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It seems likely that a key element of the Democratic economic agenda going forward — and a key part of agenda of the party’s presidential nominee — will be advocacy of “family friendly” polices such as paid parental leave. Here is an example from the Hillary Clinton-friendly Center for American Progress’s “Report of the Commission on Inclusive Prosperity”:
In particular, paid parental leave, paid caregiving leave, paid sick days, paid vacation, protections for part-time workers, and workplace flexibility are important to increase the inclusiveness of advanced-market economies. … The United States is the only advanced economy that does not guarantee paid maternity leave and one of only a handful that does not guarantee paid paternity leave. Only 12 percent of U.S. workers have access to paid parental leave through their employer, and rates are significantly higher for those with the highest earnings. Approximately 60 percent of workers have access to unpaid, job-protected leave through the Family and Medical Leave Act, or FMLA.
But not so fast, says a new analysis by the New York Times. From “When Family-Friendly Policies Backfire” by Claire Cain Miller:
In Chile, a law requires employers to provide working mothers with child care. One result? Women are paid less. In Spain, a policy to give parents of young children the right to work part-time has led to a decline in full-time, stable jobs available to all women — even those who are not mothers. Elsewhere in Europe, generous maternity leaves have meant that women are much less likely than men to become managers or achieve other high-powered positions at work. Family-friendly policies can help parents balance jobs and responsibilities at home, and go a long way toward making it possible for women with children to remain in the work force. But these policies often have unintended consequences. They can end up discouraging employers from hiring women in the first place, because they fear women will leave for long periods or use expensive benefits. … These findings are consistent with previous research by Francine Blau and Lawrence Kahn, economists at Cornell. In a study of 22 countries, they found that generous family-friendly policies like long maternity leaves and part-time work protections in Europe made it possible for more women to work — but that they were more likely to be in dead-end jobs and less likely to be managers.
Economists call these “unintended consequences.” And what’s more, according to the piece, “There is no simple way to prevent family-friendly policies from backfiring, researchers say.” One option, though, would be to make these policies gender neutral and somehow nudge men to take as much advantage of them as women do. Looking forward to seeing what policies are meant to make that happen.
View related content: Pethokoukis
For your perusal:
America’s 1 million missing entrepreneurs – Jim Tankersley | “Those trends, Mondragón-Vélez notes, happen to coincide with a period of middle-class income stagnation and widening gaps between the wealthiest Americans and everyone else. He overlays those trends and speculates that ‘limited wealth accumulation capacity has been gradually making entrepreneurship in America a luxury type of good.'”
Can We Network (and Augment) the Human Brain? – Ramez Naam | “How realistic is it to directly send data in and out of the brain? That is the core scientific innovation underlying my novels.”
A Tech Boom Aimed at the Few, Instead of the World – Farhad Manjoo | “We are once again living in a go-go time for tech, but there are few signs that the most consequential fruits of the boom have reached the masses. Instead, the boom is characterized by a rise in so-called on-demand services aimed at the wealthy and the young.”
Google Glass Is Edging Toward A Reimagining—And A Relaunch – David Nield | “Reactions to the Oculus Rift, the HTC Vive and other VR headsets are proof that people can get enthusiastic about head-mounted technology after all. Glass is no VR headset, but it’s in the same ballpark, and no doubt the engineers working on it are paying close attention to the changing landscape.”
Internet Providers Said Net Neutrality Rules Would Ruin Everything. Let’s Check in on That. – Lilly Hay Newman | “Meanwhile, Comcast announced in April that it is moving forward with rolling out 2 gigabit–per-second connectivity for 1.5 million customers in Atlanta. The Title II debate certainly isn’t over, but things pretty much seem like business as usual since the FCC reclassification.”
Economy’s Deeper Woes Little Mentioned on 2016 Campaign Trail – Neil King Jr. | “For now, most of the 2016 economic chatter has focused on reviving economic mobility, reducing poverty, buttressing the middle class and combating yawning income inequality. Less attention is being paid, on the campaign trail anyway, to worries that something is askew in the U.S. economy that is keeping growth from topping 3%, as it did during each of the three previous recoveries.”
The WaPo’s Charles Lane looks at the economics of Bernie Sanders’s “free” college plan:
Sanders’s solution, which he says would cost the Treasury $47 billion in its first year, amounts to a single-payer system for higher ed — with pros and cons analogous to those of such a system for health care. There’s a certain appeal in replacing the current, convoluted array of grants and loans, funneled through individuals, with just one revenue stream directed at institutions. (Well, 1½: Sanders would have Washington pay two-thirds of the funding and state governments the rest.) Setting a single out-of-pocket price — zero — would indeed make it easier to attend school. Over time, however, the Sanders plan might make U.S. higher education more accessible but less excellent. Having ruled out price as a means of allocating scarce educational resources, his plan would have to rely on aggressive administrative controls, lest students flood the system and drive up costs — requiring further federal subsidies.
