Macro Roundup

Research from Matthew Smith, Owen Zidar and Eric Zwick uses administrative tax to estimate wealth concentration/composition for the US. Their bottom line, “…the top 0.1% share of wealth has increased from 12.9% to 15% from 2001 to 2016. While this increase is lower than some prior estimates, wealth is very concentrated – the top 1% holds nearly as much wealth as either the bottom 90% or the P90-99″ class. We find that pass-through business and public equity wealth are the primary sources of wealth at the top, and pension and housing wealth account for almost all wealth for the bottom 90%….”

Core of paper, “…This paper uses administrative tax data to estimate top wealth in the United States. We assemble new data that links people to their sources of capital income and develop new methods to estimate the degree of return heterogeneity within asset classes. We combine this Data on fixed income and pass-through business returns with refined estimates of C corporation equity, housing, and pension wealth to deliver new capitalized wealth estimates. Our approach which builds on SZ and Piketty, Saez and Zucman (2018) (PSZ) as well as Bricker, Henriques and Hansen (2018) (BHH)|reduces bias because wealth and rates of return are correlated. We provide new wealth estimates, new evidence on the rates of return, and a systematic analysis of the issues most consequential for capitalization. We find less wealth concentration relative to the equal-returns, individual-level approach in PSZ, especially at the very top. Figure 1A shows that the top 0.1% wealth share in 2016 is 15% under our approach, and around 20% in PSZ. Top 1% and 0.01% shares fall by 24 percent and 36 percent, respectively, leaving the recent wealth estimates above the estate tax series and closer to the SCF. The growth in top wealth shares is also less dramatic, especially in the tail. For example, our approach reduces the growth in top 0.01% shares since 1989 by 45%. Nevertheless, wealth is very concentrated:the top 1% holds nearly as much wealth as either the bottom 90% or the P90-99″ class. In terms of top portfolios, we find a larger role for pass-through business wealth and a much smaller role for fixed income wealth than PSZ, consistent with the composition of top wealth in the SCF, estate tax data, and surveys of family offices of the ultrarich. Passthrough business and C-corporation equity wealth are the primary sources of wealth at the top. At the very top, C-corporation equity is the largest component, accounting for 40% of top 0.01% wealth, but pass-through business looms large at 29%. In contrast, pension and housing wealth account for almost all wealth of the bottom 90%…”

The Level of Top Wealth, “… Table 2 shows the number of individuals in each wealth group and the wealth thresholds defining each group. We then report average wealth and the share of total wealth for these groups when applying the equal-returns approach and ranking of PSZ. Panel A focuses on top wealth groups. The full population includes 239 million individuals whose average wealth is $364K in 2016. The top 1% includes 2.4 million individuals with wealth of at least $3.7M and average wealth equal to 32 times average wealth in the full population. In terms of shares, this group’s share of total wealth is 31.5% under our preferred approach, compared to 36.6% under PSZ equal returns. Similarly, for the top 0.1%, who have wealth exceeding $17.8M, our estimates reduce their share from 18.6% under equal returns to 15.0% in our preferred specification. Thus, the combined effect of accounting for estimated heterogeneity, updating Financial Accounts aggregates, estimating private business values, adding Forbes 400 data, and including unfunded pension wealth materially affects the estimated concentration of top wealth. These adjustments are increasingly important within the very top group, as the top 1% share falls by 14% (5:1=36:6), the top 0.1% share falls by 19% (3:6=18:6), and the top 0.01% share falls by 26% (2:5=9:5). Panel B focuses on intermediate wealth groups. A key result is that the bottom 90%, who collectively hold 34.3% of wealth, are allocated 5.6 p.p. more wealth than in PSZ. The P90-99″ class, a group with more than $717K but less than $3.73M in preferred wealth, hold 34.2% of total wealth, on par with the bottom 90% and more than the top 1%. Figure 11 compares Forbes 400 wealth to aggregate wealth according to our preferred specification for telescoping subgroups of the top 1%: P99-99.9, P99.9-99.99, and the top 0.01%. We report totals and counts of individuals in each group as well as results using tax units. The wealth threshold to be in the top 0.01% in 2016 is $84M for individuals and $124M for tax units. The figure provides perspective on the relative importance of accounting for Forbes wealth if capitalization alone misses their unrealized stock wealth in non-dividend-paying companies. The Forbes 400 have considerable wealth ($2.4T in 2016), but the total wealth of the P99-99.9 and P99.9-99.99 tax unit groups exceeds this amount by factors of 6.2 and 3.0, respectively. Of course, Forbes members are much wealthier on average: these groups respectively contain 1.5 million and 150 thousand tax units, whereas Forbes represents only 400. Our top 0.01% group contains $6.6T of wealth, which includes the impact of blending Forbes into our data…”

Matthew Smith, Owen Zidar and Eric Zwick, “Top Wealth in America: New Estimates and Implications for Taxing the Rich,” National Bureau Of Economic Research, October 2021, https://www.nber.org/papers/w29374

Individual-Level Rates of Return, “… Figure 4B presents fixed income rates of return for 2016.We calculate rates of return as the group-level ratio of total interest income divided by total interest-generating fixed income assets. We plot these returns ranking individuals by our estimate of total wealth. Rates of return increase from 0.80% for P0-90 to 0.77% for P90-99 to 0.89% for P99-99.9 to 1.65% for P99.9-99.99 to 3.43% for P99.99-100. Rates of return that rank by AGI or by non-interest wealth display moderately greater heterogeneity in absolute terms though the differences are similar in relative terms. Overall, these data reveal a striking amount of return heterogeneity with the P99.99-100 wealth groups receiving returns that are 3.3 times average returns. At the same time, top rates of return are considerably below the top boutique rates, which reflects the mix of high- and low-yielding fixed income assets held by
those at the top of the wealth distribution…”

“… Figure 4C shows the time series of top 0.01%, top 0.1%, top 1%, and bottom 99% rates of return ranked by our preferred wealth estimates. We compare these rates to the equal returns rate and to various capital market rates: the deposit rate from Savov, the 10-year US Treasury rate, and the Moody’s Aaa and Baa corporate bond rates. All interest rates reached a peak in the 1980s during the Volcker tightening and have been falling since then. In the years since 2000, the bottom-99% rate tracks the deposit rate closely, exceeding it by approximately 0.8% in the low-interest-rate period. The equal-returns yield, which fell from 9.5% in 1982 to 1.1% in 2016, exceeds the bottom-99% but is below the top-1% and top 0.1% rates. The top-1% rate tracks the 10-year US Treasury rate although is slightly lower since the Great Recession. The top-0.1% rate hovers between the 10-year US Treasury and the Aaa rate, moving toward the 10-year rate in the last few years of the sample. In our series, top-0.01% rate is below the riskier Baa corporate bond rate in almost all years and is slightly below the Aaa rate in 2016….”
Note they ~ mirror Sarin’s findings on the impact of social security“…For pension wealth, we capitalize an age-group specific combination of wages and pension distributions. This approach allows us to incorporate the life-cycle patterns in pension wealth and associated income flows. While less important for top wealth,pension wealth accounts for 63% of wealth for the bottom 90% and 36% for the P90-99 group. Although we do not account for the value of Social Security in our main specification, we show that doing so would further increase the role of this category of wealth and flatten the trend in measured wealth concentration….The life-cycle of pension wealth accumulation further complicates the capitalization approach. Figure 9A uses the SCF to plot average wages, pension income, and pension wealth in 2016 dollars, averaging across cohorts from 1989 to 2016. Wage income grows over the life cycle and then declines starting around age 55 to near zero by age 75. In contrast, pension income is nearly zero until age 60. Pension wealth has an inverse-U shape that reflects the accumulation and decumulation of savings. These life cycle dynamics result in flow-to-stock ratios that vary by age. Figure 9B summarizes this heterogeneity by plotting the ratio of wage and pension income to total pension wealth, respectively. The blue bars depict the population average and the red bars show the ratios for four age groups: below 45, 45 to 59, 60 to 74, and above 75. Wage income of adults younger than 45 amounts to 108% of their pension wealth on average, whereas average wages for those above age 75 are only 3% of their pension wealth. The patterns for pension income are reversed. The ratios for those between 45 and 74 are closer to the population averages in blue, with the 45 to 59 aged group having a wage to pension wealth ratio that is similar to the overall average, while those aged 60 to 74 have smaller wage to pension wealth ratios, reflecting larger retirement rates. Overall, the heterogeneity in pension wealth and ow-to-stock ratios across age groups means that an age-group-invariant approach will induce large errors…”

Level and composition of aggregate Wealth. “… Figure 2A decomposes aggregate wealth and plots the evolution of key components relative to national income.Other than pass-through business, each component is from the Financial Accounts. In 2016, national wealth amounts to 540% of national income. The largest component is pensions, which equals 203% of national income (of which 40 p.p. are unfunded defined benefit pensions).8 Housing net of mortgages is the next largest (117%), followed by fixed income assets (94%), pass-through business which includes proprietorship, partnership, and S-corporation equity (71%)|and C-corporation equity (67%). Combined C-corporation and pass-through business wealth gives 138%, fifty percent more than the amount of fixed income wealth and commensurate with funded pension wealth. Non-mortgage debt, which includes credit-card balances, debt secured by durable goods, student loans, and other loans, amounts to -16% of national wealth. Aggregate wealth is 77 percentage points of national income higher than in PSZ, of which 40 p.p., 15 p.p., 10 p.p., and 12 p.p. are from unfunded defined benefit pensions, our bottom-up pass-through estimates, adjustments to non-mortgage debt, and residual updates. At the aggregate level, wealth has increased from 346% in 1966 to 540% of national income. Of that increase, 124 percentage points are from pensions, 38 are from net housing, 22 from pass-through business, 18 are from fixed income, and -7 from C-corporation equity.

