, like child care and parental leave, are still missing, said Betsey Stevenson, an economics professor.Gabriela Bhaskar for The New York Times“We’ve now had 50 years of the revolution of women entering the labor force,” and the most basic necessities that make it possible for parents to fully participate in the work force are still missing, said Betsey Stevenson, a professor at the University of Michigan and a former member of the Obama administration’s Council of Economic Advisers. She paused a few moments to take it in: “It’s absolutely stunning.”Right before the pandemic, more women than men could be found in paying jobs.Ensuring equal opportunity, Ms. Stevenson noted, includes “the opportunity to get high-quality early-childhood education, the opportunity to have a parent stay home with you when you’re sick, the opportunity for a parent to bond with you when born.”When it comes to offering this type of support, she added, “the United States is an outlier compared to almost every industrialized country.”The administration also has an eye on how federal education, housing and business programs of earlier eras largely excluded women, African-Americans, Asians and others.In the Biden plan are aid for colleges that primarily serve nonwhite students, free community college for all, universal prekindergarten and monthly child payments.“This is not a 1930s model any more,” said Julian E. Zelizer, a political science professor at Princeton University.And it’s all to be paid for by higher taxes on corporations and the top 1 percent.Passage in a sharply polarized Congress is anything but assured. The multitrillion-dollar price tag and the prospect of an activist government have ensured the opposition of Republicans in a Senate where Democrats have the slimmest possible majority.But public polling from last year showed widening support for the government to take a larger role.“What is so remarkable about this moment is this notion that public investment can transform America, that these are things government can do,” said Felicia Wong, president of the left-leaning Roosevelt Institute. “This is fundamentally restructuring how the economy works.”The middle class today differs in significant ways from the middle class of 50 years ago and perhaps the most striking is a loss of confidence.Evan Jenkins for The New York Times More

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    Biden's Spending Plans Could Start to Tackle Inequality

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    The Biden administration is relying on Congress instead of just the Fed to fix the economy. That mix could lead to a less wealth-unequal future.The coronavirus pandemic has threatened to rapidly expand yawning gaps between the rich and the poor, throwing lower-earning service workers out of jobs, costing them income, and limiting their ability to build wealth. But by betting on big government spending to pull the economy back from the brink, United States policymakers could limit that fallout.The $1.9 trillion economic aid package President Biden signed into law last month includes a wide range of programs with the potential to help poor and middle-class Americans to supplement lost income and save money. That includes monthly payments to parents, relief for renters and help with student loans.Now, the administration is rolling out additional plans that would go even further, including a $2.3 trillion infrastructure package and about $1.5 trillion in spending and tax credits to support the labor force by investing in child care, paid leave, universal prekindergarten and free community college. The measures are explicitly meant to help left-behind workers and communities of color who have faced systemic racism and entrenched disadvantages — and they would be funded, in part, by taxes on the rich.Forecasters predict that the government spending — even just what has been passed so far — will fuel what could be the fastest annual economic growth in a generation this year and next, as the country recovers and the economy reopens from the coronavirus pandemic. By jump-starting the economy from the bottom and middle, the response could make sure the pandemic rebound is more equitable than it would be without a proactive government response, analysts said.That is a big change from the wake of the 2007 to 2009 recession. Then, Congress and the White House passed an $800 billion stimulus bill, which many researchers have concluded did not do enough to fill the hole the recession left in economic activity. Lawmakers instead relied on the Federal Reserve’s cheap-money policies to coax the United States’ economy back from the brink. What ensued was a halting recovery marked by climbing wealth inequality as workers struggled to find jobs while the stock market soared.“Monetary policy is a very aggregated policy tool — it’s a very important economic policy tool, but it’s at a very aggregated level — whereas fiscal policy can be more targeted,” said Cecilia Rouse, who oversees the White House Council of Economic Advisers. In the pandemic crisis, which disproportionately hurt women of all races and men of color, she said, “If we tailor the relief to those who are most affected, we are going to be addressing racial and ethnic gaps.”From its first days, the pandemic set the stage for a K-shaped economy, one in which the rich worked from home without much income disruption as poorer people struggled. Workers in low-paying service jobs were far more likely to lose jobs, and among racial groups, Black people have experienced a much slower labor market rebound than their white counterparts. Globally, the downturn probably put 50 million people who otherwise would have qualified as middle class into lower income levels, based on one recent Pew Research analysis.But data suggest the U.S. policy response — including relief legislation that passed last year under the Trump administration — has helped mitigate the pain.“The CARES Act to the American Rescue Plan have helped to support more households than I would have imagined,” Charles Evans, the president of the Federal Reserve Bank of Chicago, told reporters this month during a call, referring to the pandemic relief packages passed in early 2020 and early 2021.Wealth has recovered nearly across the board after slumping early last year, foreclosures have remained low, and household consumption has been shored up by repeated stimulus checks.While the era has been fraught with uncertainty and people have slipped through the cracks, this downturn looks very different for poorer Americans than the post-financial crisis period. That recession ended in 2009, and America’s wealthiest households recovered precrisis wealth levels by 2012, while it took until 2017 for the poorest to do the same.At a food bank in Phoenix last month. The $1.9 trillion economic aid package signed into law includes a wide range of programs with the potential to help poor and middle-class Americans.Juan Arredondo for The New York TimesThe government’s policy response is driving the difference. In the 2010s, Republicans cited deficit worries and curtailed spending early, at a time when the economy remained far from healed after the worst downturn since the Great Depression. Interest rates were already near zero and not offering much of an economic lift, so the Fed engaged in several rounds of large-scale bond purchases to try to bolster the economy.The Fed policies did help. But low rates and huge bond-buying bolstered the economy slowly, and by first increasing prices on financial assets, which rich households are much more likely to own. As companies gain access to cheap capital to expand and hire, the workers who secure those new jobs have more money to spend, and a happy cycle unfolds.By 2019, that prosperous loop had kicked into gear and unemployment had dropped to half-century lows. Black and Hispanic as well as less-educated workers were working in greater numbers, and wages at the bottom of the income distribution had begun to steadily climb.Poverty fell, and there were reasons to hope that if that had continued, income inequality — the gap between how much the poor and the rich earn each year — might soon decline. Lower income inequality could, in theory, lead to lower wealth inequality over time, as households have the wherewithal to save more evenly.But getting there took nearly a decade and when the