Lane goes on to examine how “free” college is working in Germany.
Centralized budgeting by state education authorities is key to that country’s system. Alas, as University of Albany higher-ed policy analyst Ben Wildavsky explains, “Government funds become spread too thin. That reduces quality and often limits capacity. As a result, well-off students, who tend to be better prepared academically, are more likely to get scarce spaces.” Overall, German institutions are considered good, not great; few show up on global “top 50” lists, for what that’s worth.
Germany also rations access to higher ed through tracking — selecting a college-bound minority at an early age while putting everyone else on course to less-exalted training. This is one reason that fewer German youth finish college than do American youth, despite not having to pay tuition. At the same time, Germany tends to accumulate “eternal students”; its now-abandoned recent experiment with charging tuition was an attempt to make them either graduate or leave.
But these “free” college plans aren’t really about economics. They’re about anti-economics, the belief that incentives don’t matter, that somehow simply putting more money into higher education without any reform will somehow result in a better system. “Scarcity?” “Prices?” Feh. Just cut a check. How should education best deliver knowledge and credentials in the 21st century? “Free” college provides no answers. Makes for a catchy campaign idea, I guess.
View related content: Pethokoukis
China’s annual per capita GDP has risen by 500% since 1980, from $1,300 in 1980 to $7,700 in 2010. But what might the next five decades bring? From the Minneapolis Fed:
Motivated by neoclassical growth theory, we used the “growth miracle” and slowdown experiences of South Korea and Japan to provide a suggestive calculation for how rich China will become relative to the United States. Our calculation implies that China will improve its per capita income at a faster pace than that of the United States for about the next 45 years. By around 2061, it will reach close to half of the U.S. income per capita. While China’s income per capita relative to the United States will more than double from today, its absolute income per capita will increase by much more, by about a multiple of five.
While we think our exercise is well-grounded in theory and actual country experiences, we recognize that there are major differences between the economies of South Korea and Japan, on the one hand, and the economy of China, on the other hand. South Korea and Japan are small compared to China and, hence, were able to join the global economy in a relatively seamless way. By contrast, as an economy with close to 20 percent of the world’s population, China has had, and has needed to have, a large impact on global production and prices in order to generate high rates of GDP growth and improvements in its standard of living.
So, this study assumes China’s fast growth will slow along the same trajectory as did Japan and South Korea: “For example, Japan’s per capita GDP growth rate fell from 6.1 percent on average in the 1950s to 5.4 percent in the 1970s and to 2.2 percent in the 1990s. Similarly, in Korea, per capita GDP growth fell from an average rate of 8.5 percent in the 1980s to 5.8 percent in the 1990s and 3.8 percent in the 2000s.”
Obviously this means China also has already seen peak growth rates. It also means that mid-century, the average American would still be far richer than the average Chinese. basically US vs. South Korea today, on a nominal basis, and US vs. Greece on a purchasing power parity basis. Pretty impressive.
Not only that, it’s growing faster as these two charts (above and below) from FiveThirtyEight’s Andrew Flowers show:
OK, so what’s the explanation? Flowers takes threes shots at it:
With a slew of mergers and acquisitions — like the Verizon-AOL deal — big businesses might be snapping up or joining with rivals, and that corporate consolidation may have led to a concentration of market power. That’s the skeptical-of-business view.
Alternatively, big U.S. companies might just be riding a streak of legitimate success. Apple had the most profitable corporate quarter in history because people really like the company’s products. The U.S. boasts many of the world’s best-performing companies, so it’s not a stretch to think big business would outpace the economy as a whole. That’s the pro-business view.
And there is a third explanation, which does not point to growing monopoly power nor to pure excellence: globalization. Global trade has exploded in the last two decades. And these giant U.S. businesses might just be leveraging their already large scale to grow further in overseas markets.
I wonder to what extent this supports the market explanation for rising CEO pay, as opposed to managerial power. As economist Steven Kaplan told me awhile back, “Corporate profits as a share of GDP are higher today than at any time in the last 50 years. And profits are measured after executive pay. This does not suggest rents, but, rather improved performance, consistent with technology and scale. … Technology allows top execs and financiers to manage larger organizations and asset pools.” Also, I wonder how the increase in business size is affecting US entrepreneurs, giving them much more powerful competitors and more attractive places to ply their talents.
Scott Winship doesn’t think much of the Great Gatsby Curve, the supposed inverse relationship between income inequality and intergenerational mobility promoted by former White House economist Alan Krueger. And right now Winship and Krueger are have a blog debate over at the Brookings web site. An interesting discussion worth reading, but let me pull out this bit from Winship (related to the above chart):
Robert Putnam and others argue that rising inequality might hurt the mobility of today’s children, whose outcomes we won’t know for decades. Of course, it might: but by definition we can’t know. However, new research by Raj Chetty and his colleagues shows that mobility did not fall for Americans born between the early 1970s and the early 1990s, a period that both saw inequality rising below the top one percent and income becoming concentrated within the top one percent. Similarly, my own forthcoming research finds that men born in the early 1980s had the same mobility as those born in the late 1940s.