Level and composition of observed capital income.. “…. Figure 2B plots six types of capital income relative to national income from 1966 to 2016. Aggregate interest income of U.S. individuals increased in the late 1970s and boomed in the early 1980s. It then fell in the 1990s back to its initial share of national income. Since 2000, aggregate interest income has been falling and amounted to 0.6% of national income or $102 billion in 2016. Pension and pass-through income are now the largest sources of capital income. Pension income has risen tenfold from 0.7% to 6% of national income from 1966 to 2016.Pass-through income was 6.8% in 1966, fell to 4% in the early 1980s, and then recovered following the Tax Reform Act of 1986 to 7.3% in 2016. Aggregate dividend income of U.S. individuals amounts to 1.6% and has fluctuated mildly around that level over this period. In contrast, aggregate capital gains of U.S. individuals is much more volatile and ranges from 2% to over 8%. Aggregate property tax payments, which are capitalized to estimate housing assets, amount to approximately 1.2% and grew modestly during the 2000s housing cycle….”
Good factoid, “…Therefore, a dollar of interest income for a wealthy person corresponds to a different level of assets than for a poorer person. Figure 3A uses the 2016 SCF to decompose fixed income holdings into two broad categories: liquid assets, including currency, deposits, and money market funds; and less liquid assets, including bonds, non-money-market fixed income mutual funds, and other fixed income assets. Among fixed income assets, high net worth households have more of their fixed income assets in bonds and other securities. The top 0.1% hold less than 20% of their fixed income portfolio in liquid assets. Bonds and xed income mutual funds account for over 80%. In contrast, the bottom 90% hold more than 80% of their fixed income assets in liquid assets…”

Top wealth overtime, “…. Figure 1 plots our preferred estimates from 1966 to 2016 for the top 0.01%, top 0.1%, and the top 1%. For the top 0.1%, top wealth falls from 10% in the late 1960s to a low of 5.7% in 1978, then steadily rises to around 15% in recent years. Relative to the PSZ series, our preferred series not only shows a lower level in recent years but less growth since 1980. The PSZ top 0.1% series grew from 6.3% in 1978 to 18.6% in 2016; our preferred series grew from 5.7% to 15.0%. Focusing on the 1989-2016 period during which the SCF is available, the top 0.1% share grew 5.1% in our series, 4.3% in the SCF, and 8.1% in PSZ. The gap between the PSZ and preferred series is even larger in recent years for the top 0.01%. Our series and the PSZ series track each other closely before 2000, but they diverge in 2000, especially since 2007. In our series, the top-0.01% shares increase from 5.8% in 2001 to 6.2% in 2006 to 7.0% in 2016; in the PSZ series, the increase from 2001 to 2006 is similar but the increase from 2006 to 2016 is three times larger. For both of these top groups, our series closely tracks the harmonized SCF with Forbes in recent years. For the top 1%, we find a similar trend to the harmonized SCF with Forbes but a lower level. Since 2000, the SCF top 1% share is between the equal-returns series and our preferred series, though shows a sharper increase between 2013 and 2016 that appears to have partly reversed in the 2019 survey. Figure 13 plots time series versions of Figure 12 for the major asset classes for the top 0.01%, top 0.1%, and top 1% in our series, the PSZ equal-returns series, and the harmonized SCF. The figure helps provide a more systematic presentation of the composition of top wealth over time relative to the equal-returns approach. The figure also displays when different updates occur (1980s for pension and housing, 2001 for pass-through and fixed income with information-returns) and the corresponding effects, and how policy and macroeconomic conditions affect the concentration and composition of wealth. For the top 1%, we include estimates from the DFA for comparison…”

Composition of top wealth, “…Tables 3A and 3B show the wealth composition in 2016 for each wealth group in our preferred approach. Pass-through business, C-corporation equity, and fixed income account for 26%, 32%, and 23% of top 0.1% wealth, respectively, with the rest in housing and pensions. At the very top, C-corporation equity is the largest component, accounting for 40% of top 0.01% wealth, but pass-through business looms large at 29%. In contrast, the wealth composition for the bottom 90% is 63% pensions and 23% in housing. The portfolios of the P90-99 are more balanced, with almost equal shares from fixed income (18%), C-corporation plus pass-through equity (21%), housing (25%), and a larger role for pensions (36%). Figure 12 plots the level and allocation of wealth across asset classes among the top 10%. We group individuals into percentile bins and further divide the top 1% into P99- 99.9, P99.9-99.99, and the top 0.01%. Each plot shows the share of total household wealth accruing to that group in a particular asset class. We compare our preferred estimates to the PSZ equal-returns approach and the harmonized SCF with Forbes. The figure displays where in the distribution and across assets differences in approach lead to differences in top wealth shares. Overall, the top 0.01% has 7.0% of total household wealth in our series, of which 1.3 p.p., 2.0 p.p., 2.8 p.p., and 0.9 p.p. are due to fixed income, pass-through business, public equity, and other categories, respectively. The largest difference between our series and the PSZ series is fixed income, for which the PSZ approach estimates fixed income assets of the top 0.01% account for 4.1% of total US household wealth. This difference is partially o set by our pass-through business estimate, which exceeds PSZ’s estimate of 1.1% of total household wealth by 0.9 percentage points. The estimates for the other asset classes are similar for the top 0.01%. In our series, those in the P99-99.9 hold a substantial amount of wealth that exceeds that held by the top 0.1% in terms of fixed income and have considerably more wealth in pensions and housing. For pass-through wealth, the P99-99.9 hold 2.9% of total household wealth, whereas the top 0.1% holds 3.9%. C-corporation equity is more concentrated, as the top 0.01% holds more wealth than the P99-99.9 and P99.9-99.99 groups despite representing 1/100th and 1/10th the number of individuals, respectively…”

“… Figure 14A plots top 1%, P90-99, and P0-90 wealth shares over this time period under both our preferred and the equal-return approaches. The difference in growth between the PSZ and preferred approaches is less pronounced for the top 1% than for the top 0.1% and top 0.01%, with the growth of the top 1% share from 2001 to 2016 falling from 5.4 to 4.2. percentage points. Overall, wealth is still concentrated: the top 1% holds nearly as much wealth as either the bottom 90% or the P90-99″ class. The evolution of the P0-90 versus P90-99 shares from 1965 to 2000 reflects the evolution of pensions, housing, and public equity and relative exposures for different groups. Aggregate pension wealth rises secularly over this time, which is most important for the bottom group. Housing wealth rises and falls in the 1980s, affecting the bottom group and the P90-99 groups significantly. Public equity wealth falls in the 1970s, remains low, and then resurges in the mid-1990s, which drives the time series for the top 1%. In more recent years, the bottom 90 group loses ground relative to both the top 1% and the P90-99. These results are consistent with findings from other data sets (e.g., Kuhn, Schularick, and Steins (2020)). Saez and Zucman (2016) also highlight the decline of P0-90 wealth driven by housing and an increase in debt. Our series shows a less dramatic decline due to the increased role for pensions, including unfunded defined benefit plans, smaller aggregate non-mortgage debt, as well as the more concentrated nature of housing wealth in our unequal-property-tax-rate series. Average wealth of the bottom 90 increased modestly by 17% from 2001 to 2016 (from $120K to $140K in 2016 dollars), whereas average wealth for P90-99 and the top 1% rose by 40% and 49% (from $1.0M to $1.4M and from $7.7M to $11.5M), respectively…”

The rich are able to get better returns, “…We introduce two innovations to estimate fixed income wealth. First, we construct a novel data set on the universe of taxable interest sources linked to owners using de-identified ed data from income tax records spanning 2001-2016. These 3.2 billion source-owner observations allow us to disaggregate taxable interest income into subcomponents. This disaggregation reveals that rich individuals earn a much larger share of their interest income in the tax data in higher-yielding forms (such as boutique investment partnerships of distressed debt or mezzanine funds). Disaggregation also allows us to estimate interest rates more accurately than prior work. These data reveal a striking amount of return heterogeneity across wealth groups, with the top 0.01% group receiving returns that are 3.3 times average returns. In 2016, our estimates increase from nearly 1% within the bottom 99.9 to 1.6% for P99.9-99.99 to 3.4% for the top 0.01%…“

The FRBSL's Victoria Gregory and Joel Steinberg report that the mean out of labor force worker has only an implied 35% chance of entering the workforce inside a year, "... Based on our model, the average unemployed worker has a 54% chance of being employed again within a year, and the average out-of-labor force worker has a 35% chance of being employed again within a year.Applying these probabilities to the estimated number of exiters and nonexiters who were still out of employment in June 2021, (1.7 million unemployed and 7.7 million out of the labor force),we expect 3.6 million more individuals to return to employment by June 2022. For perspective, in June, we were short by about 7.1 million jobs compared with the pre-pandemic level. This analysis suggests that this gap will only close about half by June 2022....While a majority of all three groups were female, women made up a larger fraction of exiters (60%) than of nonexiters (52%) and reemployed (51%). In addition, nonexiters and reemployed were more likely to indicate that they had been on temporary layoff following their job separation (85% and 64%, respectively, versus 23% for exiters), which means they were given a return-to-work date or expected back at the same job within the next three months. Finally, exiters had a larger population over 55 (38%) than nonexiters (20%) and reemployed (26%). This suggests that some exiters may be early retirees. Indeed, that seems to be the case: 36% of exiters between ages 55 and 64 reported being retired, and 88% of exiters age 65 and older reported being retired. Across other groupings, the composition of exiters, non-exiters and reemployed appears to be similar...."

Our findings come with some caveats—it is difficult to extrapolate using 2020-21 outcomes because this was an unusual time period. There are other factors that were not present over this time period that may impact the recovery, such as the expiration of enhanced unemployment benefits, risk related to the delta variant or other new variants, and additional jobs added from new entrants into the labor force. In any case, the characteristics of the individuals who remain out of work and, in particular, their labor force attachment will play key roles in the recovery going forward.

Notes and References

1 The observation period began in February 2020 for those who separated from their jobs in March, and it started in March 2020 for those who separated in April.

Victoria Gregory and Joel Steinberg, "Labor Force Exits and COVID-19: Who Left, and Are They Coming Back?" Federal Reserve Bank Of St. Louis, October 4, 2021, https://www.stlouisfed.org/on-the-economy/2021/october/labor-force-exits-covid19

Labor Force Exits and COVID-19: Who Left, and Are They Coming Back?

In March and April 2020, as the United States began grappling with the COVID-19 pandemic, employment fell by roughly 25 million people. Of those 25 million, some quickly returned to work, while others became unemployed or left the labor force altogether. In this blog post, we investigate the characteristics of those individuals who left their job at the beginning of the pandemic, follow up on their status a year later, and predict how many will be employed a year from now.

Who Initially Left the Labor Force?

We used the Current Population Survey, which interviews selected individuals for four consecutive months, pauses for eight months and then resumes interviewing those individuals for another four months. These CPS data allow us to follow those who had a job separation in either March or April 2020. Of those with a job separation at the beginning of the pandemic, we classified workers into three groups based on their employment status at the end of the initial four months of observation:1

1. “exiters,” those who left the labor force

2. “nonexiters,” those who remained unemployed

3. “reemployed,” those who quickly returned to work

The table below shows select demographic breakdowns for these three groups.

One Year Follow-up

The structure of the CPS allows us to see where the exiters and nonexiters are a year after their initial displacement. We located exiters and nonexiters who returned to the survey in either March or April of 2021 and looked at their labor force status in their final month of observation (which falls in either May or June 2021). The next table shows a breakdown of the final labor force statuses for exiters and nonexiters.

Nonexiters were much more likely to resume working: 60% had returned to work, but 27% later left the labor force. Of the nonexiters who found work again, 39% of them found jobs in different industries, compared with 57% of exiters. Coupled with the high incidence of temporary unemployment among nonexiters, the fact that the majority of the nonexiters who returned to work had not switched industries suggests that many in this group returned to their old jobs.