pandemic hit in 2020, it almost certainly disrupted the trend. The data are released on a lag.As those divergent trends between labor and capital played out, the rich rebuilt their savings — which are heavily invested in stocks and businesses — much faster. Poorer households eventually reaped benefits as the years wore on and people landed jobs. The bottom half of America’s wealth holders ended up better off than they had been before the crisis, but farther behind the rich.At the start of 2007, the bottom half of the wealth distribution held 2.1 percent of the nation’s riches, compared to 29.7 percent for the top 1 percent. By the start of 2020, the bottom half had 1.8 percent, while the top 1 percent held 31 percent.Researchers debate whether monetary policy actually worsens wealth divides in the long run — especially since there’s the hairy question of what would have happened had the Fed not acted — but monetary policymakers generally agree that their policies can’t stop a pre-existing trend toward ever-worse wealth inequality.By offering a more targeted boost from the very start of the recovery, fiscal policy can. Or, at a minimum, it can prevent wealth gaps from deepening so much.Monetary policy “is naturally trickle-down,” said Joseph Stiglitz, an economist at Columbia and Nobel laureate. “Fiscal policy can work from the bottom and middle up.”That’s what the Biden administration is gambling on. Paired with packages from December and last April, Congress’s recent package will bring the amount of economic relief that Congress has approved during the pandemic to more than $5 trillion. That dwarfs the amount spent in the last recovery.The legislation is a mosaic of tax credits, stimulus checks and small-business support that could leave families at the lower end of the income and savings distribution with more money in the bank and, if its provisions work as advertised, with a better chance of returning to work early in the recovery.There is no guarantee Mr. Biden’s broader economic proposals, totaling about $4 trillion, will clear a narrowly divided Congress. Republicans have balked at his plans and this week offered a counterproposal on infrastructure that is only a fraction the size of what Mr. Biden wants to spend. A bipartisan group of House moderates is pushing the president to finance infrastructure spending through an increased gas tax or something similar, which hits the poor harder than the rich.Still, the president’s new proposals could have long-term effects, working to retool workers’ skills and lift communities of color in hopes of putting the economy on more equal footing. The president is set to outline his so-called American Family Plan, which is focused on the work force, before his first address to a joint session of Congress next week.While details have yet to be finished, programs like universal prekindergarten, expanded subsidies for child care and a national paid leave program would be paid for partly by raising taxes on investors and rich Americans. That could also affect the wealth distribution, shuffling savings from the rich to the poor.The plan, which must win support in a Congress where Democrats have just a narrow margin, would raise the top marginal income tax rate to 39.6 percent from 37 percent, and raise taxes on capital gains — the proceeds of selling an asset, like a stock — for people making more than $1 million to 39.6 percent from 20 percent. Counting in an Obamacare-related tax, the taxes they pay on profits would rise above 43 percent.If the Biden package helps a wide swath of people to get back to earning and saving money faster this time, there’s hope that it might set the economy on a different trajectory.Jim Wilson/The New York TimesThe new policies will not necessarily cut wealth inequality, which has been on an inexorable upward march for decades, but they could keep poorer households from falling behind by as much as they would have otherwise.Betting big on fiscal policy to return the economy to strength is a gamble. If the economy overheats, as some prominent economists have warned it could, the Fed might have to rapidly lift interest rates to cool things down. Rapid adjustments have historically caused recessions, which consistently throw vulnerable groups out of jobs first.But administration officials have repeatedly said the bigger risk is underdoing it, leaving millions on the labor market’s sidelines to struggle through another tepid recovery. And they say the spending provisions in both the rescue package and the infrastructure could help to fix longstanding divides along racial and gender lines.“We think of investment in racial equity, and equity in general, as good policy, period, and integral to all the work we do,” Catherine Lhamon, a deputy director of the Domestic Policy Council, said in an interview. More

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    Beyond Pandemic’s Upheaval, a Racial Wealth Gap Endures

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    Billions in aid has been dispensed, and the social safety net has been reinforced. Will there be more ambitious steps to address longtime inequities?Not since Lyndon Baines Johnson’s momentous civil rights and anti-poverty legislation has an American president so pointedly put racial and economic equity at the center of his agenda.President Biden’s multitrillion-dollar initiatives to rebuild infrastructure in neglected and segregated neighborhoods, increase wages for health care workers, expand the safety net and make pre-K and college more accessible are all shot through with attention to the particular economic disadvantages that face racial minorities. So were his sweeping pandemic relief bill and Inauguration Day executive orders.Yet as ambitious as such efforts are, academic experts and some policymakers say still more will be needed to repair one of the most stubborn and invidious inequalities: the gap in wealth between Black and white Americans.Wealth — one’s total assets — is the most meaningful measure of financial strength. Yet for every dollar a typical white household has, a Black one has 12 cents, a divide that has grown over the last half-century. Latinos have 21 cents for every dollar in white wealth.Such disparities drag down the American economy as a whole. A study by McKinsey & Company found that consumption and investment lost because of that gap cost the U.S. economy $1 trillion to $1.5 trillion over 10 years, or 4 to 6 percent of the projected gross domestic product in 2028.Mr. Biden started talking about the wealth divide on the campaign trail, calling on the Federal Reserve to take on a new role and “aggressively target persistent racial gaps in jobs, wages and wealth.”Vice President Kamala Harris and several Democratic senators have supported proposals targeted specifically at the gap — from increasing Black homeownership to establishing trust accounts for newborns (“baby bonds”). And senior economic advisers who have joined the Biden team, including Cecilia Rouse and Jared Bernstein, have talked about the need for programs that attack structural inequities, noting that disparities in income over time create more entrenched gaps in wealth.Heather Boushey, a member of the White House Council of Economic Advisers, said the president’s proposals were intended to work together to make sure that unexpected or temporary economic jolts — like the loss of a job — didn’t snowball into a disastrous tumble.“No one thing alone is going to check the box to close the wealth gap, but the combination of all these things together will make real progress,” said Ms. Boushey, who has written frequently about the issue.Government support is crucial, economists say, because there is so little that individuals can do on their own to close the wealth gap. The most surprising finding that researchers at the Federal Reserve Bank of St. Louis established after a decade-long study of inequality and financial vulnerability was that no matter what financial decisions you make or schools you attend, roughly 80 percent of those yawning disparities are determined by your skin color, the year you were born and your gender.Median wealth of Black, Hispanic and white households

