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    Employer Practices Limit Workers’ Choices and Wages, U.S. Study Argues

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    A Biden administration report says collusion and other constraints on competition hold down pay and prospects in the labor market.The recent narrative is that there is a tight labor market that gives workers leverage. But a new report from the Biden administration argues that the deck is still stacked against workers, reducing their ability to move from one employer to another and hurting their pay.The report, released Monday by the Treasury Department, contends that employers often face little competition for their workers, allowing them to pay substantially less than they would otherwise.“There is a recognition that the idea of a competitive labor market is a fiction,” said Ben Harris, assistant Treasury secretary in the office of economic policy, which prepared the report. “This is a sea change in economics.”The report follows up on a promise made by President Biden last summer when he issued an executive order directing his administration to address excessive concentration in the market for work.Drawing from recent economic research, the report concludes that lack of competition in the job market costs workers, on average, 15 to 25 percent of what they might otherwise make. And it emphasizes that the administration will deploy the tools at its disposal to restore competition in the market for work.“This is the administration declaring where it is on the enforcement of antitrust in labor markets,” Tim Wu, a special assistant to the president for technology and competition policy on the National Economic Council, said in an interview in which he laid out the report’s findings. “It is sending a strong signal about the direction in which antitrust enforcement and policy is going.”Across the economy, wage gains generally come about when a worker changes jobs or has a credible offer from outside that will encourage the current employer to provide an increase, argues Betsey Stevenson, a professor of economics at the University of Michigan who was on President Barack Obama’s Council of Economic Advisers.The State of Jobs in the United StatesEmployment growth accelerated in February, as falling coronavirus cases brought customers back to businesses and workers back to the office.February Jobs Report: U.S. employers added 678,000 jobs and the unemployment rate fell to 3.8 percent ​​in the second month of 2022.Wages and Prices: A labor shortage is helping to push up workers’ pay. With inflation running hot, that could be a problem for the Federal Reserve.Service Workers:  Even as employers scramble to fill vacancies, service workers are seeing few gains. Part-time work is partly to blame.Unionization Efforts: The pandemic has fueled enthusiasm for organized labor. But the pushback has been brutal, especially in the private sector.New to the Work Force: Graduating college seniors will start their career without the memory of prepandemic work life. Here is what they expect.“Companies are well aware of this,” she said in an interview, so they rally around a simple solution: “If we just stop competing, it will be better for everybody.”The Treasury report lays out the many ways in which employers do this. There are noncompete agreements that bar workers from moving to a competitor, and nondisclosure agreements that keep them from sharing information about wages and working conditions — critical information for workers to understand their options. Some companies make no-poaching deals.“There is a long list of insidious efforts to take power out of the hands of workers and seize it for employers’ gain,” said Seth Harris, deputy director at the National Economic Council and deputy assistant to the president for labor and the economy.This is happening against a backdrop of broad economic changes that are hemming in the options of many workers, especially at the bottom end of the job market.The outsourcing of work to contractors — think of the janitors, cafeteria workers and security guards employed by enormous specialist companies, not by the companies they clean, feed and protect — reduces the options for low-wage workers, the report argues.The mergers and acquisitions that have consolidated hospitals, nursing homes, food processing companies and other industries have also reduced competition for workers, the study says, curtailing their ability to seek better jobs.The report notes, for instance, that mergers trimmed the number of hospitals in the United States to 6,093 in 2021, from 7,156 in 1975. It cites research into how some of these mergers have depressed the wage growth for nurses, pharmacy employees and other health workers.The Treasury’s document is drawn from a body of research that has been growing since the 1990s, when a seminal paper by David Card and Alan B. Krueger found that raising the minimum wage did not necessarily reduce employment and could even produce more jobs.The conclusion by Mr. Card and Mr. Krueger, which economists would consider impossible in a competitive labor market in which rising labor costs would reduce employer demand, started the discipline down a path to investigate the extent to which employers competed for workers. If a few employers had the power to hold wages below the competitive equilibrium, raising the wage floor might draw more workers in.Lack of competition, the Biden administration argues, goes a long way to explain why pay for a large share of the American work force is barely higher, after accounting for inflation, than it was a half-century ago. “The fact that workers are getting less than they used to is a longstanding problem,” Ms. Stevenson, who was not involved in the Treasury report, noted.Anticompetitive practices thrive when there are fewer competitors. If workers have many potential employers, they might still agree to sign a noncompete clause, but they could demand a pay increase to compensate.Even if there is no conclusive evidence that the labor market is less competitive than it used to be, the report says, researchers have concluded that there is, in fact, very little competition.Suresh Naidu, a professor of economics at Columbia University, argues, moreover, that institutions like the minimum wage and unions, which limited employers from fully exercising their market power, have weakened substantially over time. “The previously existing checks have fallen away,” Mr. Naidu said.Unions are virtually irrelevant across much of the labor market. Only 6 percent of workers in the private sector belong to one. The federal minimum wage of $7.25 an hour is so low that it matters little even for many low-wage workers. The Treasury report argues that an uncompetitive labor market is reducing the share of the nation’s income that goes to workers while increasing the slice that accrues to the owners of capital. Moreover, employers facing little competition for workers, it argues, are more likely to offer few benefits and impose dismal working conditions: unpredictable just-in-time schedules, intrusive on-the-job monitoring, poor safety, no breaks.The damage runs deeper, the report says, arguing that uncompetitive labor markets reduce overall employment. Productivity also suffers when workers have a hard time moving to new jobs that could offer a better fit for their skills. Noncompete clauses discourage business formation when they limit entrepreneurs’ ability to find workers for their ventures.Addressing the issues that the report singles out is likely to be an uphill task. The administration’s push to increase the federal minimum wage to $15 has been unsuccessful. In Congress, bills that would ease the path for workers to join a union face long odds. Going after noncompete clauses, no-poaching deals and other forms of anticompetitive behavior would be an easier task.Last year, the Justice Department’s antitrust division brought several cases challenging no-poaching and wage-setting agreements. In January, four managers of home health care agencies in Maine were indicted on federal charges of conspiring to suppress the wages and restrict the job mobility of essential workers during the pandemic.Still, deploying antitrust enforcement in the job market is somewhat new. It has been used mostly to ward off anticompetitive behavior that raises prices for consumers in product and service markets. Persuading courts to, say, prevent a merger because of its impact on wages might be tougher.A note by the law firm White & Case, for instance, complained that the move to block Penguin Random House’s attempt to buy Simon & Schuster on the grounds that it would reduce royalties to authors is “emblematic of the Biden administration’s and the new populist antitrust movement’s push to direct the purpose of antitrust away from consumer welfare price effects and towards other social harms.” More

