Macro Roundup

Pew’s deep dive on second generations Americans

“…By then, the nation’s “immigrant stock” (first and second generations combined, adults and children combined) could grow from 76 million now to more than 160 million, at which point it would comprise a record share (37%) of the U.S. population.1 The focus of this report is on the 20 million adult members of the second generation (an additional 16 million U.S-born children of immigrants are under the age of 18)…”

Taylor, Paul, D’Vera Cohn, Gretchen Livingston, Cary Funk, and Rich Morin. February 7, 2013. “Second-Generations Americas: A Portrait of the Adult Children of Immigrants.” Pew Research Center.https://www.pewsocialtrends.org/2013/02/07/second-generation-americans/

Population Projections. Immigrants tend to have higher birth rates than do native-born Americans.4 If current immigration flows and birth rates continue, then by 2050, an estimated 37% of the U.S. population—highest in modern history—will be immigrants or the children of immigrants, according to a 2008 Pew Research population projection. That projection also shows that, because of the aging of the Baby Boomer generation, as much as 93% of the growth of the working-age population between now and then will be accounted for by immigrants (43%) or their U.S.-born children (50%).

The modern immigration wave to this country began with the passage of landmark legislation in 1965 that had the effect, for the first time in the nation’s history, of opening U.S. borders on a roughly equal basis to non-Europeans as well as Europeans. Half of the 44 million immigrants who have come since then have been from Latin America, about a quarter (27%) from Asia, and the remainder from other regions.5 In the nation’s two previous immigration waves during the late 19th and early 20th centuries, nearly nine-in-ten new arrivals were Europeans.

Hispanics and Asian Americans are the focus of the Pew Research survey research findings in this report. Each of these groups include immigrants from more than a dozen countries, all with unique cultures, characteristics and migration histories.6

Despite these country-of-origin differences, some broad patterns are evident. The bulk of Hispanic immigrants have relatively low levels of formal education and work in low-skilled, low-paying jobs, while the majority of Asian immigrants (especially those who have arrived in the past few decades) have relatively high levels of education and skills that help position them for jobs in higher-skilled occupations.

These large racial or ethnic group differences in the human capital of recent immigrants are echoed in the socioeconomic profile of the second generation. For example, some 55% of second-generation Asian Americans have a bachelor’s degree or more, compared with 21% of Hispanics. There are also gaps in household income and poverty rates among second-generation Hispanics and Asian Americans.

But while large gaps remain between groups, it is also the case that within each group, the second generation is doing better than the first on most key measures of economic success.

Intergenerational Mobility, Now and Then

The skeptics cite many factors: Most modern immigrants are non-white and thus face deeply ingrained social and cultural barriers; about a quarter of today’s immigrants (the vast majority of whom are Hispanic) have arrived illegally and thus must navigate their lives in the shadows of the law; globalization and technology may have eliminated many of the jobs that provided pathways to the middle class for earlier generations of hard-working but low-skilled immigrants; the relative ease of travel and communication have enabled today’s immigrants to retain their ties to their countries of origin and may have reduced incentives to adapt to American customs and mores.

It is beyond the scope of this report to make definitive statements about the success of today’s second-generation immigrants compared with those of earlier eras. Most of our data trends do not extend that far back in history. Moreover, with so many of today’s second generation just now starting to age into adulthood (16 million are under the age of 18), and with more than a million new immigrants continuing to arrive each year, it will take decades before one can attempt a comprehensive generational scorecard of the modern wave of immigrants and their children.

What we can say with certainty is that members of the second generation will have a major impact on this nation’s destiny for decades. And at this stage of their journey, we can provide some empirical assessments of their economic circumstances. For Hispanics and Asian Americans—the groups that comprise the bulk of the modern immigration wave—we can also provide some empirical assessments of their attitudes and beliefs, based on data gathered from our own surveys and those of the Census Bureau.

A Roadmap to the Report

The remainder of this report is organized as follows: Chapter 2 presents a detailed analysis of U.S. Census Bureau data on the second generation in comparison with immigrants, with third and higher generations and with the U.S. adult population. Generational patterns are also examined separately for each of four racial and ethnic groups: Hispanics, Asian Americans, non-Hispanic whites and non-Hispanic blacks.

Chapters 3 through 7 supplement this demographic portrait with an analysis of recent Pew Research Center surveys conducted with a nationally representative sample of Hispanics and a separate representative survey of Asian Americans on a range of topics. These chapters compare the second generation with the first generation in each group. No analysis of third-and higher-generation Hispanics or Asian Americans is included due to the small sample sizes of those subgroups in the survey data. Comparisons to the general public using data from other recent Pew Research Center surveys are included wherever possible. Survey data with an adequate number of second-generation whites and blacks for analysis is not available. Thus, the survey comparisons are limited to the two race or ethnic groups comprising the bulk of the modern immigration wave. These comparisons help illuminate the ways in which the second generation tends to be similar and dissimilar to the first generation within each race or ethnic group, but they cannot be used to characterize the second generation in the U.S. as a whole.