    Note: Figures adjusted for inflationSource: Federal Reserve Bank of St. LouisThe New York Times“There’s a lot you don’t control,” said Ray Boshara, who headed the research effort. “These larger forces really have an impact on your ability to accumulate wealth.”Imagine playing a game of Monopoly with a set of rigged rules. Your opponent gets $2,000 in cash, rolls with two dice at every turn, and earns $200 every time he circles the board and passes “Go.” You, by contrast, begin with only $1,000, roll with a single die and earn $100 at “Go.”At the game’s end, you can hand off whatever cash and property you’ve accumulated to a friend or family member, and the next round just continues.The rigged game helps explain the origins of the wealth gap. The heavy hand of a history studded by intimidation and terrifying violence, segregation and unfair housing, zoning and lending policies has prevented generations of Black families from gathering assets.In the 19th century, when the government distributed the country’s most realizable asset — land — during the Homestead Act, African-Americans were left out. In the 20th century, when the focus shifted to building a berth in the middle class through homeownership, African-Americans were again largely excluded from federal mortgage loan support programs and the G.I. Bill of Rights. Tax policies, in turn, favored the wealth-building strategies that were offered to whites.Even New Deal assistance programs like unemployment insurance that were created to help people survive the Depression excluded agricultural and domestic workers, who were overwhelmingly Black.Again and again, African-Americans were shut off from the capital that makes capitalism work.“That’s how we built the racial wealth gap,” said William A. Darity Jr., an economics professor at the Sanford School of Public Policy at Duke University. “Unless you have a comparable program focused on building Black wealth, you’re not going to do much about it.”Unequal outcomes in one generation turn into unequal opportunities in the next. Without assets, Black parents cannot offer as much financial support to help pay for their children’s education, first home or efforts to start a small business.Black graduates, for example, have to take out bigger loans to cover college costs, compelling them to start out in more debt — on average $25,000 more — than their white counterparts.Recognizing an uneven playing field is not as obvious as it might seem. The lopsided Monopoly rules were developed by social scientists at the University of California, Berkeley, nearly a decade ago as part of an experiment on money’s effect on human behavior.They found that winners consistently credited their hard-earned skills and smarts for their success rather than a skewed playing field.Research shows that outside forces prevent Black workers who are just as talented and hardworking from achieving the same success as their white peers.Harold M. Lambert/Getty ImagesThat all-too-human response clouds thinking about inequality, said Paul Piff, who led the research team and is now a psychologist at the University of California, Irvine.Americans, much more than people from other countries, interpret “their advantages in terms of things they themselves have earned or deserved as opposed to thinking it’s the result of an unfair world,” Professor Piff said. “Then the inequalities you’re seeing aren’t unfair, they’re just necessary outcomes of things that people did or didn’t do,” he said, so you are less willing to do anything about them.Mr. Boshara at the St. Louis Fed said the implications were particularly pertinent in thinking about the racial wealth gap.“People feel they’ve earned everything they have, but the evidence just doesn’t support that,” said Mr. Boshara, who is helping to lead a follow-up research initiative at the bank, the Institute for Economic Equity. “It counters the American narrative that everybody who has something made it on their own.”Challenging shibboleths about hard work and personal responsibility can meet resistance. People often take immediate offense, interpreting the argument as detracting from their own demonstrable hard work, skills and talent. What the research highlights, though, are the outside forces that prevent other individuals who are just as talented and hardworking from achieving the same success.The same house in a Black neighborhood will fetch less money than it would in a white one. A Black worker with the same credentials as a white colleague will earn less. Even among college graduates, the Black jobless rate tends to be twice as high as the rate for whites. Such inequities operate like an invisible tax on African-Americans, a tax on being Black.The pandemic has underscored how crushing unpredictable and uncontrollable twists in circumstances can be. When Congress approved the $1.9 trillion relief plan, Mr. Biden pointed out that millions of Americans were jobless and lining up at food banks “through no fault of their own.”“I want to emphasize that,” he added. “Through no fault of their own.”The pandemic has hit African-Americans and Latinos hardest on all fronts, with higher infection and death rates, more job losses, and more business closures.Proposals that confront the wealth gap head on, though, are both expensive and politically charged.Professor Darity of Duke, a co-author of “From Here to Equality: Reparations for Black Americans in the Twenty-First Century,” has argued that compensating the descendants of Black slaves — who helped build the nation’s wealth but were barred from sharing it — would be the most direct and effective way to reduce the racial wealth gap.Vice President Harris and Senators Bernie Sanders of Vermont, Elizabeth Warren of Massachusetts and Cory Booker of New Jersey have tended to push for asset-building policies that have more popular support. They have offered programs to increase Black homeownership, reduce student debt, supplement retirement accounts and establish “baby bonds” with government contributions tied to family income.With these accounts, recipients could build up money over time that could be used to cover college tuition, start a business or help in retirement.Several states have experimented with small-scale programs meant to encourage children to go to college. Though those programs were not created to close the racial wealth gap, researchers have seen positive side effects. In Oklahoma, child development accounts seeded with $1,000 were created in 2007 for a group of newborns.“We have very clear evidence that if we create an account of birth for everyone and provide a little more resources to people at the bottom, then all these babies accumulate assets,” said Michael Sherraden, founding director of the Center for Social Development at Washington University in St. Louis, which is running the Oklahoma experiment. “Kids of color accumulate assets as fast as white kids.”Without dedicated funds — the kind of programs that enabled white families to build assets — it won’t be possible for African-Americans to bridge the wealth gap, said Mehrsa Baradaran, a law professor at the University of California, Irvine, and the author of “The Color of Money: Black Banks and the Racial Wealth Gap.”She paraphrased a 1968 presidential campaign slogan of Hubert Humphrey’s: “You can’t have Black capitalism without capital.” More

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    How 10 Economists Think About the Economy Potentially Overheating

