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    California Bill Could Alter Amazon Labor Practices

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    The bill would rein in production quotas at warehouses that critics say are excessive and force workers to forgo bathroom breaks.Among the pandemic’s biggest economic winners is Amazon, which nearly doubled its annual profit last year to $21 billion and is on pace to far exceed that total this year.The profits flowed from the millions of Americans who value the convenience of quick home delivery, but critics complain that the arrangement comes at a large cost to workers, whom they say the company pushes to physical extremes.That labor model could begin to change under a California bill that would require warehouse employers like Amazon to disclose productivity quotas for workers, whose progress they often track using algorithms. “The supervisory function is being taken over by computers,” said Assemblywoman Lorena Gonzalez, the bill’s author. “But they’re not taking into account the human factor.”The bill, which the Assembly passed in May and the State Senate is expected to vote on this week, would prohibit any quota that prevents workers from taking state-mandated breaks or using the bathroom when needed, or that keeps employers from complying with health and safety laws.The legislation has drawn intense opposition from business groups, which argue that it would lead to an explosion of costly litigation and that it punishes a whole industry for the perceived excesses of a single employer.“They’re going after one company, but at the same time they’re pulling everyone else in the supply chain under this umbrella,” said Rachel Michelin, the president of the California Retailers Association, on whose board Amazon sits.California plays an outsize role in the e-commerce and distribution industry, both because of its huge economy and status as a tech hub and because it is home to the ports through which much of Amazon’s imported inventory arrives. The Inland Empire region, east of Los Angeles, has one of the highest concentrations of Amazon fulfillment centers in the country.Kelly Nantel, an Amazon spokeswoman, declined to comment on the bill but said in a statement that “performance targets are determined based on actual employee performance over a period of time” and that they take into account the employee’s experience as well as health and safety considerations.“Terminations for performance issues are rare — less than 1 percent,” Ms. Nantel added.The company faces growing scrutiny of its treatment of workers, including an expected ruling from a regional director of the National Labor Relations Board that it unlawfully interfered in a union vote at an Alabama warehouse. The finding could prompt a new election there, though Amazon has said it would appeal to preserve the original vote, in which it prevailed.In June, the International Brotherhood of Teamsters passed a resolution committing the union to provide “all resources necessary” to organize Amazon workers, partly by pressuring the company through political channels. Teamsters officials have taken part in successful efforts to deny Amazon a tax abatement in Indiana and approval for a facility in Colorado and are backers of the California legislation.Both sides appear to regard the fight over Amazon’s quotas as having high stakes. “We know that the future of work is falling into this algorithm, A.I. kind of aspect,” said Ms. Gonzalez, the bill’s author. “If we don’t intervene now, other companies will be the next stage.”Ms. Michelin, the retail association president, emphasized that the data was “proprietary information” and said the bill’s proponents “want that data because it helps unionize distribution centers.”A report by the Strategic Organizing Center, a group backed by four labor unions, shows that Amazon’s serious-injury rate nationally was almost double that of the rest of the warehousing industry in 2020 and more than twice that of warehouses at Walmart, a top competitor.Asked about the findings, Ms. Nantel, the Amazon spokeswoman, did not directly address them but said that the company recently entered into a partnership with a nonprofit safety advocacy group to develop ways of preventing musculoskeletal injuries. She also said that Amazon had invested over $300 million this year in safety measures, like redesigning workstations.Amazon employees have frequently complained that supervisors push them to work at speeds that wear them down physically.“There were a lot of grandmothers,” one worker said in a study underwritten by the Los Angeles County Federation of Labor, another backer of the California bill. Managers would “come to these older women, and say, ‘Hey, I need you to speed up,’ and then you could see in her face she almost wants to cry. She’s like, ‘This is the fastest my body can literally go.’”Yesenia Barrera, a former Amazon worker in California, said that managers told her she needed to pull 200 items an hour from a conveyor belt, unbox them and scan them. She said she was usually able to reach this target only by minimizing her bathroom use.“That would be me ignoring using restroom-type things to be able to make it,” Ms. Barrera said in an interview for this article. “When the bell would ring for a break, I felt like I had to do a few more items before I took off.”An employee sorted items at a Staten Island warehouse in May. Workers have complained that supervisors push them to work at speeds that wear them down.Chang W. Lee/The New York TimesEdward Flores, faculty director of the Community and Labor Center at the University of California, Merced, says repetitive strain injuries have been a particular problem in the warehousing industry as companies have automated their operations.“You’re responding to the speed at which a machine is moving,” said Dr. Flores, who has studied injuries in the industry. “The greater reliance on robotics, the higher incidence of repetitive motions and thus repetitive injuries.” Amazon has been a leader in adopting warehouse robotics.Ms. Gonzalez said that when she met with Amazon officials after introducing a similar bill last year, they denied using quotas, saying that they relied instead on goals and that workers were not punished for failing to meet them.During a meeting a few days before the Assembly passed this year’s bill, she said, Amazon officials acknowledged that they could do more to promote the health and safety of their workers but did not offer specific proposals beyond coaching employees on how to be more productive.At one point during the more recent meeting, Ms. Gonzalez recalled, an Amazon official raised concerns that some employees would abuse more generous allotments of time for using the bathroom before another official weighed in to de-emphasize the point.“Someone else tried to walk it back,” she said. “It’s often said quietly. It’s not the first time I’ve heard it.”The bill’s path has always appeared rockier in the State Senate, where amendments have weakened it. The bill no longer directs the state’s occupational safety and health agency to develop a rule preventing warehouse injuries that result from overwork or other physical stress.Instead, it gives the state labor commissioner’s office access to data about quotas and injuries so it can step up enforcement. Workers would also be able to sue employers to eliminate overly strict quotas.Ms. Gonzalez said she felt confident about the Senate vote, which must come by the close of the legislative session on Friday, but business groups are still working hard to derail it.Ms. Michelin, the retailer group president, said that the Senate committees’ changes had made the bill more palatable and that her members might support a measure that gave more resources to regulators to enforce health and safety rules. But she said they had serious concerns about the way the bill empowers workers to sue their employers.As long as that provision remains in the bill, she said, “we will never support it.” More

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    Will the Pandemic Productivity Boom Last?

