Macro Roundup

“… That family and custodial chaos, low marriage rates, and high divorce rates and other troubling trends in black family life have worsened at a time of diminishing racism, rising economic gains, and escalating political power among black Americans strongly suggests that systemic racism, whatever the term might mean, cannot persuasively explain them. Indeed, the fact that many of these same trends are also corroding impoverished white families while leaving black immigrants (whose marriage rates are over 70% higher than those of native-born blacks) relatively untouched indicates that racism, systemic or otherwise, is not the primary driving force behind the patterns described…. People whose only offense is drug use almost never go to prison today, and if they do, they rarely spend much time there. Moreover, recidivism rates in the United States are extraordinarily high: Two-thirds of those released from prison are arrested for a new crime within three years, while half end up re-incarcerated…”

Peter Schuck, “What Systemic Racism Systematically Downplays,”National Affairs, Spring 2022https://www.nationalaffairs.com/publications/detail/what-systemic-racism-systematically-downplays

What Systemic Racism Systematically Downplays

For several years now, systemic racism has been among the most frequently mentioned concepts in American discourse. The term and its equivalents — including “structural” and “institutional” racism — appeared in the New York Times and the Washington Post roughly 10 times more often in 2019 than they did in 2013, and have greatly proliferated since then. The topic is now the subject of countless college courses, classroom discussions, books, articles, media programming, political speeches, and formal and informal conversations. It is safe to say that today, systemic racism has reached the status of a cultural meme.

Progressive advocacy groups use claims of systemic racism to shape a distinctive political agenda and rhetoric, emphasizing certain themes and downplaying others. Though their commitments are understandable, their preoccupation with the concept tends to understate progress among the black middle class while distracting from, and even undermining, a far more compelling priority: the repair of so many broken black communities in low-income areas.

The language of systemic racism does not seek to mobilize such repair, nor does it equip younger black Americans with the tools to pursue the many genuinely equal opportunities that now exist. So while it is important to take the systemic-racism thesis seriously, it is also crucial to consider what it leaves out, as well as what it obscures.

CLARIFYING THE CONCEPTS

Before discussing the imperative of individual and community repair, I shall briefly clarify the notion of systemic racism itself, which plays a central, though largely unexamined and analytically undisciplined role in our national debate.

The term “racism” is serviceably clear in its meaning, if not its application: It is the belief that one race — a human grouping distinguishable according to its inherited physical characteristics, particularly skin color — is inferior to another race, justifying stigma, separation, or mistreatment of various kinds. This concept differs from what I shall call “racialism,” which refers to a heightened consciousness of the race of another person or group.

Racism is invidious, hostile, and demeaning. It denies the inherent equality of all human beings and represents the corrosive attitude that those who denounce systemic racism have in mind. Racialism, by contrast, is morally neutral, arguably rational, and — in a society with our history of race-based slavery, discrimination, and continued social differences between whites and blacks — probably inevitable. Ongoing racial disparities mean that people are often conscious of and call attention to another’s race for reasons that lack the animus of racism, and indeed are often benign. Regardless of whether observers are animated by perceptions of blacks’ continued disadvantages in our society, the racially stratified nature of so many of our institutions, or guilt over America’s history of race-based enslavement and subjugation, they would have to be obtuse or willfully blind not to be racialist — not to mention callous to fail to sympathize with the plight of many black Americans.

Ordinarily, one cannot easily detect another person’s feelings about black disadvantage in America, much less know whether those feelings are animated by racism or racialism. Since they are both states of mind, distinguishing between them empirically is especially difficult. Some advocates may not care much about detecting this attitudinal distinction, so long as blacks’ disadvantage persists and whites fail to do what they should to eliminate it. But if whites’ attitudes are the very essence of systemic racism, then the distinction between racism and racialism matters greatly.

So what makes racism — a conviction held by an individual — “systemic”? Definitions of the term vary, but they tend to hinge on the claim that racism is not simply an attitude held by some individuals; instead, it is a form of discrimination inherent to policies, practices, social institutions, cultural mores, and environmental characteristics that place minority racial groups at a disadvantage relative to the racial majority. “Systemic” means that such bias is not only widespread, but practically inescapable.

In America, systemic racism is said to manifest in a socially pervasive bias against blacks that is threaded through all of our major institutions. Most, if not all, accounts of systemic racism build on both an observation of a population-level disparity — such as the differences between blacks’ and whites’ income or achievement levels in school — and a causal account of that divergence. Each of these variables raises thorny analytical questions that require solid data to answer. In order to compare how blacks and whites are treated by police or teachers, for example, one needs to know the behavioral base rates of the two groups; comparing blacks’ and whites’ arrest rates or differences in school-disciplinary actions is meaningless unless we know and can compare how the two groups actually behaved on the street or in the classroom. Yet such data are often hard to come by. Simplifying the task by presuming the base rates are the same begs the question at issue, as does assuming that the base rates differ due to racism and its continuing effects on the black population — a central premise of the systemic-racism thesis.