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    Some notable participants in the debate over the Biden stimulus tell us, in their words, what a too-hot economy would look like.What would it really mean for the economy to overheat? How would we know if the ominous warnings by several prominent economists were coming true?We asked 10 economists who have offered commentary from either side of the debate to lay out their arguments more precisely. The question we asked: What rate of inflation, using what measure, over what period of time — or other developments, such as swings in bond or currency markets — would indicate problematic overheating was underway?Their answers are below, lightly edited for clarity and length.To explain some terms that appear frequently in these responses: “P.C.E. inflation” is a measure of inflation based on personal consumption expenditures; it is the preferred inflation measure of the Federal Reserve. “Break-evens” refers to the level of future inflation priced into the Treasury bond market, based on the price of inflation-protected securities. The “five-year, five-year” forward rate is the annual inflation priced into bonds for the five-year period starting five years in the future — that is, the period between five and 10 years from now. “Core” inflation, whether using P.C.E. or other measures, excludes volatile food and energy prices.Ángel Franco/The New York TimesOlivier Blanchard, senior fellow at the Peterson Institute for International Economics and former chief economist of the International Monetary FundI shall plead Knightian uncertainty. I have no clue as to what happens to inflation and rates, because it is in a part of the space we have not been in for a very long time. Uncertainty about multipliers, uncertainty about the Phillips curve, uncertainty about the dovishness of the Fed, uncertainty about how much of the $1.9 trillion package will turn out to be permanent, uncertainty about the size and the financing of the infrastructure plan. All I know is that any of these pieces could go wrong.Julia Coronado, president of MacroPolicy Perspectives and former Fed economistWe would have to see the Fed’s preferred gauge of core P.C.E. inflation sustained at a rate above 3 percent for several years and importantly matched by wage growth with measures of inflation expectations rising before I worry about the Fed losing its grip on its stable price mandate. Bond yields would need to be sustained well north of 4 percent in this scenario. It is strange to me that for years economists pined for a better mix of monetary and fiscal policy and now we have it and there is a narrative among some that it has to end in disaster. I am more optimistic about the macro outlook than I have been in a long time and am far more focused on how quickly the labor market returns to health than any threat from inflation.Brad DeLong, economist, University of California, BerkeleyThe Federal Reserve’s inflation target has been that inflation should average — not ceiling, but average — 2 percent per year using the P.C.E., 2.5 percent per year using the core C.P.I. Had inflation in fact matched that average since the beginning of the Great Recession, the core C.P.I. would now be 296 on a 1982-84=100 basis. It is actually 270.If the Fed had hit its inflation target, the price level now would be 9.6 percent higher than it is. When the cumulative excess of C.P.I. core inflation over 2.5 percent per year reaches +9.6 percent, come and ask me again whether Federal Reserve policy is excessively inflationary. Until then, we certainly have other much more important economic problems to worry about than the risks of excessive and damaging inflation.Wendy Edelberg, director of the Hamilton Project at the Brookings Institution, former chief economist of the Congressional Budget OfficeI think there is a fair amount of consensus that the economy will grow strongly beginning in the fourth quarter of 2021 and that inflation will rise. I also believe, although there is less consensus here, that the level of economic activity will temporarily rise above its sustainable level for a time and inflation will rise above the Fed’s target. If you want to call that overheating, I think that isn’t in and of itself problematic. In fact, I think making up for some lost economic activity is beneficial. And, the Fed has said it welcomes a rebound in inflation.So where would I be concerned? Is this just a matter of degrees? In isolation, there isn’t a credible prediction of temporary overheating or inflationary pressure that worries me. For example, I think we can increase labor force participation well above its sustainable level for several quarters. Same with capacity utilization. I don’t think anyone will be too surprised to see massive airfare inflation. Instead, I worry if we start to see signs that people, businesses and financial markets are responding to the level of overheating as if it were permanent. On one dimension, that could suggest a harder landing. For example — I would worry about a significant jump in the quit rate.I would worry about a housing construction boom or a commercial real estate boom. I would worry about a significant increase in leverage across the economy. That all suggests pain for people when the economy cools. On another dimension, if financial markets start to view the overheating as being too permanent, we could see inflation expectation rise to worrying levels — well above the Fed’s target. For example, I think we need to keep a close eye on the five-year, five-year forward inflation expectation rate. The Cleveland Fed has a nice roundup of inflation expectation measures.I would worry about the Fed’s credibility if longer-term expectations remained stubbornly above where they were in 2019 by, say, one-half percentage point. Which is to say, the economy has benefited from the Fed being credible about its policy direction. If it’s lost, regaining that credibility would exact a toll. Still, everything I see in terms of underlying economic strength, households’ resources, and the fiscal support in train points to a several-quarter-long surge in the economy. We — policymakers, households, businesses — need to appreciate its temporary nature and adjust accordingly.Austan Goolsbee, economist, University of Chicago Booth School of Business and former chairman of the White House Council of Economic AdvisersThe most obvious indicator is that they predict sustained and rising inflation from an overheated economy. You should see prices rising rapidly, and it’s not called a NAIRU for nothing — it should start accelerating. It should be in wages and prices, and it shouldn’t be temporary. It should be 3, then 4, then 5 percent and so on. Basically they are predicting a 1970s repeat, so just go look at how inflation accelerated in the 1970s.So B, this means more than just what is the inflation rate one year from now. Up and then back down is perfectly consistent with the Yellen/Powell view. If you are impatient to get an idea before having to wait four years, you would expect this to show up in the TIPS implied inflation expectations. Compare the five-year TIPS to the 10-year TIPS, and it will tell you whether they expect a heavy, sustained inflation. Right now the five-year is 2.5 percent, and the 10-year is 2.3 percent, so they don’t expect high inflation and they don’t expect rising, sustained inflation. It’s as simple as that.C, the implicit implication of their view is that the labor market in particular will overheat. For that to happen, we should see a big rise in the labor force participation rate back to recent normal levels, at the least, and the unemployment rate down below the 3.5 percent range it got to under Trump (without inflation).But D, it should count somewhat in their favor if the Fed had to jack up rates so quickly/stiffly that it created a tough recession without a soft landing. That might prevent actual inflation from happening and negate their hypothesis in the technical sense, but they would still be right in spirit even without the actual inflation. Caveat to D, if we have a bubble going on and the bubble pops and that causes a recession, that has nothing to do with their theory and they should not get credit for that. It’s basically just the 2001, 2008 style recession again.Jason Furman, Harvard economist and former chairman of the White House Council of Economic AdvisersUltimately we’re worried about an outcome in the real economy, which is rapid growth in 2021 followed by a significant reversal in 2022 or 2023 with anything like a recession, negative growth or a sizable increase in the unemployment rate. Much of what we call “overheating” is mostly a concern insofar as it triggers that outcome. But some more proximate measures:Inflation in the second half of 2021 or the four quarters of 2022 at an annual rate of 2 to 2.5 percent would be desirable; 2.5 to 3.5 percent would cause more worries than it objectively should, but those worries could create self-fulfilling problems; and above 3.5 percent would create a substantial risk of macroeconomic reactions that create genuine instability and problems in the economy.The 10-year nominal interest rate going above 3 percent in 2021 should give us some pause, and going above 4 percent should raise the possibility of a meaningful course correction for fiscal policy. Finally, not a proximate measure, but a fear (and this is not my central guess), is that overheating could happen without a large