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    Democrats Renew Push for Industrial Policy Bill Aimed at China

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    A major competitiveness bill passed the Senate last year with bipartisan support, only to stall. Democrats hope to revive it in the House, but first they will have to bridge big differences.WASHINGTON — Biden administration officials and Democrats in Congress are pushing to revive stalled legislation that would pour billions of dollars into scientific research and development and shore up domestic manufacturing, amid deep differences on Capitol Hill about the best way to counter China and confront persistent supply chain woes.House Democrats unveiled a 2,900-page bill on Tuesday evening that would authorize $45 billion in grants and loans to support supply chain resilience and American manufacturing, along with providing billions of dollars in new funding for scientific research. Speaker Nancy Pelosi said in a statement that she hoped lawmakers would quickly begin negotiations with the Senate, which passed its own version of the bill last June, to settle on compromise legislation that could be sent to President Biden for his signature.But the effort faces obstacles in Congress, where attempts to sink significant federal resources into scientific research and development to bolster competitiveness with China and combat a shortage of semiconductors have faltered. The Senate-passed measure fizzled last year amid ideological disputes with the House and a focus on efforts to pass Mr. Biden’s infrastructure and social policy bills. For months, the competitiveness measure was rarely even mentioned, except perhaps by Senator Chuck Schumer, Democrat of New York and the majority leader, who has personally championed it.But facing a disruptive semiconductor shortage that has broken down supply chains and helped fuel inflation, Democrats are now vigorously pressing ahead on the bill. With Mr. Biden’s domestic agenda sputtering, the party is eager for a legislative victory, and top administration officials and lawmakers have said they hope to send a compromise bill to the president’s desk in a matter of months.“We have no time to waste in improving American competitiveness, strengthening our lead in global innovation and addressing supply chain challenges, including in the semiconductor industry,” Mr. Schumer said.Both the House bill and the one that passed the Senate last year would send a lifeline to the semiconductor industry during a global chip shortage that has shut auto plants and rippled through the economy. The bills would offer chip companies $52 billion in grants and subsidies with few restrictions.The measures would also pour billions more into scientific research and development pipelines in the United States, create grants and foster agreements between companies and research universities to encourage breakthroughs in new technologies, and establish new manufacturing jobs and apprenticeships.“The proposals laid out by the House and Senate represent the sort of transformational investments in our industrial base and research and development that helped power the United States to lead the global economy in the 20th century,” Mr. Biden said in a statement. “They’ll help bring manufacturing jobs back to the United States, and they’re squarely focused on easing the sort of supply chain bottlenecks like semiconductors that have led to higher prices for the middle class.”The semiconductor shortage has disrupted the economy, broken down supply chains and helped fuel inflation.Sarahbeth Maney/The New York TimesLawmakers will still need to overcome differing views in the House and Senate over how best to take on China and, perhaps more crucially, how to fund the nation’s scientific research.“There are disagreements, legitimate disagreements,” Gina Raimondo, the commerce secretary, said in an interview. “How do we do this? How do we get it right? There doesn’t seem to be much disagreement over the core $52 billion appropriation for chips. There is disagreement around how we make investments in research and development in basic science.”One major difference is that while the Senate bill invests heavily in specific fields of cutting-edge technology, such as artificial intelligence and quantum computing, the House bill places few stipulations on the new round of funding, other than to say that it should go toward fundamental research.In a memo on the legislation, House aides wrote that their measure was “focusing on solutions first, not tech buzzwords.”Some experts argue that approach lacks urgency. Stephen Ezell, the vice president for global innovation policy at the Information Technology and Innovation Foundation, a policy group that receives funding from telecommunications and tech companies, called the House bill “not sufficient to enable the United States to win the advanced technology competition with China.” He argued that the focus on advanced technology in the Senate-passed bill would do more to increase American competitiveness.How the Supply Chain Crisis UnfoldedCard 1 of 9The pandemic sparked the problem. More

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    Cash Aid to Poor Mothers Increases Brain Activity in Babies, Study Finds