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    Fewer workers are making more stuff. If it lasts, that’s big news for the economy of the 2020s.For most of the last 15 years, the United States economy was mired in a period of low productivity growth. Who would have guessed that the pathway out of it might include a pandemic?Yet that is what the numbers show. Since the second quarter of 2020, labor productivity — the amount of output per hour of work — has risen at a 3.8 percent annual rate, compared with 1.4 percent from 2005 to 2019. New data published Tuesday showed the trend persisted this spring, with a 2.3 annual rate of productivity growth in the second quarter.A different way to look at it: Since the pandemic recession bottomed out in the spring of 2020, the nation’s gross domestic product has more than fully recovered, with second-quarter output 0.8 percent higher than before coronavirus. The number of jobs decreased 4.4 percent in the same span. Productivity growth accounts for most of the wedge between those.What is less clear, though, is how much this growth represents real progress toward deploying the work force in ways that will make Americans richer over time. It’s a murky story — like any attempt to connect big-picture productivity numbers to what’s happening in the guts of the economy — but crucial for understanding the economic outlook for the 2020s.There are several parts to the story, and each has different implications for the future.The jobs lost were low-productivityIn terms of economic output, not all jobs are created equal. A worker in a well-managed factory with state-of-the-art equipment produces more economic output for each hour of work than a counterpart in a poorly run place with worse equipment.The differences are even starker when you compare productivity across sectors, and that’s where there is a clear pandemic story. Many more job losses were in low-productivity sectors than in higher ones.Restaurant employment, by contrast, was down 8 percent in the same period.Emily Elconin for The New York TimesFor example, on the eve of the pandemic, manufacturing jobs — highly productive, with lots of automation — paid on average $28.23 an hour, while restaurant jobs paid $15.23 on average. Employment in manufacturing in July was down 3.4 percent from its February 2020 level, while restaurant employment was down 8 percent.As people currently out of work return to the labor force, how many will take higher-productivity jobs vs. lower-productivity ones? That’s vital in determining the economy’s future growth potential.Doing more with lessThe labor shortage facing many types of businesses, especially in the service sector, is forcing some hard decisions. And in many cases, companies unable to return to normal staffing levels are getting creative.Restaurants are experimenting with people ordering on their phones rather than through a waiter. Retailers are offering more self-checkout options. And there is evidence that the difficulty recruiting workers is making companies invest more in training employees — potentially shifting people from low-productivity jobs to higher-productivity ones.Sometimes there are tricky measurement questions. For example, if a hotel charges the same prices but, with fewer housekeepers on the payroll, no longer provides a daily cleaning service, that arguably is a worsening in the quality of the product and therefore a form of inflation, rather than higher labor productivity.But to the degree that something fundamental is shifting in terms of businesses’ willingness to make labor-saving investments, rethink processes to be less labor-intensive, and move individual workers higher up the skill ladder, there’s opportunity for a productivity surge that outlasts the pandemic.Running themselves raggedThe flip side of this could be that the apparent productivity boom, especially in the first half of this year, simply reflects people working harder than usual.If a restaurant normally has 10 waiters for its dinner shift and cuts back to seven, each of whom has to work that much harder, it could look like a productivity gain. Fewer person-hours of work would be generating the same economic output. It also may or may not be sustainable.Having customers order with their phones, as at this bar in San Francisco, is one way restaurants are dealing with their labor shortage.Ulysses Ortega for The New York TimesBut perhaps people will be willing to work harder at certain jobs if compensation is higher. There is a theory of “efficiency wages” that suggests, in effect, that employers get what they pay for — that paying more means a higher-performing work force.“If you want extra effort, you pay people extra,” said Steven J. Davis, an economist at the University of Chicago Booth School of Business. “You would expect to see some positive productivity benefits of compensating people to put forth more effort per hour than they normally would. Will it be sustained? Maybe if wages stay high.”The work-from-home effectIn the space of just a few weeks in 2020, millions of American workers who once commuted to an office most of the time learned how to work from home. It could have lasting economic ripple effects if even a modest portion of them continue to work from home some or all of the time.“Employers are embracing this as a long-term solution and taking the steps to invest in the appropriate technology to make it really effective,” said Julia Pollak, a labor economist at ZipRecruiter. “There is a lot of soul-searching going on and companies sharing best practices on how to create corporate cultural virtually.”.css-1xzcza9{list-style-type:disc;padding-inline-start:1em;}.css-3btd0c{font-family:nyt-franklin,helvetica,arial,sans-serif;font-size:1rem;line-height:1.375rem;color:#333;margin-bottom:0.78125rem;}@media (min-width:740px){.css-3btd0c{font-size:1.0625rem;line-height:1.5rem;margin-bottom:0.9375rem;}}.css-3btd0c strong{font-weight:600;}.css-3btd0c em{font-style:italic;}.css-w739ur{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;}#NYT_BELOW_MAIN_CONTENT_REGION .css-w739ur{font-family:nyt-cheltenham,georgia,’times new roman’,times,serif;font-weight:700;font-size:1.375rem;line-height:1.625rem;}@media (min-width:740px){#NYT_BELOW_MAIN_CONTENT_REGION .css-w739ur{font-size:1.6875rem;line-height:1.875rem;}}@media (min-width:740px){.css-w739ur{font-size:1.25rem;line-height:1.4375rem;}}.css-9s9ecg{margin-bottom:15px;}.css-uf1ume{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;}.css-wxi1cx{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;-webkit-align-self:flex-end;-ms-flex-item-align:end;align-self:flex-end;}.css-12vbvwq{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;}@media (min-width:740px){.css-12vbvwq{padding:20px;width:100%;}}.css-12vbvwq:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-12vbvwq{border:none;padding:10px 0 0;border-top:2px solid #121212;}.css-12vbvwq[data-truncated] .css-rdoyk0{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-12vbvwq[data-truncated] .css-eb027h{max-height:300px;overflow:hidden;-webkit-transition:none;transition:none;}.css-12vbvwq[data-truncated] .css-5gimkt:after{content:’See more’;}.css-12vbvwq[data-truncated] .css-6mllg9{opacity:1;}.css-qjk116{margin:0 auto;overflow:hidden;}.css-qjk116 strong{font-weight:700;}.css-qjk116 em{font-style:italic;}.css-qjk116 a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;text-underline-offset:1px;-webkit-text-decoration-thickness:1px;text-decoration-thickness:1px;-webkit-text-decoration-color:#326891;text-decoration-color:#326891;}.css-qjk116 a:visited{color:#326891;-webkit-text-decoration-color:#326891;text-decoration-color:#326891;}.css-qjk116 a:hover{-webkit-text-decoration:none;text-decoration:none;}At the height of the pandemic, the vast majority of office workers worked from home. In the post-pandemic world, those jobs that most require in-person collaboration may return to offices, but those that can be easily done remotely may stay remote.