decline in the unemployment rate. If, for example, people don’t return quickly to the labor force and it takes a while for the unemployed to find jobs, then you could have overheating even with an unemployment rate of 4.5 or 5 percent. That would be the worst scenario because it would really discourage policy activism for some time to come. Not my main prediction and maybe a risk worth taking, but is the gnawing fear that keeps me up at night.N. Gregory Mankiw, Harvard economist and former chairman of the White House Council of Economic AdvisersI would say the economy is overheated if G.D.P. rises above potential G.D.P. (as estimated by, say, C.B.O.), and core inflation (P.C.E. price index excluding food and energy) rises above 3 percent over a 12-month period. (Inflation has not broken that threshold anytime during the past quarter century.)Such an overheating could be temporary. I would say we have an ongoing overheating problem if, in addition, five-year break-even inflation — a gauge of inflation expectations — rises above 3 percent.Claudia Sahm, senior fellow, Jain Family Institute and former Fed economistTo have overheating you need to start getting a spiral. There’s not a magical number. It’s not that if you’ve gone over 5 percent inflation you’re overheating. To me, overheating is inflation starts picking up, and it keeps going. Inflation is a slow-moving dynamic, especially in core. You see it’s up a couple of tenths of a percent, then another couple of tenths, then starting to move up half a percent if things really start to get out of control. When it keeps going and keeps getting worse, you’re overheating.It would speed up. It would have to be persistent. If by the end of next year we were looking at consistent prints of 3 percent, and it had started — we’re at 1.5 now — if it had climbed to 2.6 by the end of the year, then kept going up next year and was heading toward 3 by the end of 2022, with the unemployment rate completely recovered, OK, maybe we’re pushing the economy too hard. It’s time to ease up on the accelerator and tap the brakes.It’s the spiral that matters. It could happen, but it would take a while and not only do we know how to disrupt a wage-price spiral — we know what it looks like.Lawrence H. Summers, Harvard economist and former Treasury secretaryI think there’s a one-third chance that inflation expectations meaningfully above the Fed’s 2 percent target will become entrenched, a one-third chance that the Fed will bring about substantial financial instability or recession in order to contain inflation, and a one-third chance that this will work out as policymakers hope.In the first scenario, we have a Vietnam-like experience where inflation expectations ratchet upwards due to macroeconomic policies, and inflation expectations, broadly defined, become unanchored.In the second scenario, we have an experience like most of the recessions prior to 1990, when expansions were murdered by the Fed with inflation control as the motive. This was the case three times in the 1950s, at the beginning of the 1970s, in 1975, 1980 and 1982. In the past it has proven impossible to generate a soft landing. I can’t think of a time when we have experienced a big downshift without having a recession.In the successful scenario that is the aspiration of policymakers, we would enjoy a period of very rapid growth, followed by a downshift to moderate growth, with inflation expectations remaining anchored in the 2 percent range.Michael Strain, director of economic policy, the American Enterprise InstituteI have a separate view on what would be good for the economy and on what the Fed might be able to tolerate.Trend inflation (measured by some sort of a moving average, let’s say — but that does not include March and April due to base effects) of 2.5-3 percent would be a policy victory. By “inflation” I mean the year-over-year change in the monthly core P.C.E. Aberrant, transitory months spikes are nothing to worry about from an economic perspective. But if that average starts to creep above 3 percent, then I would start to worry, regardless of the behavior of market-based inflation expectations.If market-based inflation expectations on the five-year break-even go above 3 percent and expectations using five-year, five-year forward go above 2.5 percent, then I would start to worry, regardless of the behavior of actual price inflation, as measured in the previous paragraph.My big concern is that the Fed won’t be able to hold firm in the environment I characterize in my first paragraph, especially if you add evidence of financial market bubbles into the mix. So in that sense, I am more worried about a policy mistake than I am worried about a de-anchoring of expectations. More

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    If the Economy Overheats, How Will We Know?

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    We asked some prominent participants in the Great Overheating Debate of 2021 to explain what inflationary trends they’re afraid of (or not, as the case may be).“It is strange to me that for years economists pined for a better mix of monetary and fiscal policy, and now we have it and there is a narrative among some that it has to end in disaster,” one economist said.Olivier Douliery/Agence France-Presse — Getty ImagesSome big-name economists argue that the economy will soon overheat because of the Biden administration’s $1.9 trillion pandemic relief and other spending measures.They worry that the economy is being flooded with too much money, a fear only heightened by news that the administration will seek $3 trillion more to build infrastructure, cut carbon emissions and reduce inequality.But in this debate, what overheating would mean — exactly how much inflation, with what kinds of side effects for the economy — has often been vague. So The New York Times asked some prominent participants in the Great Overheating Debate of 2021 to lay out in more detail what they are afraid of, and how we will know if their fears have been realized. See their full answers here.It turns out that the two sides — the overheating worriers and those who think those concerns are misplaced — agree on many points. They have common ground on what a bad outcome might look like, and agree that it will take some time to know whether a problematic form of inflation is really taking root. The differences are in how likely they consider it to happen.The core dispute, one with big consequences for the future of the economy and for the Biden administration, is over the nature of the inflation that is to come.As the economy reopens and Americans spend their stimulus checks and the money they saved during the pandemic, demand for certain goods and services will outstrip supply, driving up prices. That is now pretty much an inevitability.The Biden administration and its allies are betting this will be a one-time event: that prices will recalibrate, industries will adjust and unemployment will fall. By next year they expect a booming economy with inflation back at low, stable levels.The overheating worriers, who include prominent Clinton-era policymakers and many conservatives, believe there is a more substantial chance that one of two more pessimistic scenarios will come true. As vast federal spending keeps coursing through the economy, they fear that high inflation will come to be seen as the new normal and that behavior will adjust accordingly.If people believe we are entering a more inflationary era — after more than a decade when inflation has been persistently low — they could alter their behavior in self-fulfilling ways. Businesses would be quicker to raise prices and workers to demand raises. The purchasing power of a dollar would fall, and the bond investors who lend to the government would demand higher interest rates, making financing the budget deficit trickier.“I don’t think anyone will be too surprised to see massive airfare inflation” in the short term, for example, as the economy reopens, said Wendy Edelberg, director of the Hamilton Project at the Brookings Institution. “Instead, I worry if we start to see signs that people, businesses and financial markets are responding to the level of overheating as if it were permanent.”That situation would leave policymakers, especially at the Federal Reserve, faced with two bad choices: Allow inflation to take off in an upward spiral, or stop it by raising interest rates and quite possibly causing a recession.