How Many Workers Will Go Back to Work by June 2022?

Using the transition patterns of the workers we can track between 2020 and 2021, we infer that out of the roughly 25 million people who lost their jobs at the start of the pandemic, 15.6 million were back in employment, 1.7 million were unemployed, and 7.7 million were out of the labor force as of June 2021. Given that a substantial number of individuals remain out of the labor force, the next question is whether they will return any time soon.

To estimate this likelihood of returning to work, we constructed a model that takes in demographic characteristics and reasons for being nonemployed from our CPS sample of exiters and nonexiters, and calculates the probabilities that these individuals were employed in their last observed month in 2021. The next step was to extrapolate these probabilities to the rest of the nonemployment pool, which includes people beyond those who lost their jobs in March or April of 2020 and who appeared in the survey a year ago (the sample used to define exiters, nonexiters, and reemployed groups above). For this nonemployment pool as a whole, we know their demographics and reasons for being nonemployed.

We applied our model to the sample of individuals from the CPS who were observed as out of the labor force or unemployed in February 2021 but employed in February 2020 in order to get estimated probabilities of these workers being employed again within a year. This strategy takes into account the recent composition of the nonemployment pool for individuals who, on the basis of being previously employed recently, could come back to employment. The distributions of the predicted probabilities for this sample are shown in the histograms below.

“…In January, low-skilled consumer-services workers in the densest urban areas of the country accounted for almost 60% of hours lost in the U.S. economy, compared with the previous year, according to “The Geography of Remote Work,” a paper published by the National Bureau of Economic Research. And yet they accounted for 41% of the workforce, nationally. In other words, low-skilled workers in densely populated areas have borne the largest share of the pandemic’s economic fallout, including compared with their rural counterparts, according to the research, which used Census Bureau data….”

Michael Sasso, "Remote Work Is Crushing Low-Skilled Left Behind in U.S Cities," Bloomberg, September 1, 2021, https://www.bloomberg.com/news/articles/2021-09-01/remote-work-is-crushing-low-skilled-left-behind-in-u-s-cities

Remote Work Is Crushing Low-Skilled Left Behind in U.S Cities

The pandemic trend of white-collar employees working remotely or fleeing for the suburbs has disproportionately hurt low-skilled workers who stayed behind in deserted neighborhoods.

Now A study has quantified the impact for millions of consumer-services workers such as hairdressers and waiters who relied on office employees to make a living in big cities before the pandemic.

In January, low-skilled consumer-services workers in the densest urban areas of the country accounted for almost 60% of hours lost in the U.S. economy, compared with the previous year, according to “The Geography of Remote Work,” a paper published by the National Bureau of Economic Research. And yet they accounted for 41% of the workforce, nationally.

In other words, low-skilled workers in densely populated areas have borne the largest share of the pandemic’s economic fallout, including compared with their rural counterparts, according to the research, which used Census Bureau data.

“High-skill service workers gain flexibility in their residential choices,” said the paper’s authors, Lukas Althoff of Princeton University, Fabian Eckert of the University of California San Diego, cof Georgetown University and Conor Walsh of Columbia University. “Such changes in residential choices of high-income earners endanger the economic livelihood of low-skill service workers in big cities who depend on local consumer services demand.”

The authors describe the relationship between a city’s population density and the potential for remote work as “striking.” In America’s densest areas, about 45% of local jobs could be done away from the office, representing about 65% of payroll, they found.

The kids are coming up from behind. Scott Winship looks at generation wealth and estimates that millennials median net worth was up $650 relative to previous generations at the same point during their life cycle, "... median net worth (less student loan debt) of households headed by someone under age 35 actually rose slightly from $16,872 in 1992 to $17,520 in 2013 (all in 2020 dollars )—an increase of 4%.Adults between the ages of 18 and 34 in 1992 were born between 1958 and 1974, while those in the same age range in 2013 were born between 1979 and 1995, so this comparison also is convenient for assessing how millennials have fared relative to Gen X and baby boomers..."

Scott Winship, "Our older versus our younger selves: Time travel, wealth, and family formation," American Enterprise Institute, September 30, 2021, https://www.aei.org/articles/our-older-versus-our-younger-selves-time-travel-wealth-and-family-formation/

Neil Irwin reports on the Jeremy Rudd note we recently highlighted and argues that it's part of a trend of economists increasingly acknowledging that the economy is largely a "black box", "...The paper disputes the idea that people’s expectations for future inflation matter much for the level of inflation experienced today. That is especially important right now, in trying to figure out whether the current inflation surge is temporary or not. But the Rudd paper is part of something bigger still. It reflects a broader rethinking of core ideas about how the economy works and how policymakers, especially at central banks, try to manage things... It is vivid evidence that macroeconomics, despite the thousands of highly intelligent people over centuries who have tried to figure it out, remains, to an uncomfortable degree, a black box. The ways that millions of people bounce off one another — buying and selling, lending and borrowing, intersecting with governments and central banks and businesses and everything else around us — amount to a system so complex that no human fully comprehends it..."

Neil Irwin, "Nobody Really Knows How the Economy Works. A Fed Paper Is the Latest Sign,"New York Times, October 1, 2021, https://www.nytimes.com/2021/10/01/upshot/inflation-economy-analysis.html

Nobody Really Knows How the Economy Works. A Fed Paper Is the Latest Sign.

It has long been a central tenet of mainstream economic theory that public fears of inflation tend to be self-fulfilling.

Now though, a cheeky and even gleeful takedown of this idea has emerged from an unlikely source, a senior adviser at the Federal Reserve named Jeremy B. Rudd. His 27-page paper, published as part of the Fed’s Finance and Economics Discussion Series, has become what passes for a viral sensation among economists.

The paper disputes the idea that people’s expectations for future inflation matter much for the level of inflation experienced today. That is especially important right now, in trying to figure out whether the current inflation surge is temporary or not.

But the Rudd paper is part of something bigger still. It reflects a broader rethinking of core ideas about how the economy works and how policymakers, especially at central banks, try to manage things. This shift has also included debates about the relationship between unemployment and inflation, how deficit spending affects the economy, and much more.

In effect, many of the key ideas underlying economic policy during the Great Moderation — the period of relatively steady growth and low inflation from the mid-1980s to 2007 that also seems to be a high-water mark for economists’ overconfidence — increasingly look to be at best incomplete, and at worst wrong.

It is vivid evidence that macroeconomics, despite the thousands of highly intelligent people over centuries who have tried to figure it out, remains, to an uncomfortable degree, a black box. The ways that millions of people bounce off one another — buying and selling, lending and borrowing, intersecting with governments and central banks and businesses and everything else around us — amount to a system so complex that no human fully comprehends it.

“Macroeconomics behaves like we’re doing physics after the quantum revolution, that we really understand at a fundamental level the forces around us,” said Adam Posen, president of the Peterson Institute for International Economics, in an interview. “We’re really at the level of Galileo and Copernicus,” just figuring out the basics of how the universe works.

“It requires more humility and acceptance that not everything fits into one model yet,” he said.

Or put less politely, as Mr. Rudd writes in the first sentence of his paper, “Mainstream economics is replete with ideas that ‘everyone knows’ to be true, but that are actually arrant nonsense.”

One reason for this, he posits: “The economy is a complicated system that is inherently difficult to understand, so propositions like these” — the arrant nonsense in question — “are all that saves us from intellectual nihilism.”

And from that starting point, a staff economist at the world’s most powerful central bank went on to say, in effect, that his own employer has been focused on the wrong things for the last few decades.

Mainstream policymakers, very much including Mr. Rudd’s bosses at the Fed, believe that inflation is, in large part, self-fulfilling — that what people expect future inflation to look like has an ability to shape how much prices rise in the near term.

In the common telling, the Great Inflation of the 1970s got going because people came to believe inflation would keep spiraling. The surge in gasoline prices wasn’t simply a frustrating development, but a harbinger of things to come, so people needed to demand higher raises, and businesses could feel confident charging higher prices for most everything.

In this story, the great achievement of the Fed in the early 1980s was to break this cycle by re-establishing credibility that it would not allow sustained high inflation (though at the cost of a severe recession).

That is why today’s discussions over the inflation outlook often spend a lot of time focusing on things like what bond prices suggest inflation will be five or 10 years from now, or how people answer survey questions about what they expect.

Mr. Rudd argues that there is no solid evidence that the conventional story of the 1970s describes the real mechanism through which inflation takes place. He says there’s a simpler explanation consistent with the data: that businesses and workers arrive at prices and wages based on the conditions they’ve experienced in the recent past, not some abstract future forecast.

For example, when inflation has been low in the recent past, workers might not demand raises as they would in a world where inflation was high; after all, their existing paychecks go pretty much as far as they used to. You don’t need some theory involving inflation expectations to get there.

Some economists who are sympathetic to the idea that central bankers have overly fetishized precise measurements of inflation expectations aren’t ready to fully dismiss the idea.

For example, Mr. Posen, a former Bank of England policymaker, says there remains a simple and hard-to-dispute idea about inflation expectations supported by lots of history: that if people distrust a country’s monetary system, inflation shocks can spiral upward. Economic policy credibility matters. But that isn’t the same as assuming that some survey or bond market measure of what will happen to inflation in the distant future is particularly meaningful for forecasting the near future.

“It has been a noble lie that has become a critical part of the catechism of global monetary policy, that long-term inflation expectations are not just interesting but are a decisive determinant of real-time inflation,” said Paul McCulley, a former Pimco chief economist, commenting on Mr. Rudd’s paper.

This isn’t the only way in which basic precepts underlying economic policy are shifting beneath economists’ feet.

Particularly prominently, for years central bankers believed there was a tight relationship between the unemployment rate and inflation, known as the Phillips Curve. Over the course of the 2000s, though, that relationship appeared to weaken and become a less reliable guideline for how to set policy.

Similarly, interest rates and inflation fell worldwide, for reasons that scholars are still trying to understand fully. That implied a lower “neutral interest rate,” or the rate that neither stimulates nor slows the economy, than was widely believed to be the case as recently as the mid-2010s.

In many ways, the Fed’s policies just before the pandemic were aimed at incorporating those lessons and embracing sustained lower interest rates — and the possibility of lower unemployment — than many in the mainstream thought reasonable a few years earlier.

In the realm of fiscal policy, some conventional wisdom has also been upended in the last few years. It was thought that large government debt issuance would risk causing a spike in interest rates and crowd out private sector investment. But in that period, huge budget deficits have been paired with low interest rates and abundant credit for businesses.

All of this makes it a challenging time for central bankers and other shapers of policy. “If you’re a policymaker and you don’t have robust confidence in the parameters of the game you are managing, it makes your job a whole lot more difficult,” Mr. McCulley said.

But if you are in charge of making economic policy that affects the lives of millions, you can’t simply shrug your shoulders and say, “We don’t know how the world works, so what are we supposed to do?” You look at the evidence available, and make the best judgment you can.