“The important thing to understand is that it’s not that working from home is better for everybody, but that once the pandemic is over, the kinds of people for whom it doesn’t work very well won’t continue it,” Professor Davis said. “It’s a selection of people who have figured out how to make remote work work, and that’s where the productivity gains are coming from.”Empty office buildings in Midtown Manhattan earlier this year. How many office workers will return to their offices, and how quickly, remains a question, and one with big implications for productivity.George Etheredge for The New York TimesThere are several implications for the years ahead. For one, companies would be likely to need less office space, desks and cubicles relative to the size of their work force than in the past. That could mean higher “total factor productivity,” which takes into account not just the efforts of workers, but the capital investments that they use to do their jobs.For another, workers themselves say in surveys that they are more productive working at home — though not necessarily in ways that show up big in the official productivity numbers.A working paper by Jose Maria Barrero, Professor Davis and Nicholas Bloom that is based on a survey of 30,000 workers finds that widespread working from home could generate a 4.8 percent boost to productivity relative to the pre-pandemic economy, but that only 1 percent of that should be expected to show up in the official statistics.The reason? Much of the gain comes from time saved commuting, and official labor productivity statistics do not include commute time in the “hours worked” denominator.In effect, the pandemic forced a lot of innovation around office work practices to happen far more rapidly than would otherwise be the case.“The adoption of technology has accelerated, new firms are being created at an historic pace, and the shift to remote work is likely to outlast the crisis,” said Lydia Boussour, lead U.S. economist at Oxford Economics, in a note analyzing the new productivity data. “While some of the pandemic-driven efficiencies could take years to be fully realized, we think these four forces will lead to a sustained productivity revival in the medium run.”The future is always uncertain, and economists’ understanding of what truly drives productivity gains is poor. But for now, the evidence suggests that many of the key drivers of this particular pandemic bump aren’t likely to go away anytime soon. More

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    Pandemic Wave of Automation May Be Bad News for Workers

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    The need for social distancing led restaurants and grocery stores to seek technological help. That may improve productivity, but could also cost jobs.When Kroger customers in Cincinnati shop online these days, their groceries may be picked out not by a worker in their local supermarket but by a robot in a nearby warehouse.Gamers at Dave & Buster’s in Dallas who want pretzel dogs can order and pay from their phones — no need to flag down a waiter.And in the drive-through lane at Checkers near Atlanta, requests for Big Buford burgers and Mother Cruncher chicken sandwiches may be fielded not by a cashier in a headset, but by a voice-recognition algorithm.An increase in automation, especially in service industries, may prove to be an economic legacy of the pandemic. Businesses from factories to fast-food outlets to hotels turned to technology last year to keep operations running amid social distancing requirements and contagion fears. Now the outbreak is ebbing in the United States, but the difficulty in hiring workers — at least at the wages that employers are used to paying — is providing new momentum for automation.Technological investments that were made in response to the crisis may contribute to a post-pandemic productivity boom, allowing for higher wages and faster growth. But some economists say the latest wave of automation could eliminate jobs and erode bargaining power, particularly for the lowest-paid workers, in a lasting way.“Once a job is automated, it’s pretty hard to turn back,” said Casey Warman, an economist at Dalhousie University in Nova Scotia who has studied automation in the pandemic.The trend toward automation predates the pandemic, but it has accelerated at what is proving to be a critical moment. The rapid reopening of the economy has led to a surge in demand for waiters, hotel maids, retail sales clerks and other workers in service industries that had cut their staffs. At the same time, government benefits have allowed many people to be selective in the jobs they take. Together, those forces have given low-wage workers a rare moment of leverage, leading to higher pay, more generous benefits and other perks.Automation threatens to tip the advantage back toward employers, potentially eroding those gains. A working paper published by the International Monetary Fund this year predicted that pandemic-induced automation would increase inequality in coming years, not just in the United States but around the world.“Six months ago, all these workers were essential,” said Marc Perrone, president of the United Food and Commercial Workers, a union representing grocery workers. “Everyone was calling them heroes. Now, they’re trying to figure out how to get rid of them.”Checkers, like many fast-food restaurants, experienced a jump in sales when the pandemic shut down most in-person dining. But finding workers to meet that demand proved difficult — so much so that Shana Gonzales, a Checkers franchisee in the Atlanta area, found herself back behind the cash register three decades after she started working part time at Taco Bell while in high school.“We really felt like there has to be another solution,” she said.So Ms. Gonzales contacted Valyant AI, a Colorado-based start-up that makes voice recognition systems for restaurants. In December, after weeks of setup and testing, Valyant’s technology began taking orders at one of Ms. Gonzales’s drive-through lanes. Now customers are greeted by an automated voice designed to understand their orders — including modifications and special requests — suggest add-ons like fries or a shake, and feed the information directly to the kitchen and the cashier.The rollout has been successful enough that Ms. Gonzales is getting ready to expand the system to her three other restaurants.“We’ll look back and say why didn’t we do this sooner,” she said.Shana Gonzales, who owns four Checkers franchises in the Atlanta area, said she has had difficulty finding workers to meet demand.Lynsey Weatherspoon for The New York TimesThe push toward automation goes far beyond the restaurant sector. Hotels, retailers, manufacturers and other businesses have all accelerated technological investments. In a survey of nearly 300 global companies by the World Economic Forum last year, 43 percent of businesses said they expected to reduce their work forces through new uses of technology.Some economists see the increased investment as encouraging. For much of the past two decades, the U.S. economy has struggled with weak productivity growth, leaving workers and stockholders to compete over their share of the income — a game that workers tended to lose. Automation may harm specific workers, but if it makes the economy more productive, that could be good for workers as a whole, said Katy George, a senior partner at McKinsey, the consulting firm.She cited the example of a client in manufacturing who had been pushing his company for years to embrace augmented-reality technology in its factories. The pandemic finally helped him win the battle: With air travel off limits, the technology was the only way to bring in an expert to help troubleshoot issues at a remote plant.