“Ultimately we’re worried about an outcome in the real economy, which is rapid growth in 2021 followed by a significant reversal in 2022 or 2023 with anything like a recession, negative growth or a sizable increase in the unemployment rate,” said Jason Furman, a former Obama administration economic adviser. “Much of what we call ‘overheating’ is mostly a concern insofar as it triggers that outcome.”Mr. Furman says annual inflation rates of 3.5 percent or higher in late 2021 or 2022 would “create a substantial risk of macroeconomic reactions that create genuine instability and problems in the economy,” and that even a notch lower than that, 2.5 percent to 3.5 percent, could create some problems.Julia Coronado, president of MacroPolicy Perspectives, by contrast, argues that it would take several years of inflation at 3 percent or higher — not just a bump in 2021 or 2022 — before she would worry that inflation expectations could become unmoored, leading to either an inflation-tamping recession or a 1970s-style vicious cycle of ever-higher prices.“It is strange to me that for years economists pined for a better mix of monetary and fiscal policy, and now we have it and there is a narrative among some that it has to end in disaster,” Ms. Coronado said. “I am more optimistic about the macro outlook than I have been in a long time and am far more focused on how quickly the labor market returns to health than any threat from inflation.”As economists view it, inflation — at least the kind worth worrying about — isn’t a one-time event so much as a process.When demand for goods and services expands faster than the supply of them, consumers simply bid up the price of finite goods, and businesses bid up wages to try to keep up. This begins a cycle of higher wages fueling higher prices, which in turn fuels higher wages.Such a process began in the mid-1960s and culminated in double-digit inflation in the 1970s. But there are important differences between then and now. For one thing, unions then were more powerful and demanded steep wage increases. For another, a series of one-off events made inflation worse, including the breakdown of the Bretton Woods international currency arrangements and oil embargoes that sent fuel prices soaring.Those were also years when the Fed responded inadequately to rising inflation pressures — it was a series of errors the central bank made, not just one. That experience would suggest that the Fed, having learned the lessons of that era, could nip any new inflationary outburst in the bud..css-yoay6m{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}@media (min-width:740px){.css-yoay6m{font-size:1.25rem;line-height:1.4375rem;}}.css-1dg6kl4{margin-top:5px;margin-bottom:15px;}.css-k59gj9{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;width:100%;}.css-1e2usoh{font-family:inherit;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;border-top:1px solid #ccc;padding:10px 0px 10px 0px;background-color:#fff;}.css-1jz6h6z{font-family:inherit;font-weight:bold;font-size:1rem;line-height:1.5rem;text-align:left;}.css-1t412wb{box-sizing:border-box;margin:8px 15px 0px 15px;cursor:pointer;}.css-hhzar2{-webkit-transition:-webkit-transform ease 0.5s;-webkit-transition:transform ease 0.5s;transition:transform ease 0.5s;}.css-t54hv4{-webkit-transform:rotate(180deg);-ms-transform:rotate(180deg);transform:rotate(180deg);}.css-1r2j9qz{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-e1ipqs{font-size:1rem;line-height:1.5rem;padding:0px 30px 0px 0px;}.css-e1ipqs a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;}.css-e1ipqs a:hover{-webkit-text-decoration:none;text-decoration:none;}.css-1o76pdf{visibility:show;height:100%;padding-bottom:20px;}.css-1sw9s96{visibility:hidden;height:0px;}#masthead-bar-one{display:none;}#masthead-bar-one{display:none;}.css-1cz6wm{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;font-family:’nyt-franklin’,arial,helvetica,sans-serif;text-align:left;}@media (min-width:740px){.css-1cz6wm{padding:20px;width:100%;}}.css-1cz6wm:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1cz6wm{border:none;padding:20px 0 0;border-top:1px solid #121212;}Frequently Asked Questions About the New Stimulus PackageThe stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more. Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read moreThis credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.Larry Summers, Treasury secretary to President Clinton and a top adviser to President Obama, kicked off the overheating debate with an op-ed in The Washington Post. He says an effort by the Fed to rein in overheating would be unlikely to be painless.“We have an experience like most of the recessions prior to 1990, when expansions were murdered by the Fed with inflation control as the motive,” he said, adding: “In the past it has proven impossible to generate a soft landing. I can’t think of a time when we have experienced a big downshift without having a recession.”He now assigns roughly equal odds to three possibilities: that everything goes according to plan, with inflation returning to normal after a one-time surge; that a cycle of ever-rising inflation develops; or that the Fed ultimately causes a steep downturn to prevent that inflationary cycle.So given that the real risk is not so much inflation in 2021, but what happens beyond the immediate future, how would we know it?Greg Mankiw, a Harvard economist who has warned of overheating, said there would be an “ongoing overheating problem” only if consumer prices were rising by more than 3 percent a year and bond prices were to shift in ways that suggested investors expected 3 percent or higher annual inflation for the next five years.Michael Strain of the American Enterprise Institute also emphasized these inflation “break-evens,” which capture bond investors’ views of future inflation based on the gap between inflation-protected and regular securities. Like Mr. Mankiw, he said that break-evens suggesting 3 percent or higher annual inflation over the next five years would be worrying, as would 2.5 percent or higher inflation expected for the period five to 10 years from now.Another place to look for evidence of overheating will be whether inflation merely rises or keeps accelerating.If the overheating warnings are correct, “it should start accelerating,” said Austan Goolsbee, an economist at the University of Chicago who has been sharply critical of the overheating thesis. “It should be 3, then 4, then 5 percent and so on. Basically they are predicting a 1970s repeat, so just go look at how inflation accelerated in the 1970s.”How will Americans interpret price rises during the post-pandemic boom? Might it jolt them out of the low-inflation psychology that has prevailed for nearly four decades, making businesses more confident about raising prices and workers faster to demand raises?The answer will determine whether the years ahead represent a pleasant warming trend or a red-hot caldron that leaves everybody burned. More

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    When Amazon Raises Wages, Local Companies Follow Suit