And then, if you think it turns out you were wrong about something, publish a sassy paper to try to get it right.

"...At a July global climate gathering in London, South African environment minister Barbara Creecy presented the world’s wealthiest countries with a bill: more than $750 billion annually to pay for poorer nations to shift away from fossil fuels and protect themselves from global warming....Without poorer countries on board, the world stands little chance of preventing catastrophic climate change, say many climate scientists. Emissions in the U.S. and Europe are falling as both regions push to adopt renewable energy and phase out coal-fired electricity. But emissions in the developing world are expected to rise sharply in the coming decades as billions rise out of poverty—unless those economies can shift onto a lower-carbon path....Bangladesh says it needs cyclone-resistant housing. Kenya wants its countryside dotted with solar farms instead of coal or natural gas-fired plants. India says its climate-change plan alone will cost more than $2.5 trillion through 2030...."

Matthew Dalton, "To Strike a Climate Deal, Poor Nations Say They Need Trillions From Rich Ones,"Wall Street Journal, October 18, 2021, https://www.wsj.com/articles/to-strike-a-climate-deal-poor-nations-say-they-need-trillions-from-rich-ones-11634568010

To Strike a Climate Deal, Poor Nations Say They Need Trillions From Rich Ones

At a July global climate gathering in London, South African environment minister Barbara Creecy presented the world’s wealthiest countries with a bill: more than $750 billion annually to pay for poorer nations to shift away from fossil fuels and protect themselves from global warming.

The number was met with silence from U.S. Climate Envoy John Kerry, according to Zaheer Fakir, an adviser to Ms. Creecy. Other Western officials said they weren’t ready to discuss such a huge sum.

For decades, Western countries responsible for the bulk of greenhouse-gas emissions have pledged to pay to bring poorer nations along with them in what is expected to be a very expensive global energy transition. But they have yet to fully deliver on that promise. Now the price of the developing world’s cooperation is going up.

At the end of the month, negotiators from nearly every country will meet in Glasgow, Scotland, for a two-week climate summit, the first major gathering since governments signed the Paris accord in 2015. The goal is to strike a deal to keep the climate targets of the Paris agreement within reach.

Without poorer countries on board, the world stands little chance of preventing catastrophic climate change, say many climate scientists. Emissions in the U.S. and Europe are falling as both regions push to adopt renewable energy and phase out coal-fired electricity. But emissions in the developing world are expected to rise sharply in the coming decades as billions rise out of poverty—unless those economies can shift onto a lower-carbon path.

Before signing on, poorer countries are demanding a big increase in funding from the developed world to adopt cleaner technologies and adapt to the effects of climate change such as rising sea levels and more powerful storms.

Bangladesh says it needs cyclone-resistant housing. Kenya wants its countryside dotted with solar farms instead of coal or natural gas-fired plants. India says its climate-change plan alone will cost more than $2.5 trillion through 2030.

“We cannot be talking about ambition on the one hand, and yet you show no ambition on finance,” said Mr. Fakir who is coordinating climate finance policies for the Group of 77, a coalition of developing nations.

Developed nations say it is unrealistic to put them on the hook for such a large sum without also getting middle-income countries—China in particular—to provide funds. In Paris in 2015, the U.S., Europe and a few other wealthy nations committed to funding poorer countries to the tune of $100 billion a year from 2020 through 2025. They have so far fallen short.

“If you’re going to ask a much poorer country to forgo that option, then there is a moral claim that they need support to go on a lower emissions development pathway,” said Joe Thwaites, a climate-finance expert at the World Resources Institute, an environmental think tank.

Even developed countries are struggling with the transition to renewables. A surge in demand for power from nations recovering from the pandemic has forced governments to lean on fossil fuels; though investment in renewables has increased, it accounts for only about a quarter of the world’s power.

Western officials say the Glasgow negotiations need to focus first on how to raise enough money to meet the Paris goal. Then they are planning to begin talks on a finance goal for after 2025. That sum is expected to be too large to pay from the government budgets of rich nations alone, officials say. Instead they are counting on private investors to pick up most of the bill.

“There isn’t enough official development funds in the system to close the gap of climate finance,” said Gustavo Alberto Fonseca, director of programs at the U.N.’s Global Environment Facility, which funds climate infrastructure in the developing world. “There has to be a market-based solution.”

Developing nations want a big portion of the money to come as government grants, not loans from private investors that would saddle them with debt. They’re demanding control over how the money is spent, wary of dictates from wealthy governments and financiers in the U.S. and Europe.

The developing world also questions whether the U.S. is committed to delivering its portion of the funds over the long haul. The Biden administration has pledged to double climate funding to developing countries to $11.4 billion annually by 2024, which would make the U.S. by far the biggest single benefactor. President Donald Trump reneged on previous promises the Obama administration made to finance the Green Climate Fund, the U.N.’s main vehicle for delivering money to the developing world, saying the fund “was costing the United States a vast fortune.”

The Organization for Economic Cooperation and Development, a club of wealthy countries, says the developed world had accounted for $80 billion in climate financing to poor countries in 2019, the most recent year for which data are available. It is unlikely that they reached the $100 billion target in 2020, officials say.

Private-sector investors haven’t piled into investment projects as expected. Only $14 billion of the $80 billion came from the private sector, according to the OECD. That’s because pension funds, insurance companies and other major institutional investors are uncomfortable funding renewable-energy projects in countries they perceive to be higher risk.

Officials say private investors are ill-suited for underwriting other pressing needs: projects that help developing nations adapt to the effects of climate change. Seawalls that protect against rising sea levels and programs to teach farmers to grow drought-resistant crops don’t generate revenue to compensate investors, unlike a solar farm that sells electricity onto the grid.

To entice private investors, wealthy governments are putting taxpayer money on the line, accepting first losses on projects that don’t work out. BlackRock Inc, the giant investment manager, has launched a $250 million facility alongside the development agencies of France, Germany and other countries to provide climate financing to the developing world.

“If we just had institutional capital alone, we might be much more constrained in where we could go,” said Jim Barry, BlackRock’s chief investment officer for alternative investments.

Climate funding is channeled through more than two dozen different agencies, each with their own rules and requirements. Some of the requirements—such as one demonstrating that a climate project advances gender equality—reflect the prerogatives of wealthy nations. Others are designed to give developing countries more say over how the funds are spent.

“Sometimes I argue it’s not worth pursuing some little amount of money, because the energy, time and resources for developing a proposal are not worth it,” said Mizan Khan, a climate negotiator for Bangladesh, one of the countries most vulnerable to the effects of climate change.

The Green Climate Fund is the cornerstone of the U.N.’s strategy for channeling funds to the developing world. Launched in 2015, the fund can dole out grants or use its money to enlist private investors. By taking on the riskiest slice of financing on climate-change projects, the fund aims to leverage huge sums of private capital with a relatively small contribution of its own funds.

The GCF helped launch renewable energy in Egypt by financing a huge solar farm in Benban, 400 miles south of Cairo, and wind turbines on the Gulf of Suez. The GCF gave a $15 million grant for technical consulting for the Egyptian electricity sector and lent $150 million for the project in 2017, when Egypt’s political turmoil meant foreign capital was only available at high interest rates. Other investors put $850 million into the project. Since then, investors have flooded into Egyptian solar projects, driving down the price of solar power sharply.

Efforts to scale up the GCF’s financial firepower, however, have been beset with disputes between wealthy and developing countries as well as frequent leadership changes.

“The work environment in the fund is very adversarial,” said Wael Aboulmagd, a senior Egyptian diplomat who is on the fund’s board.

At a July 2018 meeting, board members spent days arguing over new policies sought by wealthy countries, such as an update to the fund’s stance on gender equality and allowing the board to make decisions without unanimity. Developing-world officials feared rich nations, which were due to pledge more money, were using the moment as leverage to impose their priorities.

The executive director unexpectedly resigned during the three-day meeting, citing personal reasons. By the end, the bickering left no time for the board to approve funding proposals.

“After this meeting, I cannot see how I can come home and defend why we should put more money into this fund,” said Lars Roth, a Swedish representative on the board. “We haven’t made any decision of significance. This has to end.”

One project that had already been approved, the Global Energy Efficiency and Renewable Energy Fund Next, aimed to use $250 million in capital from the GCF to raise another $500 million from private-sector investors. The money was to be seeded into an array of subsidiary funds with more leverage, bringing the project’s total investment firepower to $30 billion, to pay for renewable energy and energy-efficiency projects in dozens of countries across the developing world, from Belize to Uganda. It was the Green Climate Fund’s most ambitious attempt yet to amplify its money with private-sector finance.

In June 2020 the project was canceled. Under GCF rules, sponsors had asked developing-world governments to preapprove a series of hypothetical projects that could be used to raise money from private investors. That provoked resistance from India, Rwanda and others that wanted more control over specific projects in their territories.

“I’ve sweated blood and tears on that,” said an official involved in the project. “We spent an incredible amount of time discussing how we could sue each other if something went wrong.”

Yannick Glemarec, the GCF’s executive director, said the project was a great idea but beyond the fund’s capacity when it was proposed. “We had to start everything from scratch,” he said, adding that cooperation between developed and developing nations “is a challenge at times, but I wouldn’t swap the legitimacy this gives GCF for any other model.”

As Glasgow approaches, wealthy countries are drafting a new plan to hit the Paris agreement’s finance target and to make up for the fact they have likely fallen short in 2020.

“We should be focused on delivering the $100 billion before we start talking about huge numbers,” said an adviser to French President Emmanuel Macron.

The developing world disagrees. When Ms. Creecy, the South African minister, demanded $750 billion in annual climate finance, she wanted to start a discussion that poorer nations felt developed countries were avoiding, said Mr. Fakir.

The figure is based on a formula the Global Environment Facility, a U.N. fund, has used to finance projects in the developing world for decades. The facility typically requires recipient countries and private investors to put up $12 for every dollar provided by the fund. So South African officials simply took the amount of public funds provided directly by developed countries in 2019—around $62 billion, according to the OECD—and multiplied by a factor of 12. Then they rounded up.

In September, African nations used the South African methodology to settle on an even bigger finance demand to be presented in Glasgow: $1.3 trillion annually by 2030.

Alok Sharma, the U.K. climate minister who is leading Glasgow negotiations, said he is focused on pressuring wealthy countries to deliver on the $100 billion target and to provide more money as grants rather than loans. “Every nation has taken a huge hit to their public finances because of Covid,” he said. “If you’re going to ladle more debt on developing nations, that’s not going to be particularly helpful.”