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    The research could have policy implications as President Biden pushes to revive his proposal to expand the child tax credit.WASHINGTON — A study that provided poor mothers with cash stipends for the first year of their children’s lives appears to have changed the babies’ brain activity in ways associated with stronger cognitive development, a finding with potential implications for safety net policy.The differences were modest — researchers likened them in statistical magnitude to moving to the 75th position in a line of 100 from the 81st — and it remains to be seen if changes in brain patterns will translate to higher skills, as other research offers reason to expect.Still, evidence that a single year of subsidies could alter something as profound as brain functioning highlights the role that money may play in child development and comes as President Biden is pushing for a much larger program of subsidies for families with children.“This is a big scientific finding,” said Martha J. Farah, a neuroscientist at the University of Pennsylvania, who conducted a review of the study for the Proceedings of the National Academies of Sciences, where it was published on Monday. “It’s proof that just giving the families more money, even a modest amount of more money, leads to better brain development.”The payments will continue until the children are at least 4 years old, and the researchers plan further tests.via Lauren Meyer/Baby’s First YearsAnother researcher, Charles A. Nelson III of Harvard, reacted more cautiously, noting the full effect of the payments — $333 a month — would not be clear until the children took cognitive tests. While the brain patterns documented in the study are often associated with higher cognitive skills, he said, that is not always the case.“It’s potentially a groundbreaking study,” said Dr. Nelson, who served as a consultant to the study. “If I was a policymaker, I’d pay attention to this, but it would be premature of me to pass a bill that gives every family $300 a month.”A temporary federal program of near-universal children’s subsidies — up to $300 a month per child through an expanded child tax credit — expired this month after Mr. Biden failed to unite Democrats behind a large social policy bill that would have extended it. Most Republicans oppose the monthly grants, citing the cost and warning that unconditional aid, which they describe as welfare, discourages parents from working.Sharing some of those concerns, Senator Joe Manchin III, Democrat of West Virginia, effectively blocked the Biden plan, though he has suggested that he might support payments limited to families of modest means and those with jobs. The payments in the research project, called Baby’s First Years, were provided regardless of whether the parents worked.Evidence abounds that poor children on average start school with weaker cognitive skills, and neuroscientists have shown that the differences extend to brain structure and function. But it has not been clear if those differences come directly from the shortage of money or from related factors like parental education or neighborhood influences.The study released on Monday offers evidence that poverty itself holds children back from their earliest moments.“This is the first study to show that money, in and of itself, has a causal impact on brain development,” said Dr. Kimberly G. Noble, a physician and neuroscientist at Teachers College, Columbia University, who helped lead the study.Dr. Noble and colleagues from six universities recruited a thousand mother-infant pairs within days of the babies’ birth and randomly divided the families into two groups. One group received a nominal $20 a month and another received $333.Using electroencephalograms, or EEG tests, to evaluate the children at age 1, the researchers found that those in the high-cash group had more of the fast brain activity other research has linked to cognitive development than those in the low-cash group. The differences were statistically significant by most, but not all, measures and were greatest in parts of the brain most associated with cognitive advancement.The payments will continue until the children are at least 4 years old, and the researchers plan further tests.Researchers are still trying to determine why the money altered brain development. It could have purchased better food or health care; reduced damaging levels of parental stress; or allowed mothers to work less and spend more time with their infants.The question of whether cash aid helps or hurts children is central to social policy. Progressives argue that poor children need an income floor, citing research that shows even brief periods of childhood poverty can lead to lower adult earnings and worse health. Conservatives say unconditional payments erode work and marriage, increasing poverty in the long run.President Bill Clinton changed the Democratic Party’s stance a quarter-century ago by abolishing welfare guarantees and shifting aid toward parents who work. Though child poverty subsequently fell to record lows, the reasons are in dispute, and rising inequality and volatility have revived Democratic support for subsidies.There are a variety of public and private programs underway in the United States to measure the effects of a guaranteed income on poor families, and many other rich countries offer broad children’s allowances without condition.The temporary expansion of the child tax credit, passed last year, offered subsidies to all but the richest parents at a one-year cost of more than $100 billion. Representative Suzan DelBene, Democrat of Washington, said the study strengthened the case for the aid by showing that “investing in our children has incredible long-term benefits.”Greg J. Duncan, an economist at the University of California, Irvine, who was one of nine co-authors of the study, said he hoped the research would refocus the debate, which he said was “almost always about the risks that parents might work less or use the money frivolously” toward the question of “whether the payments are good for kids.”But a conservative welfare critic, Robert Rector of the Heritage Foundation, argued that the study vindicated stringent welfare laws, which he credited with reducing child poverty by incentivizing parents to find and keep jobs.“If you actually believe that child poverty has these negative effects, then you should not be trying to restore unconditional cash aid,” he said. “You certainly don’t want to go in the business of reversing welfare reform.”Economists and psychologists once dominated studies of poor children, but neuroscientists have increasingly weighed in. Over the past 15 years, they have shown that poor children on average differ from others in brain structure and function, with the disparities greatest for the poorest children.EEG tests have found differences in electrical activity. Magnetic resonance imaging, or M.R.I.s, have shown differences in the size of the cerebral cortex, especially in areas linked to language development and executive functioning. One study found differences in cerebral cortex size may account for up to 44 percent of the achievement gap between high- and low-income adolescents.As with any group differences, averages do not predict individual outcomes. Many other factors beyond brain features influence cognitive development, and many low-income children thrive.To test the effects of cash aid, Baby’s First Years raised more than $20 million from public and private sources, including the National Institutes of Health. Researchers recruited participants from maternity wards in New York City, Minneapolis-St. Paul and the metro areas of New Orleans and Omaha, randomly assigning them to the high- and low-payment groups.The families had average incomes of about $20,000, below the official poverty line for an average-sized family, meaning those who received $333 a month experienced an income gain of approximately 20 percent. The mothers were told they could use the money as they wished.The researchers predicted that children in the high-cash group would show more high-frequency brain activity than those in the low-cash group and less low-frequency activity. Previous research has found such patterns are associated with higher cognitive skills and fewer attention problems.The results largely conformed to predictions, with the children who received the higher grants showing more of the fast brain activity (though no differences in slow brain activity).The scientists wrote that the money “appeared” to cause the changed brain patterns, though they were less equivocal in interviews. Dr. Noble said the evidence, though strong, was not “airtight,” in part because the coronavirus pandemic allowed them to test only 435 infants.Researchers are still trying to determine why the money altered brain development. It could have purchased better food or health care.Cody O’Loughlin for The New York TimesJohn Gabrieli, a neuroscientist at the Massachusetts Institute of Technology, said the evidence that cash aid altered brain activity was persuasive and “very important scientifically,” though he added, “We want to see if these differences result in improvements to cognition.”While the size of the recorded differences are modest (about a fifth of a standard deviation), the researchers said they were comparable to those produced by the average school experiment, like giving children tutors. While those services are often hard to administer, they added, cash can be distributed on a mass scale.Katherine Magnuson, a co-author of the study who directs the Institute for Research on Poverty at the University of Wisconsin, said she was surprised that only a year’s worth of aid made a difference. “It shows how sensitive the brain is to environments,” she said.Critics of unrestricted cash aid often warn that families will waste or abuse it. But Lisa A. Gennetian, an economist at Duke University and a co-author of the study, said the results indicated that parents could be trusted to make good decisions. “For one family, that might be food; for another, it might be housing,” she said. Additional research will examine how parents spent the money.Unlike last year’s expansion of the child tax credit, the experimental payments were narrowly targeted to poor newborns, which would make it less costly to replicate and possibly ease conservatives’ concerns about deterring work.One critic of the broader payments, Angela Rachidi of the American Enterprise Institute, said the study suggested the importance of infant bonding. Should the initial results hold up, she said, they could lend support for policies that help mothers spend more time with their newborns, including paid leave.But any cash aid, she said, should be “targeted to those with low incomes, time limited, and not erode work incentives in the long term.” More