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    #masthead-section-label, #masthead-bar-one { display: none }The Jobs CrisisCurrent Unemployment RateWhen the Checks Run OutThe Economy in 9 ChartsThe First 6 MonthsAdvertisementContinue reading the main storySupported byContinue reading the main storyWhen Amazon Raises Wages, Local Companies Follow SuitNew research suggests that when big companies increase wages, they drive up pay in the places where they operate — without a notable loss in jobs.An Amazon fulfillment center in Kent, Wash. The company lifted starting pay to $15 an hour three years ago.Credit…Ruth Fremson/The New York TimesBen Casselman and March 5, 2021, 5:00 a.m. ETAmazon has embarked on an advertising blitz this winter, urging Congress to follow the company’s lead and raise the federal minimum wage to $15 an hour. American workers “simply can’t wait” for higher pay, the company said in a recent blog post.In the areas where Amazon operates, though, low-wage workers at other businesses have seen significant wage growth since 2018, beyond what they otherwise might have expected, and not because of new minimum-wage laws. The gains are a direct result of Amazon’s corporate decision to increase starting pay to $15 an hour three years ago, which appears to have lifted pay for low-wage workers in other local companies as well, according to new research from economists at the University of California, Berkeley, and Brandeis University.The findings have broad implications for the battle over the federal minimum wage, which has stayed at $7.25 an hour for more than a decade, and which Democrats are trying to raise to $15 by 2025. For one, the research illustrates how difficult it can be for low-wage workers to command higher pay in the modern American economy — until a powerful outside actor, like a large employer or a government, intervenes.Most directly, there is little evidence in the paper that raising the minimum wage would lead to significant job loss, even in low-cost rural areas, a finding consistent with several recent studies. Other research, including a recent report from the Congressional Budget Office, has found a larger negative effect on jobs, although still smaller than many economists believed in the past.The authors of the latest study — Ellora Derenoncourt of Berkeley and Clemens Noelke and David Weil of Brandeis — studied Amazon, Walmart and Target, which operate in areas where wages tend to be low. But even in those places, the researchers found, wage increases by the large corporate employers appear to drive up wages without driving down employment.“When you have major changes in the wage policies of large actors in the labor market, this has ripple effects,” Dr. Derenoncourt said in an interview.At the same time, Dr. Weil added, “the sky doesn’t fall.”The researchers used the federal government’s Current Population Survey, supplemented by evidence from the online job posting site Glassdoor, to estimate what happened in communities where Amazon, Target or Walmart operate after those companies increased entry-level wages in recent years. What they found in many ways confounds traditional economic models: Raising pay did not put the large companies at a disadvantage. Instead, it gave local workers a reason to push their own employers for a raise.At Mooyah Burgers, Fries and Shakes, a chain with 87 locations in 21 states, the Amazon effect is clear. Employees routinely go to their managers and point out that Amazon is hiring at a significant pay increase.“When you have those corporations paying that much, it just puts pressure on the smaller business owners,” said Tony Darden, Mooyah’s president. Franchisees can try to have good relationships with their employees, he said, but there is only so far that can go.“At some point, it always comes down to money,” he said. “And so if there’s an employee who has the ability to make two or three or four or five bucks an hour more at another location, they go directly to the owner or to their manager.”Many restaurants will grant the pay increase, Mr. Darden said, but at the cost of giving workers fewer hours or hiring fewer employees — a common contention among small-business owners. But while that may be true in individual cases, the Berkeley and Brandeis researchers found little evidence of broad-based job cuts as wages rose. A 10 percent increase in the base wage at a company like Amazon, they found, translated into a 1.7 percent loss in local jobs — and a 0.4 percent loss in jobs for low-wage workers.On raising wages, an Amazon executive said, “We knew that by doing it, we would encourage other employers to do the same.”Credit…Gabriella Demczuk for The New York TimesA mounting body of research in recent years suggests that labor markets don’t work in practice the way they do in some economic models. Employees often have less information about their worth than employers, or face greater risks to changing jobs, or can’t readily move between employers the way a pure market assumes. These “frictions,” in economic jargon, often benefit employers over employees, pushing down wages below where supply and demand suggest they should be.But that leaves room for other forces — in the form of political pressure, organized bargaining or a minimum wage — to push wages up.“In a very simple supply-and-demand, competitive market, firms are just paying the market wage,” said Arindrajit Dube, a University of Massachusetts economist who has studied the minimum wage. In reality, he said, wages “are shaped by market forces but also by norms, pressure as well as policies.”Dr. Dube said that in the 1980s, the spread of Walmart and other national retailers helped push down wages, as they displaced smaller, often unionized local chains. Now big national retailers seem to be helping to push wages up.Many small-business owners do not welcome the pressure.Tad Mollnhauer, who runs two printing and shipping retail stores near Orlando, Fla., said entry-level workers typically earned about $10 to $12 an hour. But these days, anyone paying that rate risks losing workers to Amazon. (The state’s minimum wage is under $9 an hour but will rise to $10 this year under a referendum approved by voters in November. The minimum will rise a dollar a year after that, hitting $15 an hour in 2026.)Mr. Mollnhauer said it was hard for small companies like his to match Amazon’s pay.“Their network and their resources are spread out around the country,” allowing Amazon to pay above-market wages in some places, he said. “For me, as two stores, I can’t do that.”Jay Carney, a senior vice president for Amazon, said the company was conscious of the impact its policy might have on other employers. “We knew that by doing it, we would encourage other employers to do the same, and if that happened then it would put upward pressure on wages in general, which would be good,” he said.But he rejected suggestions that Amazon is using its political power to hurt its rivals. “We have no power to force anybody to do this, only Congress does,” he said.Jared Bernstein, a member of the White House Council of Economic Advisers, said the paper showed both the potential spillover effects for workers from raising the federal minimum wage — which studies suggest would help workers who earn more than the minimum also get raises — and the limits of private company efforts.“There’s just no way to be sure to reach the tens of millions of hardworking but poorly paid workers without significantly raising the national minimum wage,” he said.No Republican senator supports the $15-an-hour bill that Amazon has endorsed, and several Democrats have reservations about it. Given those headwinds and an adverse ruling from the Senate parliamentarian, the provision will almost certainly not make it into the final version of President Biden’s relief package.But the researchers’ findings suggest that there are other ways to raise pay for low-wage workers. Political pressure on big companies can lift pay not just for their direct employees but also for other workers in the same area. Other policies could mimic that effect: If the federal government requires its contractors to pay more, as Mr. Biden has directed by executive order, it could help increase wages throughout the private sector.Many people are skeptical of Amazon’s motives in pushing the federal $15-an-hour effort, noting that the company faces scrutiny from Democrats over its treatment of workers, accusations that it has stifled competition and its moves to fight unionization.Other business groups accused Amazon of using its scale and political influence to squeeze smaller competitors.A Walmart in Charlottesville, Va. Minimum-wage increases in major cities have spread to other areas through companies like Walmart.Credit…Eze Amos for The New York Times“Amazon is clearly doing very well in the current economy,” said Misty Chally, executive director of the Coalition of Franchisee Associations, which represents franchise owners. But gyms, hair salons and many other businesses that compete with Amazon are “all struggling to stay in business right now,” she said.Mr. Dube said he had concerns about the power of companies like Amazon and Walmart. But the upward pressure they put on wages, he said, wasn’t one of them.The “Amazon effect” on wages comes as no surprise to organizers of the Fight for $15 campaign. From its start in 2012, the movement sought to put pressure on private employers, not just elected officials.The two fed each other, said Mary Kay Henry, president of the Service Employees International Union, which has backed the campaign: Minimum-wage increases in big cities encouraged companies like Walmart and Target to raise pay nationwide, which in turn prompted more minimum-wage increases and helped fuel the effort to raise the federal wage floor.Policies like Amazon’s are particularly significant in places where the minimum-wage argument has never gained much of a foothold, like the South.“It shifts the politics of minimum wage in those corners of the country,” Ms. Henry said. “It busts the myth it can’t happen here.”AdvertisementContinue reading the main story More