Chapter 3 looks at questions of self-identity, proficiency in English and attitudes about maintaining their ancestral language. Chapter 4 examines how the generations see their quality of life in relation to their parents, their expectations for their children, and their perception of their financial well-being. Chapter 5 examines attitudes about intergroup relations and intergroup marriage. This chapter includes a detailed analysis of data from the U.S. Census Bureau on the rate of intergroup marriage for all adults in the U.S. and separately for Hispanics, Asian Americans, whites and blacks. Chapter 6 focuses on attitudes about political party, ideology and social issues. Chapter 7 considers a wide array of other topics, including views about discrimination, personal goals, values and comparisons between the U.S. and their ancestral country. The appendices provide a detailed explanation of the methodologies used and a topline summary of the survey findings for Hispanics and Asian Americans. They also provide detailed tables, drawn from 2012 census data, that show the socioeconomic characteristics of first, second and third and higher generations of whites, blacks, Hispanics and Asian Americans.

About the Authors

This report is a joint effort of survey researchers, demographers and writers in the Pew Research Center. Paul Taylor, executive vice president of the Pew Research Center, wrote the overview and provided editorial guidance for the report. Senior writer D’Vera Cohn wrote the demographic analysis in Chapter 2 with data analysis and advice from research associate Ana Gonzalez-Barrera, senior demographer Jeffrey S. Passel and senior researcher Gretchen M. Livingston. Wendy Wang, research associate, number-checked Chapter 2 along with the detailed demographic tables in Appendix 1 and the analysis of intermarriage in Chapter 5. Chapter 3 was written by Livingston. Chapters 4 and 6 were written by senior researcher Cary Funk. Rich Morin, senior editor, wrote Chapters 5 and 7 with the assistance of Funk and Livingston. The analysis of intermarriage in Chapter 5 also benefited from the advice of Passel and Wang. Research assistant Eileen Patten number-checked Chapters 1, 3, 4 and 5. Research assistant Seth Motel number-checked Chapters 6 and 7 and prepared charts and tables for Chapters 1 and 2. Patten, Motel and Gonzalez-Barrera also assisted with other aspects of the report including compiling and checking the topline of findings, preparing charts and formatting the final report. The report was copy-edited by Marcia Kramer of Kramer Editing Services.

The report also benefited from the advice and guidance of Mark Hugo Lopez, associate director of Pew Research Hispanic Center; Rakesh Kochhar, associate director of research of Pew Research Hispanic Center; Kim Parker, associate director of Pew Research’s Social & Demographic Trends project; Phillip Connor, research associate in the Pew Research Center’s Forum on Religion & Public Life; Scott Keeter, the Pew Research Center’s director of survey research; and Leah Christian, senior researcher in the Pew Research Center.

Notes on Terminology

All references to whites, blacks and others are to the non-Hispanic components of those populations. Asians include a small number of Hispanics. Whites, blacks and Asians are single-race-only groups. “Others” includes persons reporting single races not listed separately and persons reporting more than one race.

The terms “Latino” and “Hispanic” are used interchangeably in this report.

“Foreign born” refers to people born outside of the United States, Puerto Rico or other U.S. territories to parents neither of whom was a U.S. citizen. “Foreign born” and “immigrant” and “first generation” are used interchangeably. Unauthorized immigrants are included in this group.

“Native born” or “U.S. born” refer to people who are U.S. citizens at birth, including those born in the United States, Puerto Rico or other U.S. territories and those born abroad to parents at least one of whom was a U.S. citizen.

“Multi-generational family households” refer to those that include at least two adult generations (with the younger generation including at least one adult who is 25 years old or older) or households consisting of grandparents and grandchildren, with no parent present.

References to demographic data for all adults or the total population are to the civilian noninstitutional population included in the Current Population Survey. See Methodology for more information.

Immigrant Generations

“First generation” or “foreign born” refers to people born outside of the United States to parents neither of whom was a U.S. citizen. For this report, people born in Puerto Rico or other U.S. territories are not considered foreign born.

“Second generation” refers to people born in the United States, with at least one first-generation (immigrant) parent. People born in Puerto Rico or other U.S. territories with at least one parent born in a different country are considered second generation.

“Third and higher generation” refers to people born in the United States, including Puerto Rico or other U.S. territories with both parents born in the United States, including Puerto Rico or other U.S. territories.

Comparisons with Parents’ Country of Origin: Seven-in-ten second-generation Asian Americans and eight-in-ten (81%) second-generation Hispanics say that conditions for raising children are better in the U.S. than in their parents’ country of origin. Like immigrants, they also rate the U.S more favorably than their ancestral country in terms of treatment of the poor and the opportunity to get ahead. Less than half of both generations rate the U.S. as better than their ancestral country as a place to maintain strong family ties.