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    Checking Privilege in the Animal Kingdom

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    Researchers say the human concepts of intergenerational wealth and inequality are useful for studying some animals’ behavior.Some North American red squirrels are born with a silver spoon in their mouths. They live in pine forests where the adults defend caches of food. Without a cache of their own, many baby squirrels won’t survive the winter. But each year, some squirrel mothers abandon their territory, bequeathing all their food to one or more babies who stay behind. These young squirrels are much more likely to survive until the spring.Across the animal kingdom, there are other examples of species that share resources such as territory, tools and shelter between generations. In a paper published last month in Behavioral Ecology, a trio of researchers argue that we should call this phenomenon the same thing we call it in humans: intergenerational wealth.Those young, pine-cone-rich squirrels, the scientists say, are children of privilege. When George Orwell wrote in “Animal Farm” that some animals were more equal than others, he was trying to shed light on the human ideological conflicts of the time. The researchers hope to use the analogy in the opposite direction. Applying a human lens, they say, can help us understand the roots of inequality in animals.Jennifer Smith, a behavioral ecologist at Mills College in Oakland, Calif., said the idea for the paper arose early in the pandemic, in conversations that she and colleagues at the University of California, Los Angeles, had over (of course) Zoom. They saw how Covid-19 was highlighting health disparities and other inequalities around the world. The scientists began to wonder if they could learn more about inequality by studying it in animals.“When we started looking for it, we found lots and lots of examples,” Dr. Smith said.Young red grouse are more likely to succeed in establishing their own territories when their fathers and other kin are nearby. Hyena daughters born to high-ranking mothers inherit their status, and get dibs on fresh meat. Some chimpanzees and capuchin monkeys crack nuts using stone tools that their parents used before them.Animal wealth may be passed down to nonrelatives, too, as in paper wasps that take over shared nests or hermit crabs that seek better real estate.Some capuchin monkeys crack nuts using stone tools that their parents used before them.T. Milse/Juniors Bildarchiv GmbH, via AlamyTo study wealth transfers between animals, scientists can ask concrete questions: Does a lizard that lives with its parents survive longer? Does a monkey with access to larger nut-cracking rocks go on to have more children and grandchildren? Biologists can explore animal privilege without tackling all of the topic’s cultural complexities in humans.By seeking similarities between privilege in people and animals, Dr. Smith hopes to unlock a greater understanding of inequality in the natural world. “For me, it’s very exciting to study the rules of inequality in nonhuman animals,” she said. “To see this across so many different species was quite surprising. And we’re just touching the surface.”Next, she’s planning to expand her survey, looking at wealth and privilege across thousands more animal species.“The use of terms like ‘privilege’ and ‘perpetuating the cycle of privilege’ is a little bit unusual” in animal research, said Jenny Tung, an evolutionary anthropologist and geneticist at Duke University who focuses on how social factors affect health in primates. “In part because they’re a bit loaded for us as humans to read.” But she thinks the idea of using a human lens to look at how animals pass down resources has promise.“That is potentially tremendously useful,” Dr. Tung said. The idea “opens up a whole tool chest of ways to understand” where inequality comes from among animals, she said.Siobhán Mattison, an evolutionary anthropologist at the University of New Mexico who has studied inequality in human societies, also thinks that combining the anthropology of privilege with animal biology has potential. “Humans are animals,” she said. “We are undoubtedly influenced by some of the same things that drive inequality in other animals.”That doesn’t mean animals can answer every question about how inequality arises in humans, Dr. Mattison added: “Humans are vastly more cooperative than most other species.” Our cultural institutions can reinforce inequality, she said, but they can also fight against it.Although Dr. Smith is primarily hoping that insights from humans can teach her more about inequality in animals, she does think the science could work in the opposite direction too. Some of the rules scientists discover in animals might apply to humans.She stresses, though, that finding inequality in nature isn’t the same as justifying it. Her research “could be misinterpreted as saying, ‘Well, it exists everywhere, so we can do nothing about it,’” Dr. Smith said.Unlike other animals, “We’re able to understand this phenomenon,” Dr. Smith said, “and then explicitly act to choose how we use that knowledge to create social change.” More

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    How Inflation Concerns May Affect Prices

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    Age, region, education and income all influence what people think consumer prices will be a few years from now. And that creates a policy puzzle.Who is worried about inflation? Older Americans, for sure; the young, not so much.