Jason Furman tries to put the reconciliation bills moving tax proposal in context, "The reconciliation bill is a small change in the overall level of taxation but a large change in the composition of taxation. A brief putting this in context. (Note for this thread "reconciliation bill" = House Ways & Means version, will likely change somewhat.)The reconciliation bill would raise revenue by about 1/2 percent of GDP annually. That is expected to bring revenue to ~18% of GDP. That is well within the historical range and well below previous peaks during periods of low unemployment rates like the one CBO is forecasting. The bill has large gross changes ($2.1T in raisers & $1.2T in costers) for a much smaller net increase: High-income & misc increases: $1.1T Corporate increases: $1.0T Infrastructure & community development: -$0.1T Green energy: -$0.2T Children/safety net: -$0.8T NET: $0.9T. The last tweet was the total budget impact of the tax title as scored by JCT. A lot of the gross costers are scored as spending increases not tax cuts (e.g., a low-income parent that gets a child allowance). So while the bill raises $0.9T it actually raises taxes by $1.6T. (How these grosses, nets and revenue classifications get counted towards whatever the allowable gross number of $1.5T or $2T or $3.5T will matter a lot in terms of how much fits within the agreed upon window.)Total taxes are not up very much & well within historical range. But the way they are collected is very different--including the highest tax rate on the top 1% since the late 1970s & the ~lowest tax rate on just about everyone else (ignore the freakishly low pandemic yrs). This evolution reflects the ratchet we're in for the bottom 99% (both parties cut their taxes when in power) and the cycle at the top (Republicans lower them and Democrats raise them). Note the bottom quintile would have negative taxes for the first time (not counting pandemic).Corporate taxes are also changing. The bill, on net, undoes the 2017 TCJA corporate rate reductions and so results in corporate taxes roughly where they would have been absent that legislation but with lower rates and more spending on green stuff. These changes are all mostly in the right direction my my perspective but mostly wanted you to have the information to make your own judgment."

Jason Furman, “Reconciliation Bill Tax Proposal In Context,” @jasonfurman, October 7, 2021, https://twitter.com/jasonfurman/status/1446130388024373248

Worth noting this comment from Tyler Cowen’s recent interview with Claudia Goldin in which she speculates differences in educational attainment by gender may be routed in biology (See In Our Airpods for full interview), “…GOLDIN It was about 10 years ago that some dean in a small liberal arts college in the Midwest admitted to the fact that they were accepting men with lower SAT, ACT, and grade point averages to increase diversity. COWEN: Men, probably, are not less intelligent than women, on average. What’s the pipeline problem? Is it too much homework and too many extracurriculars in high school or something else? Where are we failing our young boys? GOLDIN: We can go back to as early as we have data on high schools and know that girls attended high schools, graduated from high schools at far, far greater numbers than boys. If there is an issue here, it’s certainly not extracurriculars. It may have to do with what’s going on in your cells and this difference between this Y and this double X. COWEN: The value of an Ivy League degree — what percentage of that value do you think comes from signaling as opposed to learning? GOLDIN: Very little. I think that it’s not signaling. It’s probably networks….”

Tyler Cowen, “Claudia Goldin on the Economics of Inequality,” Conversation With Tyler, October 6, 2021, https://conversationswithtyler.com/episodes/claudia-goldin/

Claudia Goldin on the Economics of Inequality

TYLER COWEN: Hello, everyone, and welcome back to Conversations with Tyler. Today I’m chatting with Claudia Goldin, who is, quite simply, one of the leading economists. She is professor of economics at Harvard University, has made major contributions to economic history, the theory of income inequality, economics of education, gender economics, and much more. Most exciting of all, she has a new and excellent book out, called Career and Family: Women’s Century-Long Journey toward Equity. Claudia, welcome.

CLAUDIA GOLDIN: Well, I’m very, very pleased to be here, Tyler.

COWEN: Let me ask a question I’ve been wondering about. Why does China, right now, have so many of the world’s self-made female billionaires?

GOLDIN: I don’t know, but I wouldn’t mind being one.

COWEN: But it’s a big change in the payment of women, and it’s happened in one place. It hasn’t happened in America.

GOLDIN: As you well know, it’s a very large country. Let’s face it, Chinese women became more liberated during the Communist Revolution. Anyone who went to China during the period after the revolution saw that women really did work alongside men.

There’s no question then that equality has escaped China, as it has escaped much of the world, but I do get the sense… I was there in 1975, which is a very long story. I met many different people who were in some middle ranks, upper-middle ranks of the party, and there were a lot of women. Let’s face it, there weren’t a lot of women in 1975 in Congress, and certainly not in the White House.

COWEN: But if we look at a CCP meeting today — a photo — it just seems to be all men, right? There’s no Nancy Pelosi in there. At the middle level, women don’t seem to earn that well in China, but somehow, at the very top, there’s been this big breakthrough.

GOLDIN: Well, kudos to them.

On the pay gap

COWEN: A question about America. As you’ve shown, from 1995 to 2008 in the US, the gender earnings gap actually expanded. Why was that?

GOLDIN: Oh, it didn’t expand that much. We’re talking about blips on blips. It expanded more for the higher educated than for the lower educated — or should I say, it actually closed for the lower educated, whereas it stagnated for the higher educated, and the latter — a lot of that is due to the enormous expansion of inequality at the top. Women paid a relative price for the fact that inequality just zoomed upward.

COWEN: How much of that do you think is due to the growth of super firms? Especially in tech and finance, those seem to be fairly male-intensive areas. If they’re earning much more at the upper end, that would push up the income gap.

GOLDIN: I think it’s less that than the distribution itself, that men, for lots of different reasons, tend to be in the way-right tail. That’s going to be in finance. It’s not just in tech; it’s going to be in all areas. It’s going to be in surgery. It’s going to be in dentistry. It’s going to be in lots of different self-employment.

COWEN: It seems scalability should really matter. I could be the world’s best dentist. I can’t serve that many customers or patients well —

GOLDIN: Thank goodness.

COWEN: — but I won’t be the next Mark Zuckerberg, right?

GOLDIN: Right, but finance is certainly scalable. Let’s face it, surgeons are — when we look at the data that’s been put together for the upper, upper end — surgeons tend to be up there too.

COWEN: Now, you’ve argued in your book and in numerous articles that flexibility of hours is a critical variable for thinking about the earnings gap between men and women. If we look at the literature on firms, we seem to see that fixed costs are rising, intangible capital is rising, lower marginal cost, higher markups.

Does that mean that flexible working hours are hard to achieve when fixed costs are high? You would think when fixed costs are high, you want to basically take the people you have and drive them as much as possible, which, in fact, you see in finance and in tech.

GOLDIN: Right.

COWEN: So, should we be pessimistic about gender pay equity moving forward?

GOLDIN: The fixed cost here can also be coming from certain labor, from training, but you’re saying that the fixed costs are all that capital per labor has increased?

COWEN: Or its branding. Facebook, Google are very famous companies. They’ve achieved a certain position. At the margin, they want to work the people they hire fairly hard.

GOLDIN: Yes, but it doesn’t seem that difficult to create a small amount of redundancy to have good substitutes. All of these firms have professionals — think about consulting firms, accounting firms, banks, financial corporations, lawyers — all of them have individuals who are quite special, quite unique. And yet, I don’t think it takes that much to create a small amount of redundancy so you can have people hand things off.

That doesn’t mean that you’re creating cadres of individuals who are look-alikes and who are driving down their own price. Flexibility isn’t that difficult to achieve for the individuals who are at that upper end, whose earnings you are going to have to increase even more if they put their foot down and say, “I am not working during my vacation.” You’re going to have to increase their earnings even more. I don’t think it’s that heavy a lift.

COWEN: As skill levels rise, doesn’t it get harder to hand things off rather than easier? In a pharmacy, there’s skill required, but it’s not extreme.

GOLDIN: Well, that’s what you think.

COWEN: Substitute in another economist for an hour of your time — that’s very hard to do.

GOLDIN: I don’t think so. I know one. I live with one who I use as my substitute.

COWEN: Well, one, right? A coworker.

GOLDIN: First of all, I don’t think it’s in the training as much as it is in — and I think most people in the business would agree with me that, yes, there’s a lot of training for many different fields — accountants, lawyers, consultants — but most of the problem that they would claim there is, is in the handing off of information, in the passing off of information with high levels of fidelity and with trust. I think that one of the things that the Zoom world has done is it’s led me to trust you even though I can’t touch you.

COWEN: Do you think there are scenarios where marriage makes a meaningful comeback for lower socioeconomic groups? And what might those scenarios look like?

GOLDIN: Well, as someone who got married five years ago after living with someone for 26 years, I would have to get out of my own life into someone else’s. But I think that for many people, marriage creates more stability, either because they’ve made a commitment to themselves or those around them see them as more committed. I think the main benefit is to children, so that children have more stability.

COWEN: Sure, but for people without a college degree, marriage rates have fallen dramatically in the United States —

GOLDIN: Dramatically.

COWEN: — and a rise in single-parent families. Can you see economic forces that might reverse that? Or is that just going to keep on going?

GOLDIN: I don’t know if it’s going to keep on going. There was a really great piece in The Times the other day about mainly women with less than a college degree who said, “I don’t want to get married or have kids right now. I want a career. I want to be financially independent.” I don’t know whether that means that they are eschewing marriage altogether and that, in fact, we have a new group of women who, even though they don’t have higher degrees, are wonderfully financially independent and can raise children in good environments.

Obviously, the big issue — and this is the one I think is in the back of this question — is what’s happening to the men. If we can lift the economic opportunities of men who don’t have college degrees, then some of the problem, I think, will be solved. But that’s a big problem.

COWEN: How do men and women respond differently to narrow financial incentives in the workplace? Or is it just the same?

GOLDIN: To narrow, meaning they —

COWEN: If you give people bonuses, do they work harder, would be one of many questions. Do men and women respond the same to that or differently?

GOLDIN: I really don’t know. It’s a very, very good question. Did they respond in terms of working harder? That’s a good question to ask some consultant. I’m trying to think about whether… I think my answer would be that they both would respond the same, but that women have greater constraints who are parents.

I can be in a law firm and have phenomenal incentives. I can be in an accounting firm with phenomenal incentives. We know what those types of bonuses look like. But if a parent says, “I cannot work Thursday mornings,” and therefore gives up that benefit, that isn’t because she’s a bad worker and she’s not responding to the benefit. It’s that her needs are inconsistent with the firm’s demands.

COWEN: My intuition would be that whether women work at all depends more on incentives, but how much they work at the margin — if they work — depends less on incentives.

GOLDIN: That’s a good point, but of course, that initial margin is the bigger margin than the one that gets you into the workplace —

COWEN: Oh, sure.

GOLDIN: — and so then you have the issue of selectivity. The women who are in the workplace and in certain types of workplaces are going to be selected either on the basis of personal characteristics or the characteristics of their spouses.

COWEN: Why does the wage gap flip for Black women versus Black men?

GOLDIN: These are great questions. These remind me of questions that you might get in some generals exam, and then you think, “What does the wage gap flip?”