Adherents of the thesis identify its manifestations in numerous, if not all, domains of American life. One popular video series focuses on eight indicia of the phenomenon: the wealth gap, employment disparities, housing discrimination, and differences in rates of government surveillance, incarceration, drug arrests, immigration arrests, and infant mortality. The Fair Fight Initiative lists a similar array of social conditions in which blacks are said to be systematically and chronically disadvantaged due to five widespread forms of racism: internalized, interpersonal, individual, institutional, and structural.

Those who denounce systemic racism see the cumulative subordination of blacks throughout history as forming a racist substructure that underlies, and thus permeates, our society, producing the disparities outlined above. Such racism is said to be so deeply embedded in our most powerful institutions and cultural mores that it will persist even without new infusions of racism at the individual level. This claim is pivotal, and appears in its pure form in the December 2020 issue of Academic Medicine: “f we are White,” the article states, “we are a big part of the problem. We are part of the reason that structural racism imprisons and oppresses people of color every day, everywhere they go, and no matter what they do.” Equal treatment now and in the future may soften the effects of systemic racism, but such treatment can never fully eliminate the harm.

Systemic racism is said to pose continuing barriers to blacks’ ability to improve their socioeconomic lot — impediments that they have limited capacity to overcome thanks to the structurally racist milieu in which they operate. By the same token, it’s not clear from this account what whites can do to rid themselves of their own inherent racism or purge the system of its bias. Systemic racism’s underlying premises, then, imply little agency on either side of the racial divide.

SYSTEMIC RACISM VERSUS INEQUALITY

The notion of systemic racism resonates with many Americans today, largely because racism was indeed systemic in the United States in the not-so-distant past. Slavery, which had been a feature of human civilization for millennia, took on a decidedly racial bent as millions of Africans were shipped to the New World as slaves. The United States eventually outlawed the trans-Atlantic slave trade in 1808, but race-based slavery continued to proliferate domestically for decades, most notably (albeit not exclusively) in the South. The ratification of the 13th Amendment on the heels of a bloody civil war brought an end to slavery as a matter of law in 1865. It would take another century, however, before black Americans were fully recognized as citizens entitled to equal civil rights under the law.

The long history of de jure slavery, segregation, and categorical subordination of blacks in America may have formally ended with the civil-rights revolution of the 1960s, but even then, some of the movement’s fundamentally liberal reforms — particularly racial integration of schools, voting, public services, and accommodations — generated massive resistance, followed by slow, grudging, formalistic compliance in the South. Even in the North, efforts to integrate schools, housing, and other social domains spawned considerable public resistance. Almost three generations, decades of affirmative action, and trillions of anti-poverty dollars later, many Americans of all races remain painfully aware of continuing racial injustice and embedded inequality. This surely explains why 84% of Americans polled by the Pew Research Center in 2021 felt that more needed to be done to ensure racial equality.

But present inequality between blacks and whites, particularly in a historically stratified society like the United States, is not necessarily due to ongoing systemic racism. Black and white Americans remain unequal on a host of social indicators, to be sure. But whether each of these inequalities violates particular principles of justice poses other, more difficult analytical and normative issues that systemic-racism claimants seldom squarely address.

An important and deeply challenging feature of racism is that it is easy, and often tempting, to accuse another of harboring racist beliefs, but difficult — perhaps even impossible — for the accused to disprove the allegation. Charges of systemic racism are especially tricky to refute, as activists claim that race-based discrimination can be so subtle, so covert, and so entrenched in a culture or an institution’s fundamental structure that those who operate under it may not even recognize their complicity in the subjugation of racial minorities. Again, given our society’s long history of de jure racism and the complexities of causality over time, this claim of complicity is practically irrefutable, making such accusations easy to make and abuse.

The best that the skeptic of this account can do is identify good reasons to doubt that racism in America today is truly systemic. As it turns out, there are four such reasons, the first of which is that rates of racist beliefs among individual Americans have declined over time. Public polling about white-black intermarriage, residential proximity, and other interactions shows dramatic increases in tolerant attitudes among whites since the 1960s. Although white-supremacist hate groups often loudly avow their racist beliefs, they remain a tiny, isolated fraction of the population, and are almost universally reviled by the political left and center as well as many on the right eager to distance themselves from fringe elements.