“For the first time, we’re seeing that these technologies are both increasing productivity, lowering cost, but they’re also increasing flexibility,” she said. “We’re starting to see real momentum building, which is great news for the world, frankly.”Other economists are less sanguine. Daron Acemoglu of the Massachusetts Institute of Technology said that many of the technological investments had just replaced human labor without adding much to overall productivity.In a recent working paper, Professor Acemoglu and a colleague concluded that “a significant portion of the rise in U.S. wage inequality over the last four decades has been driven by automation” — and he said that trend had almost certainly accelerated in the pandemic.“If we automated less, we would not actually have generated that much less output but we would have had a very different trajectory for inequality,” Professor Acemoglu said.Ms. Gonzales, the Checkers franchisee, isn’t looking to cut jobs. She said she would hire 30 people if she could find them. And she has raised hourly pay to about $10 for entry-level workers, from about $9 before the pandemic. Technology, she said, is easing pressure on workers and speeding up service when restaurants are chronically understaffed.“Our approach is, this is an assistant for you,” she said. “This allows our employee to really focus” on customers.Ms. Gonzales acknowledged she could fully staff her restaurants if she offered $14 to $15 an hour to attract workers. But doing so, she said, would force her to raise prices so much that she would lose sales — and automation allows her to take another course.The artificial intelligence system that feeds information to the kitchen at a Checkers.Lynsey Weatherspoon for The New York TimesTechnology is easing pressure on workers and speeding up service when restaurants are chronically understaffed, Ms. Gonzales said.Lynsey Weatherspoon for The New York TimesRob Carpenter, Valyant’s chief executive, noted that at most restaurants, taking drive-through orders is only part of an employee’s responsibilities. Automating that task doesn’t eliminate a job; it makes the job more manageable.“We’re not talking about automating an entire position,” he said. “It’s just one task within the restaurant, and it’s gnarly, one of the least desirable tasks.”But technology doesn’t have to take over all aspects of a job to leave workers worse off. If automation allows a restaurant that used to require 10 employees a shift to operate with eight or nine, that will mean fewer jobs in the long run. And even in the short term, the technology could erode workers’ bargaining power.“Often you displace enough of the tasks in an occupation and suddenly that occupation is no more,” Professor Acemoglu said. “It might kick me out of a job, or if I keep my job I’ll get lower wages.”At some businesses, automation is already affecting the number and type of jobs available. Meltwich, a restaurant chain that started in Canada and is expanding into the United States, has embraced a range of technologies to cut back on labor costs. Its grills no longer require someone to flip burgers — they grill both sides at once, and need little more than the press of a button.“You can pull a less-skilled worker in and have them adapt to our system much easier,” said Ryan Hillis, a Meltwich vice president. “It certainly widens the scope of who you can have behind that grill.”With more advanced kitchen equipment, software that allows online orders to flow directly to the restaurant and other technological advances, Meltwich needs only two to three workers on a shift, rather than three or four, Mr. Hillis said.Such changes, multiplied across thousands of businesses in dozens of industries, could significantly change workers’ prospects. Professor Warman, the Canadian economist, said technologies developed for one purpose tend to spread to similar tasks, which could make it hard for workers harmed by automation to shift to another occupation or industry.“If a whole sector of labor is hit, then where do those workers go?” Professor Warman said. Women, and to a lesser degree people of color, are likely to be disproportionately affected, he added.The grocery business has long been a source of steady, often unionized jobs for people without a college degree. But technology is changing the sector. Self-checkout lanes have reduced the number of cashiers; many stores have simple robots to patrol aisles for spills and check inventory; and warehouses have become increasingly automated. Kroger in April opened a 375,000-square-foot warehouse with more than 1,000 robots that bag groceries for delivery customers. The company is even experimenting with delivering groceries by drone.Other companies in the industry are doing the same. Jennifer Brogan, a spokeswoman for Stop & Shop, a grocery chain based in New England, said that technology allowed the company to better serve customers — and that it was a competitive necessity.“Competitors and other players in the retail space are developing technologies and partnerships to reduce their costs and offer improved service and value for customers,” she said. “Stop & Shop needs to do the same.”In 2011, Patrice Thomas took a part-time job in the deli at a Stop & Shop in Norwich, Conn. A decade later, he manages the store’s prepared foods department, earning around $40,000 a year.Mr. Thomas, 32, said that he wasn’t concerned about being replaced by a robot anytime soon, and that he welcomed technologies making him more productive — like more powerful ovens for rotisserie chickens and blast chillers that quickly cool items that must be stored cold.But he worries about other technologies — like automated meat slicers — that seem to enable grocers to rely on less experienced, lower-paid workers and make it harder to build a career in the industry.“The business model we seem to be following is we’re pushing toward automation and we’re not investing equally in the worker,” he said. “Today it’s, ‘We want to get these robots in here to replace you because we feel like you’re overpaid and we can get this kid in there and all he has to do is push this button.’” More

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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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    Here Are 17 Reasons to Let The Economic Optimism Begin