The Black male wage gap is a very difficult statistic because it’s a highly selected statistic. As we know from lots of very good work, if we take the population, the entire population will get one number. If we take the population that’s not incarcerated, we’ll get another number. If we take the population that’s never been incarcerated, we’ll get another number. I think that deep in that calculation are some of the nation’s largest ills.

COWEN: When I read noneconomists on wage gaps, I see the word intersectionality very often — the notion that there’s some nonlinear effect created by combining different types of discrimination. What is your take on intersectionality? Does it play a role in your argument?

GOLDIN: I would like to take a small course on intersectionality because I’m not certain — if I model this as a theorist — where the sections are going to be and how I figure out how many sections I want.

Someone has a gender at birth, they have a decided gender perhaps, they have a race, they have where they grew up. Many of these have a religion. They have the education of their parents, and many of these covary — they’re correlated.

In fact, this would be a great PhD thesis, and for all I know, someone would tell me, sure, when Rosen wrote it 40 years ago, or maybe Eddie Lazear. I don’t know, quite frankly, what to do with intersectionality.

COWEN: What do you think of this as a simple model? We all know the standard economic model — there can be too many tolls on the medieval river, right? It’s double marginalization. That can be a nonlinear impact — too many tolls, the river is just unusable. There are negative externalities, one predator on another. Think of discrimination as a kind of tax, which it is, and then you have multiple taxes from different directions, and they interact like the tolls on the river, and maybe intersectionality makes a lot of sense, no?

GOLDIN: Yes, I think that that’s a very, very good way of thinking about it. Thank you for giving me a little bit of theory to hang my hat on. But the problem is whether these are multiplicative, whether they’re less than that, if there really is some issue having to do with functional form, and I don’t know whether they are separable. The way in which you said it, they would be separable. Thank you for the idea. I will pass it on to one of my really good graduate students to model and then test. That’s a very, very good point.

COWEN: Another question.

GOLDIN: Another PhD dissertation coming from Tyler.

COWEN: Well, that’s what we’re here for.

GOLDIN: That’s what we should call this: PhD dissertations coming from Tyler.

COWEN: When I speak with high-achieving women I know, they tell me something frequently, more or less the same — that there’s a fear of sexual harassment, and this leads women to choose more careers where they don’t put themselves out there so much, and as a result will earn less, or quite likely they’ll be less famous, suffer other penalties, and that this is a major factor in career choice and earnings. What’s your take on that?

GOLDIN: Well, I think it can be. I in no way, shape, or form want to minimize that. My sense is that gender differences in earnings are not, in the majority, due to factors like that.

However, those factors we really want to root out. There’s obviously a difference between dating and romance, and sexual predators and sexual harassment. The fact that we have many so front-page cases about sexual harassment — both heterosexual and homosexual harassment — shows that it exists, and it should be rooted out. How much it is affecting the choices that women make and men make, I think, is not that gigantic.

COWEN: If we’re trying to explain gender pay gaps or inequities, and we think there are at least two factors — one is, for a given job, women might be paid less, right?

GOLDIN: Yes.

COWEN: Another factor is that women may end up in jobs or in majors or with interests that pay less in the longer run. How do you assess the relative proportion of those two factors?

GOLDIN: Well, we do all sorts of calculations to try to figure out what’s happening within versus between. Of course, one of the problems that we always face is the issue of aggregation. The more you disaggregate occupations or firm occupation, the more you’re going to minimize the problems that are happening within. It’s my sense, from the work that I’ve done, that the issue of occupational segregation, for example, has been vastly reduced over time.

What’s happening within occupations? The real challenge there is to understand whether individuals are being paid less for absolutely equivalent work within the same firm — and that is the standard federal guideline that one is looking for, that’s the smoking gun — or whether individuals are getting paid less, for example, because they’re working at the boutique law firm where they have amenities that they want, or whether they’re working at the Madison Avenue, Park Avenue law firm where they have fewer flexible amenities. I think that those are the challenges and the data challenges that we all have.

COWEN: As you may know, there’s a debate in experimental economics and also field experimental economics as to whether women are more averse to competition than men. One doesn’t have to think this is intrinsic; it could itself be the result of discrimination. But what’s your view there?

GOLDIN: I know all the experiments, and they’re done by extraordinary scholars. I myself have no idea how to do experimental economics because you could do just about anything, and you just have to be incredibly clever at designing these experiments.

I know that there’s lots of evidence that women take fewer risks. They are less pushy. They are more insecure, or at least we think that they are more insecure. There are very, very interesting experiments on stockbrokers, but of course, there’s the flip side that individuals who are highly risk-taking often lose a lot.

I think that, more and more, as women are educated at lower levels to realize that they can be anything that they want to be… If we look at younger women versus older women, I think that we do see that women are more competitive now than they certainly were when I was a kid.

It’s interesting that there is the great book Women Don’t Ask, by Linda Babcock and Laschever. I remember when that first came out, and I said, “How can you say women don’t ask? Go to any department store and see who’s standing there screaming about the fact that the toaster doesn’t work.”

COWEN: As you know, if we look at undergraduate majors, the ratio — it’s like 3:1, men to women, right? It’s not obvious that it’s budging. If we look at faculty, I read one estimate that the ratio for women hasn’t really improved since the 1990s.

GOLDIN: The ratio — you’re saying in economics or in what?

COWEN: The gender ratio. I’m not sure what level they were counting or adjuncts included, but it wasn’t obvious —

GOLDIN: You’re saying 3:1 for a particular major?

COWEN: For economics majors.

GOLDIN: Oh, okay.

COWEN: I believe the ratio’s 3:1 and not really budging.

GOLDIN: Well, I put those numbers together.

COWEN: Okay, and how is it evolving?

GOLDIN: It was more like 4:1 than 3:1, now about 2:1, so it has increased by quite a lot. One of the problems that we have, as a field, is that when students — before they even come into their freshman year, and they’re asked what do they want to major in, women will — if they want to major in the social sciences — will put down psychology, and men will put down economics, so we lose them before they even unpack their suitcases.

I ran an RCT I called Undergraduate Women in Economics Challenge. We had 20 universities and liberal arts colleges begin a program for freshmen to explain to them that economics is not just about the things that their parents have told them about, which they find boring, which don’t involve people, but economics is a very people-oriented subject. It involves inequality, it involves children, it involves obesity, it involves health, it involves everything.

We moved the needle a bit. We’re still trying to figure out exactly how much we moved the needle. But the problem is, we do very, very poorly in our PR ourselves. So if you read the textbooks — and they are changing, and there are a number of recent textbooks that understood these problems — that economics is X and Y; it’s agents.

Most young people don’t want to deal with agents. They want to deal with humans, and particularly, it seems as if women, more than men, would like to deal with humans. And so women will tend to go into this field called psychology or sociology, which indicates in their writings that it’s about people. We indicate in our writings that it is about agents or Greek letters, and so we just have to do a lot better.

COWEN: How is the gender ratio for tenured economics professors evolving?

GOLDIN: CSWEP, that is, the American Economic Association Committee on the Status of Women in the Economics Profession, puts together those data, and they are creeping upward, as one would think they would. Now, in some very interesting work, we can see that they are — I said the words “creeping up.” They’re not bounding up.

The reason that they’re not bounding up at first we thought was a pipeline issue, but now it’s pretty clear that it’s less the pipeline issue. While it was there and still is there, there’s also an issue with the fact that women — more than men — will leave academia and use their economic skills extremely well but outside the tenure track.

COWEN: Should we either abolish tenure or fundamentally change it so as not to penalize women, but also for other reasons? It seems grossly unfair.

GOLDIN: Yes, I certainly wouldn’t do it because it’s a penalty for one group or another. It is an issue that arose. It solved potentially an issue from some time ago. I don’t know if the fundamentals are the same that would support it. It is clearly a difficult problem in the sense that individuals have higher productivity when they’re young and then lower productivity. I think that having long-term contracts is useful for individuals in fields where they’re so good.

If we think about sports, clearly those people just clean up at the beginning, and then they become used-car salesmen or whatever they become. So the question is, do we have a completely changed academic environment in which the superstars clean up at some point and then they go into something else? I don’t think that that would work either.

I think that a very important thing to think about is that we produce a large number of products. We produce knowledge, and that’s really the hardest thing to figure out how to do, but we produce the dissemination of knowledge and teaching. And people who are older probably do that better, and that is not generally what tenure is given for.

COWEN: I’m sure you know the Stevenson and Wolfers paper, 2009. Why haven’t American women gained more in happiness?

GOLDIN: See, I’m not a great fan of that. I remember Betsey was interviewed on Mother’s Day one year. She was a new mother. The person interviewing her said, “Your work shows that mothers are less happy than they had been before they became mothers.” The person said, “That was a great question for Mother’s Day.” Betsey was stuck, and she said, “Well, yes, but they would never give up their baby.” I think that for me, as an economist, that says it all. There’s some problem.

COWEN: So, you think it’s not true that American women are less happy than they had been? I’m not sure what your stance is.

GOLDIN: My stance is that I’m not happy with the happiness measures.

COWEN: Do you think there’s something else they’re not picking up?

GOLDIN: Yes.

COWEN: That’s an ordinal-choice thing rather than stress in the moment?

GOLDIN: Yes.

COWEN: And that if people are choosing something out of a greater set of opportunities, they probably are happier?

GOLDIN: That’s right. It’s very hard to do that in general. Sometimes we rile up a group and get them to remember the things that they’re less happy about, and sometimes we show them where their lives are safe and secure and wonderful and plentiful, and then they get happier.

I remember when Dick Easterlin first began the happiness literature. I remember very, very well — it was a very long time ago — having dinner with him in Madison, Wisconsin, and talking about it. I was enthralled with trying to understand this happiness literature.

That was across countries, and it seemed interesting, from my Chicago theory point of view, that people recenter their happiness. You can be in a place in which, if you were plunked down there from somewhere else, you’d be miserable, and yet, you’re there, and you recalibrate yourself, just like people recalibrate themselves when they have a bad health event. It takes a while. I’m not certain what to do with the happiness literature.

COWEN: What best correlates with women keeping their maiden name after marriage? You’ve written on this.

GOLDIN: Right. For the period in which it increased enormously, which was in the early ’70s, there were several things that were important. The first one was that they were given an appellation. Rather than being called Miss or Mrs., they could be called Ms. It just opened the spigot. It just meant that more and more women could do it.

But more importantly — and this gets to the title of the article that I wrote with one of my undergraduates — it was that they already made a name. If you publish, or you’re a lawyer or a doctor or a yoga instructor or a hairdresser, and you are known as Tallulah Bankhead — to pick a great name — it’s going to be hard to change it. It became your identity. It became your calling card.

Then the question is, okay, fine, keep your name, but then there were some barriers to that. The barriers then began to be taken down. There were institutional barriers. There were legal barriers in terms of having to change your name with the Social Security system, on your passport, on your driver’s license. There were retrograde states that weren’t letting women who got married not change their names.