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    How different age groups think inflation will rise
    Data is monthly survey results, through Nov. 2021, of the median expected inflation rate for the next three years by demographic.Source: New York FedBy The New York TimesLow-income families are more concerned than richer ones.

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    How people at different income levels think inflation will rise
    Data is monthly survey results, through Nov. 2021, of the median expected inflation rate for the next three years by demographic.Source: New York FedBy The New York TimesPeople in the Midwest and the South foresee inflation’s impact hitting harder than residents of the West and the Northeast do.

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    How people in different regions think inflation will rise
    Data is monthly survey results, through Nov. 2021, of the median expected inflation rate for the next three years by demographic.Source: New York FedBy The New York TimesAnd those without a college degree are more apprehensive than college graduates.

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    How people with different education levels think inflation will rise
    Data is monthly survey results, through Nov. 2021, of the median expected inflation rate for the next three years by demographic.Source: New York FedBy The New York TimesThese idiosyncratic patterns could have an effect on how much inflation we get.The Federal Reserve’s approach to controlling inflation depends on ordinary Americans’ expectations. If people expect inflation to remain low into the future, the Fed may do nothing even if prices spike momentarily, because of supply chain constraints or other factors. If inflation expectations rise, though, the Fed will probably bring down the hammer, worried that they will get baked into everyday decisions.“If I were at the Fed right now, I would be concerned” about inflation readings above 6 percent, said Narayana Kocherlakota, a former president of the Federal Reserve Bank of Minneapolis who is now a professor of economics at the University of Rochester. “What will this do to the inflationary zeitgeist?”A tricky challenge for the Fed’s approach, though, is that people’s inflation expectations do not necessarily flow from an analytical reading of prices and wages. They are influenced by many things that often have little to do with the economy.It is natural for the poor to be more preoccupied by rising prices, because prices tend to hit the poor harder. Low-income families spend most of their earnings on necessities. They are immediately hit by rising prices of gas, food, rent and the like. The Consumer Price Index for November showed an overall increase in prices of 6.8 percent from a year earlier, the fastest pace since 1982. Energy prices — which are historically volatile — rose at nearly five times that rate.Moreover, the poor don’t have the financial tools that the rich can use to protect the value of their savings.What to Know About Inflation in the U.S.Fastest Inflation in Decades: The Consumer Price Index — a measure of the average change over time in prices — rose 6.8 percent in November from a year earlier, its sharpest increase since 1982.Why Washington Is Worried: Policymakers are starting to acknowledge that price increases have been proving more persistent than expected.Who’s to Blame for Rising Prices?: Here are the most obvious candidates — and where the evidence looks strongest.What the Experts Say: Most agree the spike in prices is linked to the economic recovery. When it will fade, and by how much, are less clear.The Psychology of Inflation: Americans are flush with cash and jobs, but they also think the economy is awful.But people’s attitudes about inflation are also shaped by other influences. For instance, in a Gallup poll in November, 53 percent of Republicans reported that recent price increases were causing personal hardship, but only 37 percent of Democrats did.That’s not because inflation necessarily hurts Republicans more than Democrats, or because the G.O.P. may have a stronger ideological aversion to rising prices. A recent study by economists in Germany and Switzerland found that when Barack Obama was in the White House, inflation expectations in Republican states ran almost half a percentage point higher than in Democratic states. But they dropped three-quarters of a point when Donald J. Trump became president.That is, as with impressions of the overall state of the economy, perceptions of inflation may be shaped by who’s in power. This could be part of the reason that the Federal Reserve Bank of New York finds that inflation expectations in the South and the Midwest — where the overwhelming majority of Republican voters live — have jumped far more than in the West and the Northeast, home to most Democrats. But the inflation rates in the South and the Midwest have, in fact, been somewhat higher than elsewhere.People’s expectations are also influenced by time.Older people have particular reasons to be concerned about rising prices. They often rely on fixed incomes, which are eroded by inflation. They are out of the labor market, so care less about unemployment. Given their high voter participation and outsized political power, it is hardly surprising that governments in countries with older populations tend to follow more strict monetary policies and deliver lower inflation.But time also has other, hard-to-measure influences on people’s attitudes. Many Americans have forgotten that inflation once got very high. Others might never have known this. People under 40 have no experience of the so-called Great Inflation from the mid-1960s to the early 1980s. They may have a harder time believing it matters.Research by Ulrike Malmendier from the University of California, Berkeley, and Stefan Nagel of the University of Chicago concluded that people’s beliefs about future inflation are shaped by their experience of it. This “explains the substantial disagreement between young and old individuals in periods of high inflation.”People who experienced the Great Inflation are more likely to fear high inflation around the corner than the young, who have lived mostly in an era in which