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    #masthead-section-label, #masthead-bar-one { display: none }Biden’s Stimulus PlanBiden’s AddressWhat to Know About the BillBenefits for Middle ClassChild Tax CreditAdvertisementContinue reading the main storyUpshotSupported byContinue reading the main story17 Reasons to Let the Economic Optimism BeginA reporter who has tracked decades of gloomy trends sees things lining up for roaring growth.March 13, 2021, 5:00 a.m. ETCredit…Jordy van den NieuwendijkThe 21st-century economy has been a two-decade series of punches in the gut.The century began in economic triumphalism in the United States, with a sense that business cycles had been vanquished and prosperity secured for a blindingly bright future. Instead, a mild recession was followed by a weak recovery followed by a financial crisis followed by another weak recovery followed by a pandemic-induced collapse. A couple of good years right before the pandemic aside, it has been two decades of overwhelming inequality and underwhelming growth — an economy in which a persistently weak job market has left vast human potential untapped, helping fuel social and political dysfunction.Those two decades coincide almost precisely with my career as an economics writer. It is the reason, among my colleagues, I have a reputation for writing stories that run the gamut from ominous to gloomy to terrifying.But strange as it may seem in this time of pandemic, I’m starting to get optimistic. It’s an odd feeling, because so many people are suffering — and because for so much of my career, a gloomy outlook has been the correct one.Predictions are a hard business, of course, and much could go wrong that makes the decades ahead as bad as, or worse than, the recent past. But this optimism is not just about the details of the new pandemic relief legislation or the politics of the moment. Rather, it stems from a diagnosis of three problematic mega-trends, all related.There has been a dearth of economy-altering innovation, the kind that fuels rapid growth in the economy’s productive potential. There has been a global glut of labor because of a period of rapid globalization and technological change that reduced workers’ bargaining power in rich countries. And there has been persistently inadequate demand for goods and services that government policy has unable to fix.There is not one reason, however, to think that these negative trends have run their course. There are 17.Credit…Jordy van den Nieuwendijk1. The ketchup might be ready to flowIn 1987, the economist Robert Solow said, “You can see the computer age everywhere but in the productivity statistics.” Companies were making great use of rapid improvements in computing power, but the overall economy wasn’t really becoming more productive.This analysis was right until it was wrong. Starting around the mid-1990s, technological innovations in supply chain management and factory production enabled companies to squeeze more economic output out of every hour of work and dollar of capital spending. This was an important reason for the economic boom of the late 1990s.The Solow paradox, as the idea underlying his quote would later be called, reflected an insight: An innovation, no matter how revolutionary, will often have little effect on the larger economy immediately after it is invented. It often takes many years before businesses figure out exactly what they have and how it can be used, and years more to work out kinks and bring costs down.In the beginning, it may even lower productivity! In the 1980s, companies that tried out new computing technology often needed to employ new armies of programmers as well as others to maintain old, redundant systems.But once such hurdles are cleared, the innovation can spread with dizzying speed.It’s like the old ditty: “Shake and shake the ketchup bottle. First none will come and then a lot’ll.”Or, in a more formal sense, the economists Erik Brynjolfsson, Daniel Rock and Chad Syverson call this the “productivity J-curve,” in which an important new general-purpose technology — they use artificial intelligence as a contemporary example — initially depresses apparent productivity, but over time unleashes much stronger growth in economic potential. It looks as if companies have been putting in a lot of work for no return, but once those returns start to flow, they come faster than once seemed imaginable.There are several areas where innovation seems to be at just such a point, and not just artificial intelligence.2. 2020s battery technology looks kind of like 1990s microprocessorsRemember Moore’s Law? It was the idea that the number of transistors that could be put on an integrated circuit would double every two years as manufacturing technology improved. That is the reason you may well be wearing a watch with more computer processing power than the devices that sent people into outer space in the 1960s.Battery technology isn’t improving at quite that pace, but it’s not far behind it. The price of lithium-ion battery packs has fallen 89 percent in inflation-adjusted terms since 2010, according to BloombergNEF, and is poised for further declines. There have been similar advances in solar cells, raising the prospect of more widespread inexpensive clean energy.Another similarity: Microprocessors and batteries are not ends unto themselves, but rather technologies that enable lots of other innovation. Fast, cheap computer chips led to software that revolutionized the modern economy; cheap batteries and solar cells could lead to a wave of innovation around how energy is generated and used. We’re only at the early stages of that process.3. Emerging innovations can combine in unexpected waysIn the early part of the 20th century, indoor plumbing was sweeping the nation. So was home electricity. But the people installing those pipes and those power lines presumably had no idea that by the 1920s, the widespread availability of electricity and free-flowing water in homes would enable the adoption of the home washing machine, a device that saved Americans vast amounts of time and backbreaking labor.It required not just electricity and running water, but also revolutions in manufacturing techniques, production and distribution. All those innovations combined to make domestic life much easier.Could a combination of technologies now maturing create more improvement in living standards than any of them could in isolation?Consider driverless cars and trucks. They will rely on long-building research in artificial intelligence software, sensors and batteries. After years of hype, billions of dollars in investment, and millions of miles of test drives, the possibilities are starting to come into view.Waymo, a sister company of Google, has opened a driverless taxi service to the public in the Phoenix suburbs. Major companies including General Motors, Tesla and Apple are in the hunt as well, along with many smaller competitors.Apply the same logic to health care, to warehousing and heavy industry, and countless other fields. Inventions maturing now could be combined in new ways we can’t yet imagine.4. The pandemic has taught us how to work remotelyBeing cooped up at home may pay some surprising economic dividends. As companies and workers have learned how to operate remotely, it could allow more people in places that are less expensive and that have fewer high-paying jobs to be more productive. It could enable companies to operate with less office space per employee, which in economic terms means less capital needed to generate the same output. And it could mean a reduction in commuting time.Even after the pandemic recedes, if only 10 percent of office workers took advantage of more remote work, that would have big implications for the United States’ economic future — bad news if you are a landlord in an expensive downtown, but good news for overall growth prospects.5. Even Robert Gordon is (a little) more optimistic!Mr. Gordon wrote the book on America’s shortfall in innovation and productivity in recent decades — a 784-page book in 2016, to be precise. Now Mr. Gordon, a Northwestern University economist, is kind of, sort of, moderately optimistic. “I would fully expect growth in the decade of the 2020s to be higher than it was in the 2010s, but not as fast as it was between 1995 and 2005,” he said recently.Credit…Jordy van den Nieuwendijk6. Crises spur innovationThe mobilization to fight World War II was a remarkable feat. Business and government worked together to drastically increase the productive capacity of the economy, put millions to work, and advance countless innovations like synthetic rubber and the mass production of aircraft.Similarly, the Cold War generated a wave of public investment and innovation, such as satellites (a byproduct of the space race) and the internet (originally intended to provide decentralized communication in the event of a nuclear attack).Could our current crises spur similar ambition? Already the Covid-19 pandemic has accelerated the usage of mRNA technology for creating new vaccines, which could have far-reaching consequences for preventing disease.And as the 2020s progress, the deepening sense of urgency to reduce carbon emissions and cope with the fallout of climate change is the sort of all-encompassing challenge that could prove as galvanizing as those experiences — with similar implications for investment and innovation.7. Tight labor markets spur innovation, tooWhy did the Industrial Revolution begin in Britain instead of somewhere else? One theory is that relatively high wages there (a result of international trade) created an urgency for firms to substitute machinery for human labor. Over time, finding ways to do more with fewer workers generated higher incomes and living standards.But why might the labor market of the 2020s be a tight one? It boils down to two big ideas: shifts in the global economy and demographics that make workers scarcer in the coming decade than in recent ones; and a newfound and bipartisan determination on the part of policymakers in Washington to achieve full employment.8. There’s only one ChinaImagine an isolated farm town with 100 people.Five of the 100 own the farms. An additional 10 act as managers on behalf of the owners. And there are five intellectuals who sit around thinking big thoughts. The other 80 people are laborers.What would happen if suddenly another 80 laborers showed up, people who were used to lower living standards?The intellectuals might tell a complex story about how the influx of labor would eventually make everyone better off, as more land was cultivated and workers could specialize more. The owners and their managers would be happy because they would be instantly richer (they could pay people less to plow the fields).But the existing 80 laborers — competing for their jobs with an influx of lower-paid people — would see only immediate pain. The long-term argument that everybody gets richer in the end wouldn’t carry much weight.That’s essentially what has happened in the last few decades as China has gone from being isolated to being deeply integrated in the world economy. When the country joined the World Trade Organization in 2001, its population of 1.28 billion was bigger than that of the combined 34 advanced countries that make up the Organization for Economic Cooperation and Development (1.16 billion).But that was a one-time adjustment, and wages are rising rapidly in China as it moves beyond low-end manufacturing and toward more sophisticated goods. India, the only other country with comparable population, is already well integrated into the world economy. To the degree globalization continues, it should be a more gradual process.9. There’s only one MexicoFor years, American workers were also coming into competition with lower-earning Mexicans after enactment of the North American Free Trade Agreement in 1994. As with China, the new dynamic improved the long-term economic prospects for the United States, but in the short run it was bad for many American factory workers.But it too was a one-time adjustment. Even before President Trump, trade agreements under negotiation were for the most part no longer focused on making it easier to import from low- labor-cost countries. The main aim was to improve trade rules for American companies doing business in other rich countries.10. The offshoring revolution is mostly played outOnce upon a time, if you were an American company that needed to operate a customer service call center or carry out some labor-intensive information technology work, you had no real choice but to hire a bunch of Americans to do it. The emergence of inexpensive, instant global telecommunication changed that, allowing you to put work wherever costs were the lowest.In the first decade of the 2000s, American companies did just that on mass scale, locating work in countries like India and the Philippines. It’s a slightly different version of the earlier analogy involving the farm; a customer service operator in Kansas was suddenly in competition with millions of lower-earning Indians for a job.But it’s not as if the internet can be invented a second time.Sensing a theme here? In the early years of the 21st century, a combination of globalization and technological advancements put American workers in competition with billions of workers around the world.It created a dynamic in which workers had less bargaining power, and companies could achieve cost savings not by creating more innovative ways of doing things but exploiting a form of labor cost arbitrage. That may not be the case in the 2020s.Credit…Jordy van den Nieuwendijk11. Baby boomers can’t work foreverThe surge of births that took place in the two decades after World War II created a huge generation with long-reaching consequences for the economy. Now, their ages ranging from 57 to 76, the baby boomers are retiring, and that means opportunity for the generations that came behind them..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.As the boomers seek to continue consuming — spending their amassed savings, pensions and Social Security benefits — there will be relatively stable demand for goods and services and a relatively smaller pool of workers to produce them.According to the Social Security Administration’s projections of the so-called “dependency ratio,” in 2030 for every 100 people in their prime working years of 20 to 64, there will be 81 people outside that age range. In 2020 that number was 73.That is bad news for public finances and for the headline rate of G.D.P. growth, but good news for those in the work force. It should give workers more leverage to demand raises and give employers incentives to invest in productivity-enhancing software or machinery.12. The millennials are entering their primeSpending has a life cycle. Young adults don’t make much money. As they age, they start to earn more. Many start families and begin spending a lot more, buying houses and cars and everything else it takes to raise children. Then they tend to cut back on spending as the kids move out of the house.That, anyway, is what the data says takes place on average. The rate of consumption spending soars for Americans in their 20s and 30s, and peaks sometime in their late 40s. It’s probably not a coincidence that some of the best years for the American economy in recent generations were from 1983 to 2000, when the ultra-large baby boom generation was in that crucial high-spending period.Guess what generation is in that life phase in the 2020s? The millennials, an even larger generation than the boomers.They’ve had a rough young adulthood, starting their careers in the shadow of the Great Recession. But all that adult-ing they’re starting to do could have big, positive economic consequences for the decade ahead.13. Everybody likes it hotTwelve years ago, a Democratic president took office at a time of economic crisis. He succeeded at ending the crisis, but the expansion that followed was a disappointment, with years of slow growth at a time millions were either unemployed or out of the work force entirely.The overwhelming tone of the economic policy discussion during those years, however, was different. President Obama spoke of his plans to reduce the budget deficit. Republicans in Congress demanded even more fiscal restraint. Top Federal Reserve officials fretted about inflation risks, even when unemployment was high and inflation persistently low.The Trump presidency changed that discussion. Even as tax cuts widened the budget deficit, interest rates stayed