I remember I was at Princeton at the time, and I was married to a Princeton professor. I was no longer a professor for Princeton, and the library insisted that I use his name on my card despite the fact that I had been an assistant professor there with my name. That was one of the greatest affronts. All of that disappeared. That became, once again, a great enabler.

Then finally, it’s what to do when your kids are in school, and you have a different name. It’s very easy when the plumber comes to the door, to tell the plumber, “I am not Mrs. Katz,” but it would be much harder. It’s often hard still, unfortunately, to pick your kid up at school when you have a different last name than they.

COWEN: Why is the title Ms. more or less disappeared from the scene?

GOLDIN: I don’t think it has. Where has it?

COWEN: I heard it a great deal in the 1980s. It feels today that I hardly ever hear it. I also hear Mr. less often, to be clear, but Ms. seems to have vanished, viewed as almost condescending. I don’t know, I’m asking. I genuinely don’t know.

GOLDIN: Tyler, what do you hear?

COWEN: People avoiding the designation altogether.

GOLDIN: But on forms, the list of potential appellations will always include Ms. I think that one reason that it may disappear — and I think that it’s nice if we actually get to know our first names — is that, particularly in certain communities, there may be a sense that you don’t want to use any indication of gender. That gender has become a no-no.

I’m on a national committee in which we’re very used to talking about two genders. We have two genders, X races, Y ethnicities. You multiply them together, and you get the number of cells. And now we’re into more genders, so I think that may be one of the reasons.

COWEN: How much do you think the trans movement will, in fact, disrupt feminism by breaking down the two traditional categories, men and women? If someone wants to say, “The ratio of men to women in this area is that,” the trans movement could say, “We can’t quite presume that,” and blur the entire comparison. Is that going to matter moving forward? Or is that temporary?

GOLDIN: I don’t know. I don’t think any of this is temporary. If anything, I would applaud the fact that we are smoothing over gender and moving… I would think that in the greater scheme of things, that is a move towards greater equality in the sense that individuals — there is fluidity in who they are. I’m not quite certain what to do with it, but I applaud it.

COWEN: When you read The New York Times wedding announcement page, what honestly do you think? I tend to think two things: “My goodness, these elites are remarkably creative and self-replicating,” and then it strikes me how much people who are not religious at critical points in their lives actually want to invoke religion for the ceremony, but then it’s often just discarded again. That’s what I actually think when I read that page. What do you actually think?

GOLDIN: The first thing is that I’ve been reading that page for a very, very long time. For those viewers who don’t know, when I did the piece on name changes, one of the datasets that we used was The New York Times Style section, now called Vows. It would list whether the bride was or was not changing her name. We used that as a dataset.

To be perfectly frank, The New York Times, in their own mysterious ways, has changed that page to be some very — I shouldn’t say very, but relative to what it was — non-elite.

COWEN: Is single-sex education for women underrated or overrated? What do you think of it?

GOLDIN: I have a personal stance that it’s highly overrated, but I wouldn’t want to get into an argument with my friend, colleague, a person I have enormous admiration for, Amy Finkelstein, who believes thoroughly in it. When I was a kid growing up in the Bronx, I couldn’t imagine a world that I wanted to be in that didn’t have boys.

At the time, girls were, I think, far less assertive, far less serious. I had girlfriends, but I enjoyed being around the boys a lot more. I went to Bronx Science, which was about two-thirds boys. When I applied to college, I just could not imagine going to an all-girls school. Now I know the arguments in reverse, and I respect them, but it was certainly not for me.

On for-profit and non-for-profit education

COWEN: Why does for-profit education seem to fail so badly? Some parts of the learning sector are for-profit. Your books are put out by for-profit publishers, textbooks are. Berlitz seems to do okay relative to the language classes at your local state college, but for-profit education, as a whole, seems to implode. What’s the model there?

GOLDIN: I think it’s some for-profit education. It’s certainly not all for-profit education. I think that the problem is that the part of for-profit education that expanded the greatest was for BAs, particularly in fields like business administration management, and they became more BA mills.

When I was studying for-profit education, I really wanted to be able to look at the materials that were given to people. What were they studying? I was never able to break into that.

The problem is twofold. One is that there’s a huge profit incentive for the company. That’s, of course, not always a problem, as we know.

The other one is, the individuals are not as aware as they should be of what they’re getting themselves into. They are often very needy. They’re low-income. They’re first-generation college. Someone is dangling in front of them something that they really want. They desperately want something that’s going to get them out of the hole that life has put them in. That person who’s dangling it is not giving them sufficient information and sufficient amount of time to get out of this contract.

I think we saw that very, very clearly in the GAO audit studies of the for-profits. I think that that’s the problem. The for-profits that give short courses that give a one-year certification in, let’s say, medical technicians — what we’ve shown in our work, those are not the big problem. The big problem is what I just said.

Let me just say that I have taken short for-profit courses on dog training, and they work really well.

COWEN: For nonprofits, I’ve seen estimates that maybe no more than 40 percent of the people who try, finish. Does that just mean we have too many people trying to attend college? Isn’t the true rate of return on education actually pretty low, at the median at least?

GOLDIN: Let me back up and say that when we were just talking about for-profit education, that the non-for-profit, the non-selective portion could use a bit of change as well. It’s not as if they’re charging as high an amount or recruiting using techniques that are as extreme and exploitative as the for-profits, but they also may not really wake up individuals and tell them exactly what they have to do and how much time they need to spend.

We do know, Tyler, there’s incredibly good, really superb research on that marginal student. This is Seth Zimmerman’s phenomenal work. The marginal student does gain a tremendous amount by getting into a good college.

COWEN: But is that true for the marginal student on the side of the margin where they don’t finish? Your own work with Katz suggests there’s this discontinuity, some people who simply can’t leap the hurdle into having a college degree. It’s somehow too hard for them temperamentally.

GOLDIN: Possibly. I’m trying to go back. We have to go back to Seth’s work to know the point of identification. I thought the point of identification was the individual who was graduating from high school. He’s, in fact, including in that the probabilities that they don’t finish, and the rate of return for that person who was able to go to this Florida International was incredibly high.

COWEN: If you look at a school, say, like Duke or Emory, is it a long-run problem that if they admit people on their merits, there’ll be too many women in the school relative to men, and some kind of affirmative action will be needed for the males?

GOLDIN: These are private institutions, and they can generally accept whom they would like to accept for various reasons of diversity.

COWEN: Should they do that? Or should they just get in 76 percent women, say?

GOLDIN: I’m brought back to the original issues that were raised by a small number of liberal arts colleges and universities in the ’50s and the ’60s about why they should become coeducational institutions.

Those reasons were that their marginal student was not going to Princeton but going to Harvard, not going to Princeton but going to Penn, not going to Princeton but going to Cornell, because that student wanted an education that was more balanced in terms of what the world would look like when they got out. And that more balanced, then, was not necessarily Blacks, Hispanics, and Jews, but the one major thing that was missing from Princeton and Yale and Dartmouth and Amherst and Wesleyan and a whole bunch of places was women.

Those institutions, in a process that I’ve described in the origins of coeducation, led these institutions to move in the direction of accepting more women. Now what’s going through your mind, I think, is, “Yes, but they weren’t lowering quality. In fact, they were increasing quality.” Diversity, in any dimension, can be thought of as a plus for everyone.

It was about 10 years ago that some dean in a small liberal arts college in the Midwest admitted to the fact that they were accepting men with lower SAT, ACT, and grade point averages to increase diversity.

COWEN: Men, probably, are not less intelligent than women, on average. What’s the pipeline problem? Is it too much homework and too many extracurriculars in high school or something else? Where are we failing our young boys?

GOLDIN: We can go back to as early as we have data on high schools and know that girls attended high schools, graduated from high schools at far, far greater numbers than boys. If there is an issue here, it’s certainly not extracurriculars. It may have to do with what’s going on in your cells and this difference between this Y and this double X.

COWEN: The value of an Ivy League degree — what percentage of that value do you think comes from signaling as opposed to learning?

GOLDIN: Very little. I think that it’s not signaling. It’s probably networks.

COWEN: Networks. Why is there a sheepskin effect, then, which is quite strong? Because you could meet people there for three years and then just not finish.

GOLDIN: I don’t know what the numbers are for the sheepskin effects. I’m always very dubious of anything having to do with real signaling. In terms of sheepskin effects, I’m willing to read up on it, but I don’t know what it is. The networks are enormously important.

Sometimes I look at my undergraduates, and I think, “I would just be such a better person if I could live with these people. These are the most accomplished people.” You would be able to listen to someone playing the cello. You would be listening to someone teaching you about Verdi operas. They’re just an incredible group of individuals. In some sense, it’s not the same networking that Teddy Roosevelt would have been able to do, or John Kennedy. It’s, instead, an ability to grasp just an enormous amount in a mere four years.

I went to Cornell, which, of course, is an Ivy League school, too. I had a phenomenal experience, but nothing like I would have if I went to Harvard right now. That’s why I want to go back to college.

COWEN: You’re there now, right? You get their classes.

GOLDIN: I know, but I’m on the giving end and not the receiving end.

COWEN: The literature on returns to skill — there’s a piece by Beaudry, empirical work by Rob Valletta, which argues that post-2000 or so, the returns to skill are, in general, collapsing. Do you view that as stepping outside of your model with Katz in your book Race between Education and Technology? Or do you dispute the result? Or how do you see that?

GOLDIN: I would have to go back over the returns to which skills.

COWEN: Most skills. They suspect it may be due to automation or artificial intelligence.

GOLDIN: I read the work of David Deming, in which the set of skills that are in enormously great demand are a set of social skills. The question is how do you up social skills? It seems as if we know a lot about the demand for social skills; we know a lot less about the supply of social skills. It may be that when we think about the skills of the past, we’re thinking about, first, manual skills, then motor skills and mental skills. Now we’re moving into the range of social skills.

On past and future projects

COWEN: Our last segment on economic history. Why wasn’t there a Coasian solution to the Civil War, namely just buying out the slaveholders? This is going back to your work from, what, 1977?

GOLDIN: Well, Lincoln wrestled with that. When one thinks about what went on in the White House during the Civil War, one thinks about Lincoln just physically wrestling with all of these difficult issues. In fact, the slaves were purchased in the District of Columbia.

He was doing calculations about how we could pay slave owners for their property. For the longest time, one of the central issues in Lincoln’s mind was that property was extremely important to protect, and slaves were property, so we would have to buy out the slaves. He made lots of different calculations.

Of course, there were many different emancipation programs that preceded that. In fact, you may know that the North had slaves. New York did. New Jersey did, and by acts of the legislature, slaves were freed as of a certain age. That was what was called gradual emancipation. It wasn’t very good emancipation, and it could have had some horrific effects. In fact, one of the effects was that slaves were shipped from these northern areas to the South.