Perceptions of Generational Mobility. By lopsided margins, most second-generation Hispanics (67%) and Asian Americans (75%) say their standard of living is better than that of their parents at the same stage of life. Similar shares of the immigrant generations of both groups say the same. By contrast, 60% of the full U.S. population feel the same way. Looking ahead, two-thirds of second-generation Hispanics, but 41% of Asians, believe their own children will eventually surpass their current standard of living. Overall, 48% of American adults say the same.

Nonmarital Childbearing: In what some scholars have described as a pattern of negative assimilation, 41% of second-generation women who recently gave birth were unmarried, compared with 23% of immigrant women who recently gave birth. The higher share of nonmarital childbearing among the second generation has been driven mostly by second-generation Hispanic women (52% of these women with a recent birth were unmarried). Among the U.S. population as a whole, 36% of women who recently gave birth were not married.3

Political and Social Values: Second-generation Hispanics and Asian Americans, as well the first generation of each group, identify more with the Democratic Party than the Republican Party and characterize themselves as liberals at higher rates than the general public. About half or more of the second generation believe that abortion should be legal, and more than two-thirds say homosexuality should be accepted by society. The relative youth of the second generation contributes to, but does not fully explain, their liberal political leanings.

Intermarriage. About one-in-six (15%) married second-generation adults have a spouse of a different race or ethnicity from themselves, compared with 8% of all immigrants and 8% of all U.S. adults. Intermarriage rates are especially high for second-generation Hispanics (26%) and Asian Americans (23%).

Second-Generation Americans

A Portrait of the Adult Children of Immigrants

Chapter 1: Overview

Second-generation Americans—the 20 million adult U.S.-born children of immigrants—are substantially better off than immigrants themselves on key measures of socioeconomic attainment, according to a new Pew Research Center analysis of U.S. Census Bureau data. They have higher incomes; more are college graduates and homeowners; and fewer live in poverty. In all of these measures, their characteristics resemble those of the full U.S. adult population.

The Pew Research surveys also find that second-generation Hispanics and Asian Americans place more importance than does the general public on hard work and career success. They are more inclined to call themselves liberal and less likely to identify as Republicans. And for the most part they are more likely to say their standard of living is higher than that of their parents at the same stage of life. In all of these measures, the second generation resembles the immigrant generation more closely than the general public.

As the U.S. Congress gears up to consider immigration legislation, this new Pew Research report on second-generation Americans looks at the attitudes, values, life priorities, economic experiences, intergroup relations and identity markers of a group that will have a significant impact on the nation’s economy and politics for decades to come.

Given current immigration trends and birth rates, virtually all (93%) of the growth of the nation’s working-age population between now and 2050 will be accounted for by immigrants and their U.S.-born children, according to a population projection by the Pew Research Center.

The focus of this report is on the 20 million adult members of the second generation (an additional 16 million U.S-born children of immigrants are under the age of 18).

This is a heterogeneous group that includes many younger Hispanic, Asian-American and white adults who are the children of modern-era immigrants as well as many older adults who are mostly the children of European immigrants who arrived as part of an earlier immigration wave that peaked a century ago.

Given the diversity of this population, two caveats are in order. First, the data presented here should not be interpreted as proving or disproving that there has been upward mobility between immigrant parents and their children.2 That’s because many of today’s second generation are not the children of today’s immigrants; many are the children of early 20th-century immigrants, now deceased. Second, the aggregate data on today’s second generation conceal what are often large subgroup differences by race and ethnicity. Whenever possible in this report, we disaggregate findings by these and other relevant demographic characteristics.

Here is a summary of key findings:

Identity: Pew Research surveys of Hispanics and Asian Americans—the groups that comprise the bulk of the modern immigration wave—find that roughly six-in-ten adults in the second generation consider themselves to be a “typical American,” about double the share of immigrants who say the same. Still, most in the second generation also have a strong sense of identity with their ancestral roots. Majorities say they identify themselves most often by their family’s country of origin (i.e., Mexican, Chinese American) or by a pan-ethnic or racial label (i.e., Hispanic or Asian American). Some 37% of second-generation Hispanics and 27% of second-generation Asian Americans say they most often describe themselves simply as “American.”

Organisation for Economic Co-operation and Development. Accessed October 2, 2019. “Education at a Glance 2019, Indicator A5 What are the financial incentives to invest in education.”https://www.oecd-ilibrary.org/education/education-at-a-glance-2019_f8d7880d-en

Highlights

Adults who complete tertiary education benefit from high returns on investment because they are more likely to be employed and to earn more than adults without tertiary education.

Not only does education pay off for individuals financially, but the public sector also benefits from having a large proportion of tertiary-educated individuals, for example through greater tax revenues and social contributions.