inflation has rarely exceeded 2 percent. The young’s experience of economic stagnation during their formative years, after the housing bubble burst in 2008, is more likely to convince them that inflation can be too low, as it was back then, stymieing efforts by the Fed to reinvigorate the economy.Americans under 40 expect inflation to hit about 3.5 percent in three years, according to the most recent reading of the New York Fed’s survey. People over 60, by contrast, expect 4.7 percent. “Younger and older people tend to differ depending on the path inflation took in their past,” Mr. Nagel said.Even the experts — the members of the Federal Open Market Committee, the Fed’s policymaking group, who pore through sophisticated economic models fed with reams of data — are influenced by youthful memories. “Whether and at what age they experienced the Great Inflation or other inflation realizations affects their stated beliefs about future inflation, their monetary-policy decisions, and the tone of their speeches,” according to another paper by Ms. Malmendier, Mr. Nagel and Zhen Yan from Cornerstone Research in Boston.The researchers do not have insight into the current view of committee members. Individual forecasts from the semiannual Monetary Policy Report to Congress, on which they based their analysis, are made available to the public only with a 10-year lag, starting in 1992. But their research helps explain a longstanding puzzle.The puzzle came in a study by the economists David and Christina Romer of the University of California, Berkeley, in the middle of the last recession, in 2008. They found that over time, forecasts from the members of the Federal Open Market Committee were less accurate than the collective forecast of the staff economists at the Federal Reserve. The deviation, according to Ms. Malmendier, Mr. Nagel and Mr. Yan is “explained by reliance on personal inflation experiences.”People not schooled in economics may have little clue about how inflation and monetary policy work. One study by economists at the Federal Reserve Bank of Cleveland; the University of California, Berkeley; the University of Texas at Austin, and Brandeis University found that the Fed’s momentous switch announced in August of last year to a flexible inflation target, which would allow the Fed to let inflation rise above its long-term target of 2 percent, was greeted by a collective “huh?”Corporate executives do little better. “Like households, U.S. managers are largely uninformed about recent aggregate inflation dynamics or monetary policy,” wrote another group of economists in a separate study. “Inattention to inflation and monetary policy is pervasive among U.S. firms as well.”Fed officials acknowledge that their understanding of inflation psychology is, at best, imperfect. “We don’t know as a profession as much as we would like about how wage-price cycles get started,” Mr. Kocherlakota said. “How data on inflation translates into expectations is not well understood.”Given that knowledge gap, it is fair to ask whether the inflation expectations of ordinary Americans should play such a large role in shaping monetary policy.One study by economists at the International Monetary Fund, for instance, concluded that a tenet held dear by central bankers across the industrialized world since the 1980s — that moderating inflation expectations is central to taming inflation — was overstated. Rather, they suggested, inflation simply followed demography: Baby boomers contributed to inflation between 1955 and 1975, when they were young, consuming but not working. They reduced inflation between 1975 and 1990, when they joined the labor force. And they will drive it up again as they retire.Jeremy B. Rudd, an economist at the Federal Reserve Board, also worries that the proposition that managing expectations is critical to managing inflation is hogwash, with no solid theoretical or empirical underpinning.For instance, Mr. Rudd argues, the idea that workers who expect higher inflation in the future will try to stay ahead by negotiating higher wages with employers does not fit a country where only 6 percent of workers in the private sector are unionized and where there is little collective bargaining for wages.It would be foolhardy, for sure, to ignore people’s views on rising prices. Whatever the overall economic cost of higher inflation — and this is a contested question — people don’t like it.Lawrence H. Summers, who was an economic adviser to President Bill Clinton and to Mr. Obama, has been warning that a burst in inflation could help deliver the presidency to the Republican Party, as it did in 1968 and 1980.Richard Curtin, a professor of economics at the University of Michigan who runs its surveys of consumers, notes that three presidents in the 1960s and ’70s thought they had recipes to bring inflation down: Lyndon B. Johnson imposed a surtax on income, Richard Nixon resorted to wage and price controls, and Jimmy Carter went on TV to ask Americans to consume less. “Governments always think it is in their ability to quickly stop inflation and they never can,” Mr. Curtin said.Since then, central bankers became convinced that their job was first and foremost to anchor people’s expectations to the belief that inflation would remain low. They are unlikely to let go of the idea that they believe has served them so well for four decades.Mr. Kocherlakota has little personal experience of high inflation. He was a toddler when prices started coming unstuck in the 1960s. But he remembers an assignment in his first semester in college: “This is what Paul Volcker did. Comment.” The takeaway was that the pain inflicted on the economy by the central banker who finally crushed runaway inflation by cranking up interest rates in the late 1970s and early 1980s is to be avoided at all costs.“We let inflation expectations get unanchored,” Mr. Kocherlakota noted. As inflation hits 6 percent and people’s expectations of future inflation rise in tandem, he added, it would be foolhardy to let that happen again. “An honest way to play it now,” he said, “is that unanchoring is a risk we have to be cognizant of.” More

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    Biden's Stimulus Is Stoking Inflation, Fed Analysis Suggests