low. Even as the jobless rate fell to levels not seen in nearly five decades, inflation stayed low. It was evident, based on how the economy performed in 2018 and 2019, and up until the pandemic began, that the U.S. economy could run hotter than the Obama-era consensus seemed to allow. That insight has powerful implications for the 2020s.14. Joe Biden wants to let it ripPresident Biden and congressional Democrats were determined to learn the lessons of the Obama era. Mr. Biden was deeply involved in that stimulus plan, which proved inadequate to the task of creating and sustaining a robust recovery.The lesson that Mr. Biden and the Democratic Party took from 2009 was straightforward: Do whatever it takes to get the economy humming, and the politics will work in your favor.That thinking helped lead to the $1.9 trillion relief bill signed on Thursday.15. Jay Powell wants to let it rip“To call something hot, you need to see heat,” Federal Reserve Chair Jerome Powell said in 2019. That’s as good a summary of the Fed’s approach to the economy as any.In more formal terms, the Fed has a new framework for policy called “Flexible Average Inflation Targeting.” It is in effect a repudiation of past Fed strategies of pre-emptively slowing the economy to prevent an outbreak of inflation predicted by economic models.Now, the Fed says it will raise interest rates in response to actual inflation in the economy, not just forecasts, and will not act simply because the unemployment rate is lower than models say it can sustainably get.Nearly every time he speaks, Mr. Powell sounds like a true believer in the church of full employment.16. Republicans are getting away from austerity politicsConsider an event that took place less than three months ago (that may feel like three years ago): Overwhelming bipartisan majorities in Congress passed a $900 billion pandemic relief bill. Then a Republican president threatened to veto it, not because it was too generous, but because it was too stingy.President Trump didn’t get his way on increasing $600 payments to most Americans to $2,000 payments, and he signed the legislation anyway, grudgingly. But the episode reflects a shift away from the focus on fiscal austerity that prevailed in the Obama era.With the current stimulus bill, opposition in conservative talk radio was relatively muted. Republicans voted against it, but there hasn’t been quite the fire-and-brimstone sense of opposition evident toward the Obama stimulus a dozen years ago.As the party becomes more focused on the kinds of culture-war battles that Mr. Trump made his signature, and its base shifts away from business elites, it wouldn’t be surprising if we saw the end of an era in which cutting government spending was its animating idea. This would imply a U.S. government that aims to keep flooding the economy with cash no matter who wins the next few elections.17. The post-pandemic era could start with a bangThe last year has been terrible on nearly every level. But it’s easy to see the potential for the economy to burst out of the starting gate like an Olympic sprinter.That could have consequences beyond 2021. A rapid start to the post-pandemic economy could create a virtuous cycle in which consumers spend; companies hire and invest to fulfill that demand; and workers wind up having more money in their pockets to consume even more.Americans have saved an extra $1.8 trillion during the pandemic, reflecting government help and lower spending. That is money that people can spend in the months ahead, or it could give them a comfort level that they have adequate savings and can spend more of their earnings.Things are also primed for a boom time in the executive suite. C.E.O. confidence is at a 17-year high, and near-record stock market valuations imply that companies have access to very cheap capital. There is no reason corporate America can’t hire, invest and expand to take advantage of the post-pandemic surge in activity.And on a psychological level, doesn’t everybody desperately want to return to feeling a sense of joy, of exuberance? That is an emotion that could prove the most powerful economic force of them all.Economics may be a dismal science, and those of us who write about it are consigned to see what is broken in the world. But sometimes, things align in surprising ways, and the result is a period in which things really do get better. This is starting to look like one of those times.AdvertisementContinue reading the main story More

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    On the Post-Pandemic Horizon, Could That Be … a Boom?

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesVaccine RolloutSee Your Local RiskNew Variants TrackerCredit…Maxime MouyssetSkip to contentSkip to site indexOn the Post-Pandemic Horizon, Could That Be … a Boom?Signs of economic life are picking up, and mounds of cash are waiting to be spent as the virus loosens its grip.Credit…Maxime MouyssetSupported byContinue reading the main storyFeb. 21, 2021, 3:00 p.m. ETThe U.S. economy remains mired in a pandemic winter of shuttered storefronts, high unemployment and sluggish job growth. But on Wall Street and in Washington, attention is shifting to an intriguing if indistinct prospect: a post-Covid boom.Forecasters have always expected the pandemic to be followed by a period of strong growth as businesses reopen and Americans resume their normal activities. But in recent weeks, economists have begun to talk of something stronger: a supercharged rebound that brings down unemployment, drives up wages and may foster years of stronger growth.There are hints that the economy has turned a corner: Retail sales jumped last month as the latest round of government aid began showing up in consumers’ bank accounts. New unemployment claims have declined from early January, though they remain high. Measures of business investment have picked up, a sign of confidence from corporate leaders.Economists surveyed by the Federal Reserve Bank of Philadelphia this month predicted that U.S. output will increase 4.5 percent this year, which would make it the best year since 1999. Some expect an even stronger bounce: Economists at Goldman Sachs forecast that the economy will grow 6.8 percent this year and that the unemployment rate will drop to 4.1 percent by December, a level that took eight years to achieve after the last recession.“We’re extremely likely to get a very high growth rate,” said Jan Hatzius, Goldman’s chief economist. “Whether it’s a boom or not, I do think it’s a V-shaped recovery,” he added, referring to a steep drop followed by a sharp rebound.The growing optimism stems from the confluence of several factors. Coronavirus cases are falling in the United States. The vaccine rollout, though slower than hoped, is gaining steam. And largely because of trillions of dollars in federal help, the economy appears to have made it through last year with less structural damage — in the form of business failures, home foreclosures and personal bankruptcies — than many people feared last spring.Lastly, consumers are sitting on a trillion-dollar mountain of cash, a result of months of lockdown-induced saving and successive rounds of stimulus payments. That mountain could grow if Congress approves the aid to households that President Biden has proposed.When the pandemic ends, cash could be unleashed like melting snow in the Rockies: Consumers, released from their cabin fever, compete for hotel rooms and restaurant tables. Businesses compete for employees and supplies to meet the demand. Workers who were sidelined by child care responsibilities or virus fears are drawn back to the labor force by suddenly abundant opportunities.