Across OECD countries on average, a man invests around USD 45 100 (direct costs plus foregone earnings) to earn a tertiary degree, while a woman invests around USD 34 800. Because men tend to have higher earnings and employment rates, they also have higher total benefits over their career: USD 341 000 for men, compared to USD 262 400 for women.

Investing time and money in education is an investment in human capital. Better chances of employment (see Indicator A3) and higher earnings (see Indicator A4) are strong incentives for adults to invest in education and postpone employment. Although women currently have higher levels of education than men on average (see Indicator A1), men reap more benefits from their investment, as they have better employment and earning outcomes from education, on average.

Countries benefit from more highly educated individuals through higher revenues from taxes and social contributions paid once individuals enter the labour market. As both individuals and governments benefit from higher levels of educational attainment, it is important to consider the financial returns to education alongside other indicators, such as access to and completion of higher education (see Indicator B5).

Other factors not reflected in this indicator also affect the returns to education. The financial returns may be affected by the field of study and by the country-specific economic, labour-market and institutional context, as well as by social and cultural factors. Furthermore, returns to education are not limited to financial returns, but also include other economic outcomes, such as increased productivity, and social outcomes, such as greater participation in cultural or sport activities (see Indicator A6).

Other findings

In most OECD countries, the main cost of tertiary education is not direct payments, such as tuition fees and living expenses, but the earnings individuals forego while they are in education. This is true even when taking students’ earnings into account.

The private benefits from investing in education depend on countries’ tax and social contributions systems. For instance, in Chile, Estonia and Korea, income taxes and social contributions amount to less than one-quarter of the gross earnings benefits for a man attaining tertiary education, while in Belgium and the Netherlands they add up to more than half of the gross earnings benefits.

For nearly all countries with available data, the private and public net financial returns from obtaining a bachelor’s, master’s or doctoral degree are greater than the returns from obtaining a short-cycle tertiary degree.

Note

This indicator provides information on the incentives to invest in further education by considering its costs and benefits, including net financial returns and internal rates of return. It examines the choice between pursuing higher levels of education and entering the labour market, focusing on two scenarios: 1) investing in tertiary education versus entering the labour market with an upper secondary qualification; and 2) investing in upper secondary education versus entering the labour market without an upper secondary qualification (available on line).

It considers two types of investors: 1) the individuals (referred to here as “private”) who choose to pursue higher levels of education and the additional net earnings and costs they can expect; and 2) the government (referred to here as “public”) that decides to invest in education and the additional revenue it would receive (e.g. as tax revenues) and the costs involved.

This indicator estimates the financial returns on investment in education only up to a theoretical retirement age of 64 and, therefore, does not take pensions into account. The direct costs of education presented in this indicator do not take into account student loans.

Please note that due to continuous improvements to this indicator’s methodology, the values presented in this edition of Education at a Glance are not comparable with those in previous editions.

Education at a Glance 2019, Indicator A5 What are the financial incentives to invest in education

National Venture Capital Association. 2019. “2019 Yearbook, National Venture Capital Association.”https://nvca.org/wp-content/uploads/2019/08/NVCA-2019-Yearbook.pdf

“….This paper presents results from the fourth year of a multi-year, pre-committed research design for analyzing recent minimum wage changes. Using ACS and CPS data through 2018, we find that relatively large minimum wage increases reduced employment among low-skilled individuals by roughly 2.5 percentage points.The effects of smaller statutory increases and inflation-indexed increases vary across data sets and specifications, but are generally not distinguishable from zero. The relationship between minimum wage increases and employment is quite strongly negative in states that began enacting substantial increases between 2013 and 2015. In states that began enacting increases later in the economic expansion, estimates are more variable and tend towards zero….”

Jeffrey Clemens and Michael Strain, “Minimum Wage Analysis Using A Pre-Committed Research Design: Evidence Through 2018,” Institute of Labor Economics, https://www.iza.org/publications/dp/13286/minimum-wage-analysis-using-a-pre-committed-research-design-evidence-through-2018

US Department of Education. Accessed October 14, 2019. “Long Term-Trend Mathematics Assessments.” National Center for Education Statistics.https://nces.ed.gov/nationsreportcard/ltt/

“….This article discusses how to move antitrust enforcement forward in a constructive manner during a time of widespread and growing concern over the political and economic power of large corporations in the United States. Three themes are emphasized. First, a body of economic evidence supports more vigorous merger enforcement in the United States. This can and should be done in a manner consistent with sound economic principles. Tighter merger control can be achieved by utilizing the existing legal presumption against highly concentrating mergers and by reinvigorating the potential competition doctrine to block mergers between firms that may well become important direct rivals in the foreseeable future. Second, close antitrust scrutiny is appropriate for today’s largest and most powerful firms, including those in the tech sector. However, the coherence and integrity of antitrust require that successful firms not be attacked simply because they obtain dominant positions. Proper antitrust enforcement regarding unilateral conduct by dominant firms should continue to focus on identifying specific conduct that harms customers or disrupts the competitive process, especially conduct that excludes pesky, disruptive rivals. Third, while antitrust enforcement has a vital role to play in keeping markets competitive, antitrust law and antitrust institutions are ill suited to directly address concerns associated with the political power of large corporations or other public policy goals such as income inequality or job creation. Campaign finance reform, tax policy, labor, education, and other policies are far better suited to address those critical public policy goals….”