Winship also points out recent research that finds the US has the same upward mobility rates as Canada and Sweden, “despite the fact that the three countries have, respectively, high, moderate, and low levels of inequality.”
Wise words from Warren Buffett. The Oracle of Omaha predicts how the rush to sharply raise the minimum wage will end. (Spoiler: badly for the people the policy purports to help.) And Buffett also offers a smart alternative to help low-income workers:
In my mind, the country’s economic policies should have two main objectives. First, we should wish, in our rich society, for every person who is willing to work to receive income that will provide him or her a decent lifestyle. Second, any plan to do that should not distort our market system, the key element required for growth and prosperity.
That second goal crumbles in the face of any plan to sizably increase the minimum wage. I may wish to have all jobs pay at least $15 an hour. But that minimum would almost certainly reduce employment in a major way, crushing many workers possessing only basic skills. Smaller increases, though obviously welcome, will still leave many hardworking Americans mired in poverty.
The better answer is a major and carefully crafted expansion of the Earned Income Tax Credit (EITC), which currently goes to millions of low-income workers. Payments to eligible workers diminish as their earnings increase. But there is no disincentive effect: A gain in wages always produces a gain in overall income. The process is simple: You file a tax return, and the government sends you a check.
In essence, the EITC rewards work and provides an incentive for workers to improve their skills. Equally important, it does not distort market forces, thereby maximizing employment.
The existing EITC needs much improvement. Fraud is a big problem; penalties for it should be stiffened. There should be widespread publicity that workers can receive free and convenient filing help. An annual payment is now the rule; monthly installments would make more sense, since they would discourage people from taking out loans while waiting for their refunds to come through. Dollar amounts should be increased, particularly for those earning the least.
There is no perfect system, and some people, of course, are unable or unwilling to work. But the goal of the EITC—a livable income for everyone who works—is both appropriate and achievable for a great and prosperous nation. Let’s replace the American Nightmare with an American Promise: America will deliver a decent life for anyone willing to work.
Yep. Wage subsidies so work pays better without the potential anti-employment effects of the minimum wage. (Here is my plan to try and meld both policies.) I love that last bit especially: “America will deliver a decent life for anyone willing to work.” Right on. That’s a pretty good lens through which to examine public policy. Buffett is also is great on explaining why a rising tide is no longer lifting all boats. And “worker voice” or “Reagan-Bush tax cuts” don’t get a mention:
The poor are most definitely not poor because the rich are rich. Nor are the rich undeserving. Most of them have contributed brilliant innovations or managerial expertise to America’s well-being. We all live far better because of Henry Ford, Steve Jobs, Sam Walton and the like. Instead, this widening gap is an inevitable consequence of an advanced market-based economy. Think back to the agrarian America of only 200 years ago. … Visualize an overlay graphic that positioned the job requirements of that day atop the skills of the early American labor force. Those two elements of employment would have lined up reasonably well. Not today. A comparable overlay would leave much of the labor force unmatched to the universe of attractive jobs. That mismatch is neither the fault of the market system nor the fault of the disadvantaged individuals. It is simply a consequence of an economic engine that constantly requires more high-order talents while reducing the need for commodity-like tasks.
A NRO Corner piece by Deroy Murdock that compares the Obama vs. Reagan jobs recoveries contains this chart:
And here is Murdock’s analysis: “Using data from the Bureau of Labor Statistics, the staff of the Congressional Joint Economic Committee (JEC) compared the private sector job-creation records of Obama, President Reagan, and the average after every recession since 1960 that lasted more than one year. According to these hard numbers, Obama wheezes behind Reagan. Also, Obama is — literally — below average.”
Now here is a different chart that shows recessions in the early 1980s and before were followed by very different jobs recoveries than the later ones. Jobless recoveries or slow job growth recoveries have become typical:
What’s more, there is some evidence that downturns associated with financial crises and housing busts have slower recoveries. Recently, I wrote a fairly lengthy post on all those Obama vs. Reagan charts, and why they are too simplistic. Now, this is hardly to suggest fiscal or monetary policy has been optimal. The recovery could have been stronger. But it’s complicated, and astute analysis reflects that — or at least it should.
View related content: Pethokoukis
Look, I am sure self-driving cars will create jobs and spin-off industries that we can’t imagine right now. But that doesn’t mean there won’t be losers who may never recover. Over at Medium, there’s a piece looking at the impact of driverless trucks beyond the obvious of drivers losing their jobs:
It should be clear at a glance just how dependent the American economy is on truck drivers. According to the American Trucker Association, there are 3.5 million professional truck drivers in the US, and an additional 5.2 million people employed within the truck-driving industry who don’t drive the trucks. That’s 8.7 million trucking-related jobs.