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    Inflation is likely getting a temporary boost from the $1.9 trillion coronavirus relief package that the Biden administration ushered in early this year, new Federal Reserve Bank of San Francisco research released on Monday suggested.The analysis may add fuel to a hot debate in Washington over whether the administration’s policies are contributing to a spike in prices. Critics of the government spending package that was signed into law in March, including former Treasury Secretary Lawrence H. Summers, have said it was poorly targeted and risked overheating the economy. Supporters of the relief program have said it provided critical aid to workers and businesses still struggling through the pandemic.The new paper comes down somewhere in the middle, finding that the spending had some effect on inflation but suggesting that it is most likely to be temporary. The economists estimated that it would add 0.3 percentage points to the core Personal Consumption Expenditures inflation index in 2021 and “a bit more” than 0.2 percentage points in 2022. Core inflation strips out volatile items like food and fuel.While those numbers are significant, they are not what most people would consider “overheating” — the Fed aims for 2 percent inflation on average over time, and a few tenths of a percent here or there are not a reason for much alarm.But the result is only a rough estimate, one the researchers came up with to help inform an continuing political and economic debate.Both the Trump and Biden administrations signed trillions of dollars in virus relief spending into law. The packages included two bipartisan bills in 2020 that pumped more than $3 trillion into the economy, including direct checks to individuals and generous unemployment benefits. Another $1.9 trillion — called the American Rescue Plan — was passed this year by Democrats after they took control of both Congress and the White House.“The later timing and large size of the A.R.P. stirred debate about whether it is causing an overheating of the economy and fueling a sustained increase in inflation,” the San Francisco Fed researchers noted.The economists tried to answer that question by looking at how much spare capacity is in the economy using a labor market measure — the ratio of job openings to unemployment. The logic is that inflation tends to pick up when there is very little labor market slack, because businesses raise wages to attract workers and then raise prices to cover their climbing labor costs.Government stimulus can push up the number of job openings in the economy as it fuels demand while constraining the number of available workers because it gives would-be employees a financial cushion, allowing them to take their time as they search for a new job.Based on the package’s size and using historical evidence on how fiscal spending affects the labor market, the researchers found that the American Rescue Plan might raise the vacancy-to-unemployment ratio close to its historical peak in 1968, fueling some inflation — but that the price impact would be small and short-lived.U.S. Inflation & Supply Chain ProblemsCard 1 of 6Covid’s impact on supply continues. More

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    Cutting off jobless benefits early may have hurt state economies.

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    When states began cutting off federal unemployment benefits this summer, their governors argued that the move would push people to return to work.New research suggests that ending the benefits did indeed lead some people to get jobs, but that far more people did not, leaving them — and perhaps also their states’ economies — worse off.A total of 26 states, all but one with Republican governors, have moved to end the expanded unemployment benefits that have been in place since the pandemic began. Many business owners blame the benefits for discouraging people from returning to work, while supporters argue they have provided a lifeline to people who lost jobs in the pandemic.The extra benefits are set to expire nationwide next month, although President Biden on Thursday encouraged states with high unemployment rates to use separate federal funds to continue the programs.To study the policies’ effect, a team of economists used data from Earnin, a financial services company, to review anonymized banking records from more than 18,000 low-income workers who were receiving unemployment benefits in late April.A Small Rise in EmploymentShare of workers on unemployment in late April who later began working.

    Note: Chart reflects data in 19 states that have cut off benefits, and 23 that have retained them. Source: Earnin via Coombs, et al.By The New York TimesThe researchers found that ending the benefits did have an effect on employment: In states that cut off benefits, about 26 percent of people in the study were working in early August, compared with about 22 percent of people in states that continued the benefits.But far more people did not find jobs. In the 19 states ending the programs for which researchers had data, about two million people lost their benefits entirely, and a million had their payments reduced. Of those, only about 145,000 people found jobs because of the cutoff. (The researchers argue the true number is probably even lower, because the workers they were studying were the people most likely to be severely affected by the loss of income, and therefore may not have been representative of everyone receiving benefits.)A Big Drop in BenefitsShare of workers on unemployment in late April who continued to receive benefits in some form.

    Note: Chart reflects data in 19 states that have cut off benefits, and 23 that have retained them. Source: Earnin via Coombs, et al.By The New York TimesCutting off the benefits left unemployed workers worse off on average. The researchers estimate that workers lost an average of $278 a week in benefits because of the change, and gained just $14 a week in earnings (not $14 an hour, as previously reported here). They compensated by cutting spending by $145 a week — a roughly 20 percent reduction — and thus put less money into their local economies.“The labor market didn’t pop after you kicked these people off,” said Michael Stepner, a University of Toronto economist who was one of the study’s authors. “Most of these people are not finding jobs, and it’s going to take them a long time to get their earnings back.”Less Income, Less SpendingAverage impact of ending federal programs on weekly unemployment benefits, earnings and spending, among people who were on unemployment in late April.

    Notes: Data is as of Aug. 6 and includes 19 states that have cut off benefits. Source: Earnin via Coombs, et al.By The New York TimesThe findings are consistent with other recent research that has found that the extra unemployment benefits have had a measurable but small effect on the number of people working and looking for work. The next piece of evidence will come Friday morning, when the Labor Department will release state-level data on employment in July.Coral Murphy Marcos More

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    Who Discriminates in Hiring? A New Study Can Tell.