Shapiro, Carl. October 25, 2017. “Antitrust in a Time of Populism.” Social Science Research Network.https://papers.ssrn.com/sol3/papers.cfm

“…Basically, the data driving these curves show a truly eye-popping divergence of big-, medium-, small-sized communities’ growth progress—one that’s getting worse. On population growth, for example, the 53 very largest metro areas (those with populations over one million residents) have accounted for fully 93.3 percent of the nation’s population growth since the crisis, but an incredible 96.4 percent of it since 2014 (though they account for just 56 percent of the overall population). Even more significantly, the biggest metros generated fully two-thirds of output growth on the economic front and 73 percent of employment gains between 2010 and 2016—figures that actually have increased since 2014, when they reached nearly 72 and 74 percent. By contrast, smaller metropolitan areas with less than 250,000 people—representing 9 percent of the nation’s population—have lost ground. Since 2010, in fact, these communities made a negative contribution of -6.5 percent to the nation’s growth, with their contribution ticking up modestly in the last two years and their output and employment growth contributions declining to less than 3 percent and 5 percent of the national total, respectively. As for the rural tier, the trends have been even worse. By the 2014 to 2016 period, rural communities’ contribution to national population growth had turned negative and the ebbing of the earlier oil and gas boom saw output and employment growth decline precipitously as a share of national gains…”

CNN’s Ron Brownstein posted a strong comment this morning on the spatial politics of economic power, using data from Brookings on the nation’s uneven growth map.

Brownstein doubts that the current red-blue political standoff in the country is sustainable. Which seems like an understatement.

Yet while Brownstein’s political take is compelling, there’s another aspect of the underlying economic dynamics in the country that bears noting: that they are all about size. Quite simply, the sharp divergence of large and small communities’ economic fortunes since the financial crisis—something we’ve written about here, here, and here—is becoming even starker than it has been.

Here’s what’s going on in tabular form. And here’s how it looks over time:

By contrast, smaller metropolitan areas with less than 250,000 people—representing 9 percent of the nation’s population—have lost ground. Since 2010, in fact, these communities made a negative contribution of -6.5 percent to the nation’s growth, with their contribution ticking up modestly in the last two years and their output and employment growth contributions declining to less than 3 percent and 5 percent of the national total, respectively. As for the rural tier, the trends have been even worse. By the 2014 to 2016 period, rural communities’ contribution to national population growth had turned negative and the ebbing of the earlier oil and gas boom saw output and employment growth decline precipitously as a share of national gains. All of which looks like this:

Nor are these dynamics solely a national story. Similar trends are affecting the 50 states, though with greater variation, shaped by industrial composition and historical settlement patterns. (See Appendix tables linked below). In New York, for example, 95 percent of the state’s 2010 to 2016 employment growth emanated from large metro counties, while in Alabama just 29 percent did.

What does all this mean for the country? Surely nothing good. To be sure, most Americans now live in big metropolitan population hubs that tend to be more economically efficient than other places. But for all of that, 9 percent of the population lives in smaller metros that are stagnant or slipping as a group and another 14 percent live in rural places that are almost all declining. And these places are losing their economic purchase. One year after the Trump administration’s takeover, in fact, the frustration and narrowed possibilities of these places is now broadly recognized as a threat to the nation’s prosperity—as Ron Brownstein argues.

And yet, it is unclear what should be done to slow the decline of the nation’s small cities and rural tier. Numerous voices, ranging from investor Steve Case and memoirist J.D. Vance to Eduardo Porter, Paul Krugman, EIG, and Emily Badger, as well as Richard Florida, Noah Smith, Conor Sen, John Austin, and The Economist, have all confirmed a state of near-emergency and advanced tentative responses. However, the fact remains that the dynamics underway are at least in part an ineluctable expression of a fundamental change in the nation’s economic order, likely tied to the increased power of tech-related agglomeration economies, which select for large and dense places and that are likely biased against small ones.

In view of that, the political problems dramatized by CNN this week are only going to complicate the work of beginning to push back against the drift toward increasingly uneven community outcomes. To be sure, the drastic divides that Brownstein, we, and others are highlighting are at least now beginning to be recognized as a national problem with sources in need of response. Accordingly, we have offered a few ideas here and here for doing something rather than nothing, while others like Case and EIG are focusing on their own parallel initiatives.