We can’t stop there though, because the incomes received by these 8.2 million people create the jobs of others. Those 3.5 million truck drivers driving all over the country stop regularly to eat, drink, rest, and sleep. Entire businesses have been built around serving their wants and needs. Think restaurants and motels as just two examples. So now we’re talking about millions more whose employment depends on the employment of truck drivers. But we still can’t even stop there.
Those working in these restaurants and motels along truck-driving routes are also consumers within their own local economies. Think about what a server spends her paycheck and tips on in her own community, and what a motel maid spends from her earnings into the same community. That spending creates other paychecks in turn. So now we’re not only talking about millions more who depend on those who depend on truck drivers, but we’re also talking about entire small town communities full of people who depend on all of the above in more rural areas. With any amount of reduced consumer spending, these local economies will shrink.
One further important detail to consider is that truck drivers are well-paid. They provide a middle class income of about $40,000 per year. That’s a higher income than just about half (46%) of all tax filers, including those of married households. They are also greatly comprised by those without college educations. Truck driving is just about the last job in the country to provide a solid middle class salary without requiring a post-secondary degree. Truckers are essentially the last remnant of an increasingly impoverished population once gainfully employed in manufacturing before those middle income jobs were mostly all shipped overseas. If we now step back and look at the big national picture, we are potentially looking at well over 10 million American workers and their families whose incomes depend entirely or at least partially on the incomes of truck drivers, all of whom markedly comprise what is left of the American middle class.
So, at the very least. the most common job in most U.S. states probably will no longer be truck driver. I would also add that there are plenty of jobs that shouldn’t require a college degree but currently do. Finally, this piece is part of series pushing for a universal basic income, which I think is the wrong direction and ignores the value of work in creating meaningful life.
The Information Technology and Innovation Foundation doesn’t think much of “middle-out economics,” the recent progressive rebranding of Democratic redistributionist policies:
Regardless of the label it is wrapped in, middle-out economics is still fundamentally Keynesian in its logic, emphasizing consumption and the demand side of the economy while giving little attention to production and the supply side. Indeed, the report’s entire policy framework rests on a central, but ultimately flawed assumption: that increased demand for goods and services is the primary driver of economic growth. According to this logic, spending—not investment—drives growth. This means that, because higher-income people save more, there is a compelling argument for funneling a greater share of economic output to the “middle class” (a catchall term for roughly the bottom 80 percent of the income distribution). The political genius of this framing is that it marries the progressive cause of fairness with the political imperative of framing any economic agenda in growth terms.
Postwar Keynesian demand-side framing argued that robust demand was needed to keep the economy at full employment and avoid recessions. But in the past 15 years, the Keynesian left has attempted to modernize this narrative around long-term growth. In 2000, in their book Growing Prosperity: The Battle for Growth with Equity in the Twenty-First Century, liberal economists Barry Bluestone and Bennett Harrison were among the first to recast the rationale, arguing that increased demand spurred increased business investment: “[W]hat initially energized the post WWII economy boom had less to do with supply-side factors [like technology] and more to do with extraordinary buoyant demand.” But they went on to argue that consumer demand led companies to invest more in growth-enabling factors like machines. …
In other words, it is not the rate of return on investments (e.g., tax rates on business, interest rates, regulatory climate, etc.), nor the supply of investment opportunities (e.g., the pace of technological innovation) that drives investment; it is the expectation of growing demand. No need for an enterprise-focused growth policy; simply enact policies to transfer output to the bottom 80 percent, which will happily spend it, thereby leading business to increase output.
But this demand-side formulation fails on two counts. First, to the extent companies respond to growing demand, it is by investing in more of the same machines, used by workers doing similar jobs to produce the same goods and services for more customers. If the economy is not at full employment, this increase in demand would increase output and GDP, but it would likely do little to increase productivity (e.g., output per hour worked). If the economy is at full employment, stimulating more spending will only increase inflation and interest rates, likely reducing investment.
Second, this framing does not explain the long-term per-capita growth patterns of the last half century, which have been driven more by the development of and investment in productive technologies rather than growing demand. In fact, over the last half century, years with high consumption growth are actually associated with lower productivity growth three to five years later.13 Productivity growth slowed considerably in the 1970s despite continued increases in the workforce size and growing demand that followed. (See Figure 1.) In the late 1980s and early 1990s, employment growth moderated, but productivity increased in the following decade. This pattern might be expected given that higher consumption is likely to mean less investment. In fact, new growth theory shows that most growth in productivity and per-capita income stems from innovation (the development and adoption of new technologies).