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    Women in Economics Face Hostility When Presenting Research

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    AdvertisementContinue reading the main storySupported byContinue reading the main storyWomen in Economics Face Hostility When Presenting ResearchStudies have found that the field is plagued by a singular problem of gender bias. The latest evidence comes from the types of questions posed at seminars.The American Economic Association conference in San Diego early last year. New research details how men and women are treated differently when they make economic presentations.Credit…Sandy Huffaker for The New York TimesFeb. 23, 2021, 5:00 a.m. ETA few years ago, the economists Alicia Sasser Modestino and Justin Wolfers sat at the back of a professional conference and watched Rebecca Diamond, a rising star in their field, present her latest research on inequality. Or at least she was meant to present it — moments after she began her talk, the audience began peppering her with questions.“She must have gotten 15 questions in the first five minutes, including, ‘Are you going to show us the data?’” Dr. Modestino recalled. It was an odd, even demeaning question — the session was in the data-heavy field of applied microeconomics. Of course she was going to show her data.Later that morning, Dr. Modestino and Dr. Wolfers watched as another prominent economist, Arindrajit Dube, presented a paper on the minimum wage. But while that was one of the most hotly debated topics in the field, the audience allowed Dr. Dube to lay out his findings for several minutes with few interruptions.Over a drink later, Dr. Modestino and Dr. Wolfers wondered: Had the audiences treated the two presenters differently because of their genders?They couldn’t be sure. Maybe the audience treated Dr. Dube differently because he was more senior. Maybe they had simply found his paper more convincing, or less interesting. Maybe the observations of Dr. Modestino and Dr. Wolfers were a result of their own biases — Dr. Dube, in an email, recalled getting lots of questions, some of them quite skeptical. (He added that he didn’t know how his reception compared with Dr. Diamond’s, and he said didn’t challenge Dr. Modestino’s recollection over all.)So Dr. Modestino and Dr. Wolfers, who has written on economics in The New York Times, did what economists often do: They gathered data. Along with two other economists, they recruited dozens of graduate students across the country to attend hundreds of economics presentations to record what happened. Their findings, according to a working paper that is expected to be published next week by the National Bureau of Economic Research: Women received 12 percent more questions than men, and they were more likely to get questions that were patronizing or hostile.“It measures something that we thought couldn’t be measured,” Dr. Modestino said. “It links it to a potential reason that women are underrepresented in the profession.”The paper is the latest addition to a mounting body of evidence of gender discrimination in economics. Other researchers in recent years have found that women are less likely than men to be hired and promoted, and face greater barriers to getting their work published in economic journals. Those problems aren’t unique to economics, but there is evidence that the field has a particular problem: Gender and racial gaps in economics are wider, and have narrowed less over time, than in many other fields.In response to those concerns, the American Economic Association commissioned a survey of more than 9,000 current and former members that asked about their experiences in the field. The results, released in 2019, revealed a disturbing number of cases of harassment and outright sexual assault. And it found that subtler forms of bias were rampant: Only one woman in five reported being “satisfied with the overall climate” in the field. Nearly one in three said they believed they had been discriminated against. And nearly half of women said they had avoided speaking at a conference or seminar because they feared harassment or disrespectful treatment.“Half of women are saying they don’t even want to present in a seminar,” Dr. Modestino said. “We’re losing a lot of ideas that way.”The harsh reception faced by women is particularly striking because they are also less likely to be invited to present their research in the first place. Women accounted for fewer than a quarter of the economic talks given over recent years, according to another paper. Racial minorities were even more underrepresented: Barely 1 percent of the speakers were Black or Hispanic.“It’s just embarrassingly bad,” said Jennifer Doleac, an economist at Texas A&M University who is one of the study’s authors. Only about 30 talks have been delivered by Black or Latina women since the authors began tracking the data, she noted. “These scholars are just not being invited, ever.”The lack of representation is so significant that Dr. Modestino and her colleagues could not study whether Black and Latino economists were treated differently in seminars than their white counterparts — there were too few examples in their data to analyze.The lack of opportunities has potentially significant career consequences. Research presentations, known as seminars, are an important way that academics, particularly those early in their careers, disseminate their research, build their reputations and get feedback on their work.Seminars play a particular role in economics. In other fields, they tend to be collegial affairs, with mostly respectful questions and few interruptions. In economics, however, they often resemble gladiatorial battles, with audience members vying to poke holes in the presenter’s argument. Seemingly every economist, regardless of gender, has at least one horror story of losing control of a presentation. Many say they have been brought to tears.Most economists acknowledge that there are bad actors who are more interested in scoring debating points than raising legitimate questions. But many defend the field’s culture of aggressiveness, saying it is helpful to get feedback — even critical feedback — from colleagues.“I expect a room full of economists to speak up and have their own opinions and ideas,” said Ioana Marinescu, a University of Pennsylvania economist. “To me, if they’re not asking questions, they might be a little bit zoned out.”Dr. Marinescu recalled a talk she gave at a prestigious conference several years ago, where she, too, faced frequent interruptions. It was terrifying, she said — but also stimulating.“The questions were incessant, but they were awesome questions from the top people in the profession,” she said. “From my perspective, it was one of the best experiences I ever had.”Still, Dr. Marinescu said, reforms are needed. And in recent years, some economists have begun to question the field’s culture of aggressiveness, arguing that it discourages people from entering the field. Several universities have instituted rules meant to cut down on bad behavior, such as banning questions for the first 10 or 15 minutes of a talk so that speakers can get through at least the beginning of their presentations uninterrupted.But Judith Chevalier, a Yale economist who chairs the American Economic Association’s Committee on the Status of Women in the Economics Profession, said rules intended to improve seminars wouldn’t address the underlying problems that Dr. Modestino’s research revealed.“Seminars are a public setting — seminars are when they are on their good behavior,” Dr. Chevalier said. “We can’t declare victory even if we fix seminars. We need to re-examine everything. Are we biased when we hire? Are we biased when we mentor? Are we biased in seminars? Are we biased when we promote?”AdvertisementContinue reading the main story More