Still, none of us is under any illusion that more and bolder responses—from government, the private sector, and philanthropy—are anything but imperative, even as the politics highlighted by Brownstein make them more challenging. As the evidence of big-city pull-away and small-town and rural decline accumulates, it doesn’t seem right that a great nation would leave the shape of its long-term economic geography entirely to the vagaries of today’s tech-fueled market. Notwithstanding the “economic civil war” detailed by Ron Brownstein, it’s time to get serious about addressing the nation’s dire development trends.

Geographic Gaps Are Widening While US Economic Growth Increases

Mark Muro and Jacob Whiton, “Geographic Gaps Are Widening While US Economic Growth Increases,” Brookings Institution, January 23, 2018, https://www.brookings.edu/blog/the-avenue/2018/01/22/uneven-growth/

"...Rising profitability and market valuations of US businesses, sluggish wage growth, and reduced unemployment and inflation, have defined the macroeconomic environment of the last generation - especially the period of recovery from the financial crisis. This paper offers a unified explanation for these phenomena based on reduced worker power, and argues that the declining worker power exploration is both most compelling on scientific grounds and is most usefully prescriptive for policy. In particular we present a variety of evidence that declining worker power explains more than increases in monopoly or monopsony power....Three broad shifts are behind this decline in worker power. First, institutional changes, as the policy environment has become less supportive of worker power by reducing the incidence of unionism and the credibility of unionism or other organized labor threats, and as the real value of the minimum wage has fallen. Second, changes within firms, as the increase in shareholder power and shareholder activism has led to pressures on companies to cut labor costs, resulting in wage reductions within firms and the “fissuring” of the workplace as companies increasingly outsource and subcontract labor (Weil 2014). And third, changes in economic conditions, as increased competition for labor from technology or from low-wage countries has reduced workers’ relative bargaining power...In this paper, we argue that a decline in worker power...by worker power we mean workers' ability to increase their pay above the level that would prevail in the absence of such bargaining power..... not a rise in monopoly or monopsony power, nor technological developments, has been the major structural change responsible for these phenomena.....Finally, we note two broad implications of our arguments. One of the puzzles highlighted by a number of observers is that technological change and globalization are ubiquitous but the extent of increases in inequality - both between capital and labor incomes, and within labor incomes - differ substantially across countries. Our hypothesis which emphasizes the relative power of labor and capital fits this fact, given far more empowered shareholders and weaker unions in the U.S. than in the rest of the industrial world. Further study of the cross-country trends in labor shares, profitability and valuation, the NAIRU, and worker power would be valuable...."

Just an FYI, NBER just published research Summers/Stansbury presented @ BPEA (which we looked at when it was released). Paper implies that the increase in wage inequality/wage stagnation is a function of an erosion of worker power not monoploy power. They use "worker power" to mean the majority of a firms workers (excluding executives) ability to increase their pay above the level that would prevail in the absence of such bargaining power They found the profits going to workers haven fallen since the 1980s, by ~ 5 percentage points of value added in the nonfinancial corporate sector over 1987-2016 (Figure 8) which explain the entire overall decline of labor share. Overall the majority of the decline in aggregate labor share was driven by manufacturing, wholesale trade, transportation, and utilities the same industries with big falls in worker power

Tyler Cowen on new Summers/Stansbury (He citesHuman Capitalistas part of his critique of their view of the labor share):“…There is a good deal of critical thinking about how different macroeconomic trends fit together, and a willingness to consider disconfirming evidence, so I do recommend you read through this one…. Rather than labor losing bargaining power, I think of the key development as “management measuring the marginal product of labor more precisely.”Admittedly that does lower the bargaining power of the majority of workers, given the 20/80 rule, or whatever you think the proper proportions are (Stansbury and Summers themselves presumably are underpaid, but in general wage dispersion has been going up in high-skilled sectors). A minority of highly productive workers have much more bargaining power than they did before, which doesn’t quite fit the “lower bargaining power per se” hypothesis. And under my interpretation, easier unionization may not be much of a solution, since the problem here is the actual reality of who produces what. Consistent with my view, labor’s share isnot really downif you consider the super-talented labor/owners/capitalists who start their own companies. That is a return to labor as well….”