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    Applications seemingly from Black candidates got fewer replies than those evidently from white candidates. The method could point to specific companies.Twenty years ago, Kalisha White performed an experiment. A Marquette University graduate who is Black, she suspected that her application for a job as executive team leader at a Target in Wisconsin was being ignored because of her race. So she sent in another one, with a name (Sarah Brucker) more likely to make the candidate appear white.Though the fake résumé was not quite as accomplished as Ms. White’s, the alter ego scored an interview. Target ultimately paid over half a million dollars to settle a class-action lawsuit brought by the Equal Employment Opportunity Commission on behalf of Ms. White and a handful of other Black job applicants.Now a variation on her strategy could help expose racial discrimination in employment across the corporate landscape.Economists at the University of California, Berkeley, and the University of Chicago this week unveiled a vast discrimination audit of some of the largest U.S. companies. Starting in late 2019, they sent 83,000 fake job applications for entry-level positions at 108 companies — most of them in the top 100 of the Fortune 500 list, and some of their subsidiaries.Their insights can provide valuable evidence about violations of Black workers’ civil rights.The researchers — Patrick Kline and Christopher Walters of Berkeley and Evan K. Rose of Chicago — are not ready to reveal the names of companies on their list. But they plan to, once they expose the data to more statistical tests. Labor lawyers, the E.E.O.C. and maybe the companies themselves could do a lot with this information. (Dr. Kline said they had briefed the U.S. Labor Department on the general findings.)In the study, applicants’ characteristics — like age, sexual orientation, or work and school experience — varied at random. Names, however, were chosen purposefully to ensure applications came in pairs: one with a more distinctive white name — Jake or Molly, say — and the other with a similar background but a more distinctive Black name, like DeShawn or Imani.What the researchers found would probably not surprise Ms. White: On average, applications from candidates with a “Black name” get fewer callbacks than similar applications bearing a “white name.”This aligns with a paper published by two economists from the University of Chicago a couple of years after Ms. White’s tussle with Target: Respondents to help-wanted ads in Boston and Chicago had much better luck if their name was Emily or Greg than if it was Lakisha or Jamal. (Marianne Bertrand, one of the authors, testified as an expert witness in the trial over Ms. White’s discrimination claim.)This experimental approach with paired applications, some economists argue, offers a closer representation of racial discrimination in the work force than studies that seek to relate employment and wage gaps to other characteristics — such as educational attainment and skill — and treat discrimination as a residual, or what’s left after other differences are accounted for.The Berkeley and Chicago researchers found that discrimination isn’t uniform across the corporate landscape. Some companies discriminate little, responding similarly to applications by Molly and Latifa. Others show a measurable bias.All told, for every 1,000 applications received, the researchers found, white candidates got about 250 responses, compared with about 230 for Black candidates. But among one-fifth of companies, the average gap grew to 50 callbacks. Even allowing that some patterns of discrimination could be random, rather than the result of racism, they concluded that 23 companies from their selection were “very likely to be engaged in systemic discrimination against Black applicants.”There are 13 companies in automotive retailing and services in the Fortune 500 list. Five are among the 10 most discriminatory companies on the researchers’ list. Of the companies very likely to discriminate based on race, according to the findings, eight are federal contractors, which are bound by particularly stringent anti-discrimination rules and could lose their government contracts as a consequence.“Discriminatory behavior is clustered in particular firms,” the researchers wrote. “The identity of many of these firms can be deduced with high confidence.”The researchers also identified some overall patterns. For starters, discriminating companies tend to be less profitable, a finding consistent with the proposition by Gary Becker, who first studied discrimination in the workplace in the 1950s, that it is costly for firms to discriminate against productive workers.The study found no strong link between discrimination and geography: Applications for jobs in the South fared no worse than anywhere else. Retailers and restaurants and bars discriminate more than average. And employers with more centralized personnel operations handling job applications tend to discriminate less, suggesting that uniform rules and procedures across a company can help reduce racial biases.An early precedent for the paper published this week is a 1978 study that sent pairs of fake applications with similar qualifications but different photos, showing a white or a Black applicant. Interestingly, that study found some evidence of “reverse” discrimination against white applicants.More fake-résumé studies have followed in recent years. One found that recent Black college graduates get fewer callbacks from potential employers than white candidates with identical resumes. Another found that prospective employers treat Black graduates from elite universities about the same as white graduates of less selective institutions.One study reported that when employers in New York and New Jersey were barred from asking about job candidates’ criminal records, callbacks to Black candidates dropped significantly, relative to white job seekers, suggesting employers assumed Black candidates were more likely to have a record.What makes the new research valuable is that it shows regulators, courts and labor lawyers how large-scale auditing of hiring practices offers a method to monitor and police bias. “Our findings demonstrate that it is possible to identify individual firms responsible for a substantial share of racial discrimination while maintaining a tight limit on the expected number of false positives encountered,” the researchers wrote.Individual companies might even use the findings to reform their hiring practices.Dr. Kline of Berkeley said Jenny R. Yang, a former chief commissioner of the E.E.O.C. and the current director of the Office of Federal Contract Compliance Programs, which has jurisdiction over federal contractors, had been apprised of the findings and had expressed interest in the researchers’ technique. (A representative of the agency declined to comment or to make Ms. Yang available.)Similar tests have been performed since the 1980s to detect discrimination in housing by real estate agents and rental property owners. Tests in which white and nonwhite people inquire about the availability of housing suggest discrimination remains rampant.Deploying this approach in the labor market has proved a bit tougher. Last year, the New York City Commission on Human Rights performed tests to detect employment discrimination — whether by race, gender, age or any other protected class — at 2,356 shops. Still, “employment is always harder than housing,” said Sapna Raj, deputy commissioner of the law enforcement bureau at the agency, which enforces anti-discrimination regulations.“This could give us a deeper understanding,” Ms. Raj said of the study by the Berkeley and Chicago researchers. “What we would do is evaluate the information and look proactively at ways to address it.”The commission, she noted, could not take action based on the kind of statistics in the new study on their own. “There are so many things you have to look at before you can determine that it is discrimination,” she argued. Still, she suggested, statistical analysis could alert her to which employers it makes sense to look at.And that could ultimately convince corporations that discrimination is costly. “This is actionable evidence of illegal behavior by huge firms,” Dr. Walters of Berkeley said on Twitter in connection with the study’s release. “Modern statistical methods have the potential to help detect and redress civil rights violations.” More