“There will be this big boom as pent-up demand comes through and the economy is opening,” said Ellen Zentner, chief U.S. economist for Morgan Stanley. “There is an awful lot of buying power that we’ve transferred to households to fuel that pent-up demand.”That vision is far from a certainty. Delays in the vaccine rollout could stall the recovery. So could new strains of the virus that render vaccines less effective. A political standoff in Washington could hold up aid for unemployed workers and struggling businesses. And even if the economy avoids all of those traps, there is unlikely to be a single moment when public health officials give an “all clear”; it could be years before people pack into bars and sports stadiums the way they did before the pandemic.A boom also carries risks. In recent weeks, prominent economists including Lawrence H. Summers, a Treasury secretary under President Bill Clinton, have warned that Mr. Biden’s relief proposal is too large and could lead the economy to overheat, pushing up prices and forcing the Federal Reserve to bring the party to a premature end. Fed officials have largely dismissed those concerns, noting that the consistent problem in recent decades has been too little inflation rather than too much.Other economists fear that the rebound will primarily benefit those at the top, compounding inequities that the pandemic has widened.“We may see a boom in the future, but that may just leave some people even further behind, or may give them a trickle when they need a waterfall,” said Tara Sinclair, a George Washington University economist.But for many businesses and households that have struggled to stay afloat during the pandemic, those concerns pale in comparison with the opportunities that a boom could provide.The Coronavirus Outbreak More

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    Up to 30 Million in U.S. Have the Skills to Earn 70% More, Researchers Say

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    AdvertisementContinue reading the main storySupported byContinue reading the main storyUp to 30 Million in U.S. Have the Skills to Earn 70% More, Researchers SayThe findings point to the potential of upward mobility for people without a college degree.Microsoft is one of the major companies that have pledged to adopt skills-based hiring for many jobs, often dropping a college degree requirement.Credit…Stuart Isett for The New York TimesBy More

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    Edward P. Lazear, Economist and Presidential Adviser, Dies at 72

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    Edward P. Lazear, a pioneering labor economist at Stanford University who advised President George W. Bush during the financial crisis, died on Monday. He was 72.The cause was pancreatic cancer, the university said. It did not say where he died.Professor Lazear may be best remembered as the founder of a field that has come to be known as personnel economics, which seeks to understand how businesses hire, retain and pay employees. He also founded the Journal of Labor Economics and the Society of Labor Economists.But perhaps his most critical job was as chairman of President Bush’s Council of Economic Advisers when the American financial system buckled after a housing and debt bubble had burst, forcing the federal government to spend hundreds of billions of dollars to bail out financial institutions and rescue a sinking economy.“Eddie Lazear was a rare combination —-an extraordinary academic economist and a dedicated public servant who brought that intellect and skill to the solution of big policy problems,” said Condoleezza Rice, director of Stanford’s Hoover Institution, where Professor Lazear held a senior fellowship.In a statement, Mr. Bush called him “a trusted confidant” and “a beloved colleague.”Edward Paul Lazear was born in New York City on Aug. 17, 1948, and grew up in Los Altos, Calif. He graduated from the University of California, Los Angeles, in 1971 and received his Ph.D. in economics from Harvard University, where he worked with the Nobel Prize winner Gary Becker and adopted his approach of applying economic tools to new domains.Professor Lazear began his professional career in 1974 as an assistant professor of economics at the University of Chicago. He taught there for almost 20 years before joining the Stanford faculty.“He was the most natural economist I ever came into contact with,” said Paul Oyer, an economist at Stanford’s Graduate School of Business. “He was a deep economic natural thinker; he was born to be an economist.”Professor Lazear wrote a seminal paper about the relationship between worker pay and a company’s productivity and profits; it was based on a case study of the Safelight Glass Company. Productivity at the business soared when it shifted from paying workers an hourly wage to paying them according to the number of windshields they repaired. Professor Lazear figured out that this improvement hadn’t come about just because people had worked harder to earn more money. Rather, he found, the shift in wage policy had changed the composition of the installers: Slower workers had left the company and faster workers had taken their jobs.Professor Lazear wrote another famous paper explaining the rationale behind mandatory retirement, which was outlawed by Congress in 1986. He proposed that it is worthwhile for companies to pay workers less than what they are worth to the business when they are young, and then to raise their wages over time, to the point where they are paying them more than they are worth. But that, he found, meant that employees would try to hang on to their job for too long. Mandatory retirement thus helped solve the problem.“He is the father of a field that has had a lot of influence in the way firms design compensation and make hiring and retention policies,” said Erik Hurst, a labor economist at the University of Chicago. “This is of first-order importance for how people live their lives.”Professor Lazear fell squarely on the right of the economic policy spectrum. He was a fierce critic of the Obama administration’s fiscal stimulus policies. He later championed the tax cuts signed by President Trump in 2017. He believed in the efficiency of markets and disliked the minimum wage and other government interventions.But even his ideological opponents acknowledged his integrity and commitment to rigorous thinking.“I admired the purity of his commitment to economics,” said Lawrence H. Summers, the former Harvard president and Treasury secretary. “It is very rare among economists who work on things that have a bearing on politics.”Lawrence Katz, a professor of economics at Harvard, said Professor Lazear’s work had often reached conclusions at odds with conservative views and policies.“He was not ideological on all things,” Professor Katz said, pointing out Professor Lazear’s work with Richard B. Freeman on the value of works councils, which are used in many European countries to give workers voice and power to negotiate with employers.Professor Lazear’s work also served to dispel the notion popular among American conservatives that policies that guaranteed job security condemned Europe to high unemployment and low productivity.During the financial crisis of the late 2000s and its aftermath, Professor Lazear was a critical voice demanding attention to the faltering job market as millions of people lost jobs and many people struggled to find work for months or even years.“You can see in his policy work these concerns for workers and their skills and how hard it is to transition between industries,” said Austan Goolsbee, who chaired the Council of Economic Advisers during the Obama administration.Professor Lazear is survived by his wife, Victoria Lazear, and his daughter, Julie Lazear. More