Tyler Cowen, "Stansbury and Summers on the declining bargaining power of labor,"Marginal Revolutions, May 27, 2020, https://marginalrevolution.com/marginalrevolution/2020/05/stansbury-and-summers-on-the-declining-bargaining-power-of-labor.html

“…. At 2.7%, productivity growth in the digital industries over the last 15 years has been strong. On the other hand, productivity in the physical industries grew just 0.7% annually, leading to anemic economic growth over the last decade. The digital industries, which account for around 25% of U.S. private-sector employment and 30% of private-sector GDP, make 70% of all private-sector investments in information technology. The physical industries, which are 75% of private-sector employment and 70% of private-sector GDP, make just 30% of the investments in information technology…”

Michael Mandel and Bret Swanson, “The Coming Productivity Boom: Transforming the Physical Economy with Information,” Technology CEO Council, March 2017, http://entropyeconomics.com/wp-content/uploads/2017/03/The-Coming-Productivity-Boom-Transforming-the-Physical-Economy-with-Information-March-2017.pdf

“…Has there been an increase in positive assortative mating? Does assortative mating contribute to household income inequality? Data from the United States Census Bureau suggests there has been a rise in assortative mating. Additionally, assortative mating affects household income inequality. In particular, if matching in 2005 between husbands and wives had been random, instead of the pattern observed in the data,then the Gini coefficient would have fallen from the observed 0.43 to 0.34, so that income inequality would be smaller. Thus,assortative mating is important for income inequality. The high level of married female labor-force participation in 2005 is important for this result….”

Jeremy Greenwood, Nezih Guner, Georgi Kocharkov, and Cezar Santos, “Marry Your Like: Assortative Mating and Income Inequality,” January 2014, National Bureau Of Economic Research, http://www.nber.org/papers/w19829

“….The figure indicates that labor costs vary significantly across US metropolitan areas. The average high school graduate living in the median metropolitan area earns $14.1 for each hour worked. The 10th and 90th percentile of the distribution across metropolitan areas are $12.5 and $16.5, respectively. This amounts to a 32% difference in labor costs. The 1st and 99th percentile are $11.9 and $19.0, respectively, which amounts to a 60% difference. While some of these differences may reflect heterogeneity in skill levels within education group, differences across metropolitan areas conditional on race, experience, gender, and Hispanic origin are equally large…. The distribution of the average wage of college graduates across metropolitan areas is even wider than the distribution of the average wage of high school graduates. The 10th and 90th percentile of the distribution for college graduates are $20.5 and $28.5. This amounts to a 41% difference in labor costs. The 1st and 99th percentile are $18.1 and $38.5, respectively, which amounts to a 112% difference…High school graduates living in Stamford, CT or San Jose, CA earn an hourly wage that is two times as large as workers living in Brownsville, TX or McAllen, TX with the same level of schooling…”

Enrico Moretti, “Local Labor Markets,” National Bureau Of Economic Research, April 2010, http://www.nber.org/papers/w15947.pdf

“…Since the 1970s, market restructuring has shifted many workers into workplaces heavily reliant on sales to outside corporate buyers. These outside buyers wield substantial power over working conditions among their suppliers. During the same period, wage growth for middle-income workers stagnated. By extending organizational theories of wage-setting to incorporate interactions between organizations, I predict that wage stagnation resulted in part from production workers’ heightened exposure to buyer power. Panel data on publicly traded companies shows that dependence on large buyers lowers suppliers’ wages and accounts for 10 percent of wage stagnation in nonfinancial firms since the 1970s.These results are robust to a series of supplementary measures of buyer power; instrumental variable analysis using mergers between buyers; corrections for selection and missing data; and controls for individual worker characteristics like education and occupation. The results show how product market restructuring and new forms of economic segmentation affect workers’ wages. The spread of unequal bargaining relations between corporate buyers and their suppliers has slowed wage growth for workers…..”

Nathan Wilmers, “Wage Stagnation and Buyer Power: How Buyer-Supplier Relations Affect U.S. Workers’ Wages, 1978 to 2014,“ American Sociological Review, 2018, https://journals.sagepub.com/doi/pdf/10.1177/0003122418762441

“…So what do we learn from the California comeback? Mainly, that you should take anti-government propaganda with large helpings of salt. Tax increases aren’t economic suicide; sometimes they’re a useful way to pay for things we need. Government programs, like Obamacare, can work if the people running them want them to work, and if they aren’t sabotaged from the right. In other words, California’s success is a demonstration that the extremist ideology still dominating much of American politics is nonsense….”

The states, Justice Brandeis famously pointed out, are the laboratories of democracy. And it’s still true. For example, one reason we knew or should have known that Obamacare was workable was the post-2006 success of Romneycare in Massachusetts. More recently, Kansas went all-in on supply-side economics, slashing taxes on the affluent in the belief that this would spark a huge boom; the boom didn’t happen, but the budget deficit exploded, offering an object lesson to those willing to learn from experience.

And there’s an even bigger if less drastic experiment under way in the opposite direction. California has long suffered from political paralysis, with budget rules that allowed an increasingly extreme Republican minority to hamstring a Democratic majority; when the state’s housing bubble burst, it plunged into fiscal crisis. In 2012, however, Democratic dominance finally became strong enough to overcome the paralysis, and Gov. Jerry Brown was able to push through a modestly liberal agenda of higher taxes, spending increases and a rise in the minimum wage. California also moved enthusiastically to implement Obamacare.

I guess we’re not in Kansas anymore. (Sorry, I couldn’t help myself.)