There were lots of different potential programs. One of the things that Frank Lewis and I did when we computed the cost of the Civil War was, we were essentially telling Lincoln, “Oops, you should have done it.”

COWEN: What best predicted anti-immigration sentiment in the 1920s?

GOLDIN: Well, what probably best predicted it was a combination — it appeared from some ancient work I’ve done — of areas that got immigrants, and had reduced the opportunities for others in the area, and for whom the immigrant groups that were there already were not the ones who were flooding in. One could think of the various parts of the country.

Ironically, the South was really pro-immigrant for the longest time because it viewed these immigrants as a wonderful substitute for a labor force that was migrating north and had, for decades, not been slave. So, the South was pro-immigrant. They became anti-immigrant only when they realized that immigrants weren’t going there, and when they were going there, they were Italians, and they were dark. These were pretty racist people.

In the North, the places that began to shift being anti-immigrant — and I was looking more at the shifts of voting for legislation that would put in place rules for literacy — those places were places that did not have large numbers of people from eastern, central, and southern Europe. The people there went on slamming the door in the face of their relatives.

COWEN: Very last question. Your book is coming out. Again, that book is Career and Family: Women’s Century‑Long Journey toward Equity by Claudia Goldin. Other than promoting your book, what will you be doing next?

GOLDIN: Oh, wonderful. I’m working on a couple of projects. This is a lot of fun. There was something called the Lanham Act that was passed in 1940 that was for infrastructure for America — lots of money. By 1942-43, it was pretty clear that America needed to — in fighting this war at home, in producing goods for the Allies, we needed to have women employed. So, the Lanham Act funds were repurposed for nursery schools and after-school programs.

What we’re doing with Joe Ferrie and Claudia Olivetti is finding out exactly where these Lanham schools were. Through the amazing ability that exists now, we can figure out whether individuals who were three to six years old during some period had some high probability of going to a Lanham school, what happened to them 50 years later. That’s one of the things I’m doing.

Another thing is trying to figure out why men who are fathers do so well relative to women who are mothers. That’s another piece to the puzzle.

COWEN: Claudia Goldin, thank you very much.

GOLDIN: It was a real pleasure to meet you almost in person, Tyler.

COWEN: Same here. Till next time.

Casey Mulligan highlights the work disincentives built into the Build Back Better Bill, "...the Build Back Better bill (BBB) would implement the single largest permanent increase in work disincentives since the income tax came into its own during World War II.... The implicit employment and income taxes in BBB would increase marginal tax rates on work by about 7 percentage points. I expect that such a change in the disincentive would reduce full-time equivalent employment by about 4.5%, or about 7 million jobs....The disincentives are delivered through two fundamental economic mechanisms. First and foremost is the creation and expansion of employment-tested benefits....The second mechanism is income-tested benefits, which discourage the earning of income by withholding benefits as a household’s income rises. For example, Section 136407 creates a tax credit for 15 percent of the price of the purchase of an electric bicycle, but the credit is reduced $0.20 per additional dollar earned by the household. More important, from an aggregate perspective, are the various additions to major income-tested programs such as Medicaid, “affordable housing” and the Child Tax Credit. By my count, the various new affordable housing subsidies in BBB exceed $220 billion over ten years...."

Casey Mulligan, "Build Back Better's Hidden but Hefty Penalties on Work,"Supply And Demand (In That Order),October 6, 2021, http://caseymulligan.blogspot.com/2021/10/build-back-betters-hefty-penalties-on.html

Build Back Better's Hidden but Hefty Penalties on Work

Largely by stepping toward an economy in which workers bear the burden of distributing healthcare and housing with little regard to ability or willingness to pay, the Build Back Better bill (BBB) would implement the single largest permanent increase in work disincentives since the income tax came into its own during World War II.

The bill would also reduce work by limiting competition in the labor market, imposing employer mandates, and increasing consumer prices for telecommunications, energy, and other products. All of these disincentives go on top of those already in the baseline due to a continuing portfolio of federal, state, and local tax, spending, and regulatory policies.

The implicit employment and income taxes in BBB would increase marginal tax rates on work by about 7 percentage points. I expect that such a change in the disincentive would reduce full-time equivalent employment by about 4.5%, or about 7 million jobs.

Penalizing Work and Hiring

The disincentives are delivered through two fundamental economic mechanisms. First and foremost is the creation and expansion of employment-tested benefits. Full-time employment is a major barrier to participating in the programs, even if that employment does not produce much income. Especially, BBB allows even America’s highest-income households to participate in subsidized “Obamacare” insurance plans as long as they are not engaged in any job that offers health insurance. For most full-time workers, their employment status by itself excludes them and their family from the additional Obamacare subsidies delivered through BBB, especially its sections 137501 and 137502.

Family medical leave is another benefit tied to not working. Section 130001 is quite explicit that eligibility requires a caregiving activity “in lieu of work, other than for monetary compensation.” Family medical leave is a cash benefit paid in proportion to the number of hours of such caregiving.

BBB also creates and expands employer mandates, with compliance enforced with penalties that are proportional to employment, regardless of how rich or poor the employees may be. An example of a proportional employer-penalty scheme is BBB’s new requirement to administer IRA deductions from employee paychecks, with all employees enrolled by default. The penalty for non-compliance is $10 per employee per day (Section 131101), which is similar in magnitude to the ACA’s penalty for failing to provide health insurance.

Section 21004 increases penalties on employers for failure to comply with federal occupational safety, health, and labor-standards requirements. The increases are tenfold or more. For example, the penalty for a large (100+) employer to employ an unvaccinated person is between $50,000 and $700,000 per violation and an additional $70,000 per day. This could amount to $26 million (sic) for every year that each unvaccinated person remains on the payroll.

These and other parts of BBB further reduce employment by suppressing competition in the labor market. Such provisions seek to prevent non-union workplaces, which are almost 95 percent of all private employment, from distinguishing themselves from unionized workplaces. Others put nonunion workplaces at an outright disadvantage. Section 138514 would allow union dues to be deductible from federal income tax, putting about $400 million per year on the union side of the economic scale. Other sections, such as 132002, target “infrastructure grants” to “labor unions and other employers … that pay the prevailing wage.” Section 136401 creates a credit for the purchase of an electric vehicle that “satisfies the domestic assembly qualifications” (that is, unionized).

Penalizing income

The second mechanism is income-tested benefits, which discourage the earning of income by withholding benefits as a household’s income rises. For example, Section 136407 creates a tax credit for 15 percent of the price of the purchase of an electric bicycle, but the credit is reduced $0.20 per additional dollar earned by the household. More important, from an aggregate perspective, are the various additions to major income-tested programs such as Medicaid, “affordable housing” and the Child Tax Credit. By my count, the various new affordable housing subsidies in BBB exceed $220 billion over ten years.

Other provisions are, legally or economically, new excise taxes. These discourage work by reducing real wages, especially to the extent these policies raise consumer prices by protecting incumbent producers. A major example is section 31501, which directs the FTC to further enforce “privacy” rules that are effectively prohibitions on lower cost internet plans. When President Trump and the 115th Congress repealed such prohibitions, the cost of internet service dropped so sharply and immediately that the consumer savings drew the attention of then Federal Reserve Chair Janet Yellen due to its visible effect on the overall Consumer Price Index. This shows why we can expect higher prices for internet plans under BBB.

A plethora of “green policies” have a similar effect on prices of transportation and energy, such as taxes on methane emissions (Section 30114), subsidies to rural utilities (Section 12007), and green electricity programs (Sections 30411, 136101). Undoubtably the BBB will be sold as a windfall for the poor, but all of the bill's explicit and implicit excise taxes are particularly regressive.

Projected Employment Effects

The magnitude of BBB’s disincentives for work and hiring varies across households and firms. They also vary by margin of response, such as adjusting work schedules, the duration of employment, or the duration of nonemployment. Properly measured disincentives also reflect the reality that benefit takeup is typically well below one hundred percent. I estimate that, on average, BBB implicit employment and income taxes would add almost seven percentage points to the marginal tax rate on labor income. At least another two percentage points would someday be required to finance its projected $220 billion contribution to the annual federal budget deficit.

These disincentives are on top of the many other taxes on income, payroll, and sales; other implicit and explicit employment taxes; and longstanding income-tested benefits. Even ignoring the additional financing, the disincentives would reduce the share of marginal product kept by the average worker from about 0.52 to 0.45, which is a reduction of about 13 percent. I expect that such a change in the disincentive would reduce full-time equivalent employment by about 4.5%, or about 7 million jobs. Perhaps employment would prove to be more sensitive to incentives, as it did during the 1990s welfare reform (see also the update below), or less sensitive, but 7 million is a good point estimate.

I estimated the 7 percentage points by aggregating the disincentives in the various sections of BBB. The largest is the expansion of subsidies for Obamacare exchange plans. Using the same methods as Mulligan (2015), I estimate that these subsidies by themselves add almost three percentage points.

For the employer IRA mandate, I estimate 0.5 percentage points, which is the average result from two methods. One method is from Council of Economic Advisers (2019) analysis of the removal of an IRA mandate. The second method is, based on the Harberger triangle method, to take half of the penalty and apply it to the 33 percent of workers who do not currently have pension coverage through an employer.

Although the BBB’s expanded Child Tax Credit (CTC) has received much attention, I do not find that it adds much to the marginal tax rate on labor income. The CTC expansion removes a negative tax on labor income, but that applies only below the poverty line and is offset to some degree by expansions in the Earned Income Tax Credit. The CTC creates a new five percent phaseout range, but my estimates from the Current Population Survey suggest that less than five percent of nonelderly persons aged 21-64 are in a household that with 2019 incomes that would be in that range. I therefore estimate the expanded CTC’s contribution to the marginal tax rate increase to be only 0.24 percentage points.

For several other provisions, such as the Medicaid expansion in states that opted out of the original ACA expansion, the new Medicaid home and community-based programs, and affordable housing, I assume that each dollar budgeted in BBB translates into the same contribution to disincentives as each dollar expected to be spent on the expanded subsidies for exchange plans.

I assume that the effects on restraining competition in labor markets are the same as Council of Economic Advisers (2019) found for four Obama-era regulations intended to bolster unions (the Fiduciary rule, the Persuader rule, and two joint-employer rules). I assume that the Green Energy components of BBB contribute one-fifth to the labor wedge of what Fitzgerald, Hassett, Kallen and Mulligan estimated for Biden’s campaign promises regarding renewable energy.

Many of the details of the BBB programs will remain unknown until it becomes law and executive agencies issue their rules for administering them. Although I assume that benefit takeup is well under 100 percent, I may still have overestimated it in which case BBB would be more of an adverse productivity shock and less of a work disincentive.

As a younger Barrack Obama put it (watch for about 80 seconds), "I am absolutely convinced... we have to have work as the centerpiece of any social policy."]