Needless to say, conservatives predicted doom. A representative reaction: Daniel J. Mitchell of the Cato Institute declared that by voting for Proposition 30, which authorized those tax increases, “the looters and moochers of the Golden State” (yes, they really do think they’re living in an Ayn Rand novel) were committing “economic suicide.” Meanwhile, Avik Roy of the Manhattan Institute and Forbes claimed that California residents were about to face a “rate shock” that would more than double health insurance premiums.

What has actually happened? There is, I’m sorry to say, no sign of the promised catastrophe.

If tax increases are causing a major flight of jobs from California, you can’t see it in the job numbers. Employment is up 3.6 percent in the past 18 months, compared with a national average of 2.8 percent; at this point, California’s share of national employment, which was hit hard by the bursting of the state’s enormous housing bubble, is back to pre-recession levels.

On health care, some people — basically healthy young men who were getting inexpensive insurance on the individual market and were too affluent to receive subsidies — did face premium increases, which we always knew would happen. Over all, however, the costs of health reform came in below expectations, while enrollment came in well above — more than triple initial predictions in the San Francisco area. A survey by the Commonwealth Fund suggests that California has already cut the percentage of its residents without health insurance in half. What’s more, all indications are that further progress is in the pipeline, with more insurance companies entering the marketplace for next year.

And, yes, the budget is back in surplus.

Has there been any soul-searching among the prophets of California doom, asking why they were so wrong? Not that I’m aware of. Instead, I’ve been seeing many attempts to devalue the good news from California by pointing out that the state’s job growth still lags that of Texas, which is true, and claiming that this difference is driven by differential tax rates, which isn’t.

For the big difference between the two states, aside from the size of the oil and gas sector, isn’t tax rates. it’s housing prices. Despite the bursting of the bubble, home values in California are still double the national average, while in Texas they’re 30 percent below that average. So a lot more people are moving to Texas even though wages and productivity are lower than they are in California.

And while some of this difference in housing prices reflects geography and population density — Houston is still spreading out, while Los Angeles, hemmed in by mountains, has reached its natural limits — it also reflects California’s highly restrictive land-use policies, mostly imposed by local governments rather than the state. As Harvard’s Edward Glaeser has pointed out, there is some truth to the claim that states like Texas are growing fast thanks to their anti-regulation attitude, “but the usual argument focuses on the wrong regulations.” And taxes aren’t important at all.

So what do we learn from the California comeback? Mainly, that you should take anti-government propaganda with large helpings of salt. Tax increases aren’t economic suicide; sometimes they’re a useful way to pay for things we need. Government programs, like Obamacare, can work if the people running them want them to work, and if they aren’t sabotaged from the right. In other words, California’s success is a demonstration that the extremist ideology still dominating much of American politics is nonsense.

Left Coast Rising

Paul Krugman, “Left Coast Rising,”New York Times, July 24, 2019, https://www.nytimes.com/2014/07/25/opinion/paul-krugman-california-tax-left-coast-rising.html

International Monetary Fund (IMF). April 2015. “IMF World Economic Outlook.”http://www.imf.org/external/pubs/ft/weo/2015/01/

“…In this paper we have shown that employed American men are more likely to work 50 or more hours per week today than a quarter century ago. We think that this trend is likely to be of interest to labor economists because (a) it reversed (perhaps temporarily) a secular decline in the work week that dates back over a century; and (b) it occurred at a time when other dimensions of men’s labor supply, such as employment rates, were in decline. What might explain this change in work behavior? In this paper we are able to rule out a number of possible causes, some more fundamental than others. For example, we know that the recent increase in the prevalence of long work weeks is not an artifact of changing CPS survey techniques, not a purely cyclical phenomenon, and not easily attributable to the changing mix of occupations and industries in the male labor force. Because the change is strongly concentrated among skilled, salaried men, we know that it is not a direct consequence of the declining economic fortunes of unskilled American men over the past two decades. For a number of reasons including the fact that we measure usual hours, we know that this phenomenon is not an artifact of increased month-to-month variability in hours worked. We know that it is not a consequence of increased self employment (nor of higher hours among the self employed). Nor is it related to an increase in multiple jobholding, or hours worked on second- and higherorder jobs. Because the bulk of the increase occurred during the 1980s, it is not likely related to advances in communication technology (such as the internet) that facilitate additional work from home. Further, because it was concentrated in the subgroups of men who experienced the smallest declines in labor supply on other margins, the increase in long hours cannot be easily interpreted as a simple reallocation of a fixed amount of labor within a representative worker’s life cycle….”

Kuhn, Peter, and Fernando Lozano. January 2008. “The Expanding Workweek? Understanding Trends in Long Work Hours Among U.S. Men, 1979-2006.” University of California-Santa Barbara.http://econ.ucsb.edu/~pjkuhn/Research%20Papers/LongHours.pdf