Of course, people harboring bigoted views often hide them in public, especially in social environments where racism is highly stigmatized. Answers in a survey are not proof that people do not hold racist views, although they do show that people are at least ashamed to admit them. That said, rates of behaviors related to or motivated by racism have fallen as well. In 2020, the FBI found that although the largest category of hate crimes (61.8%) were based on race/ethnicity/ancestry bias, the number of these incidents was under 6,000 nationwide. In a population of over 330 million, this surely does not qualify as systemic.

Second, the cohort of the U.S. population that has been most likely to hold racist views is slowly but inexorably dying out, to be gradually replaced by generations who tend to be far more accepting of racial differences. Though this theory is subject to some dispute, it is undeniable that members of younger generations seem to harbor less overtly racist beliefs than those of older generations. As these young Americans assume leadership roles in our nation’s core institutions, their views will affect those institutions’ structures, policies, and actions, as well as the people they influence. That virtually every major American institution in recent years has explicitly committed to combatting systemic racism suggests that we are already witnessing this trend taking shape.

A third reason to doubt the systemic-racism thesis is that anti-racist protests and highly publicized punishments of racist incidents have made racism much more newsworthy than it was in decades past. As a result, public discussion of the subject occurs much more often in our communities and traditional media today than it once did — and the tenor of this discourse is almost invariably opposed to racism. To the extent that systemic racism is inherently implicit or invisible, there is less room for it to hide now than there was in the past.

Additional public developments have likely heightened awareness of, as well as shame over, racism’s role in our history. These include the 1619 Project (the book derived from which is on the best-seller list at the time of this writing), officially sanctioned removals of statues and other historical symbols linked to racism, highly publicized convictions of police officers and civilians for hateful crimes against blacks like George Floyd and Ahmaud Arbery, and numerous “cancel culture” incidents in prominent institutions ranging from local governments, schools, and museums to professional groups, athletic leagues, religious communities, and others. As I have written elsewhere, this practice of “canceling” individuals is often shameful and reprehensible. But it does demonstrate how deeply stigmatized racism is in American society.

It is possible, of course, that these developments have simply driven much hitherto overt racism further underground. But if so, such furtive racism — the sort of racism that dare not speak its name — would be the very antithesis of systemic.

Indeed, these incidents and others have made many white Americans desperate to avoid being associated with criticisms of blacks. The Democratic Party in particular has embraced a tactical silence on the matter, and for perfectly straightforward reasons: Given Latino defections during the 2020 elections, blacks are now the party’s only reliable racial or ethnic constituency. Under these conditions, the party’s white activists are less willing than ever to risk offending black leaders and voters. Meanwhile, Republican-controlled state legislatures and governors — realizing that blacks overwhelmingly vote Democratic — gerrymander legislative seats to minimize black constituents’ political potency. If they believed black votes were truly up for grabs, they would surely compete for them — a logical circularity that Republicans may yet break, as they have done with Latinos.

Even if one were to ignore these facts and insist that systemic racism remains widespread in today’s America, there are good reasons to doubt that it represents the primary driver of continuing black disadvantage. For starters, the impressive upward mobility of other non-white groups — including immigrants of color — continues to confound the systemic-racism thesis. The most economically successful of these groups are Asians, particularly Chinese, Japanese, and Koreans — many of whom began life in America without American blacks’ English-language advantage. In a recent study, researchers led by Raj Chetty — a leading analyst of economic mobility among different racial and ethnic groups — found that Hispanic and Asian Americans are closing much of the income gap with white Americans, while the upward mobility of lower-class black Americans has not kept pace.

Perhaps most discrediting of the ongoing systemic-racism account is the fact that black immigrants’ economic mobility is much greater than that of blacks born in the United States. The median household income of the rapidly growing cohort of black immigrants is about 30% higher than that of American-born blacks. If systemic racism were the primary driver of blacks’ disadvantages in America, we would expect it to hold back this population as well. Yet it seems not to have done so. Causal factors other than systemic racism, then, must be contributing significantly to black disadvantage in areas where it persists.

SEEKING REMEDIES IN THE WRONG PLACES

Downplaying systemic racism as a major cause of continuing black disadvantages still leaves those disadvantages in place, of course. And for all too many of the most important social indicators, American blacks are significantly worse off on average than whites. This is true in terms of their lower income and net worth, as well as their higher rates of poverty, homelessness, criminal arrest, incarceration, marital instability, mortality, morbidity, and many other measures of social health.

Addressing these conditions should be among the highest priorities of public policy and civic and community action. Reformers frequently propose strategies to do just that. Some proposals are contained in pending legislation, and wisely target poverty across the board. A refundable child tax credit is perhaps the most compelling example, although it must be carefully crafted to minimize perverse incentives that tend to encourage the fractured-family complications discussed below. Refining and simplifying the Earned Income Tax Credit would also go a long way toward making the credit more accessible to more low-income workers. Efforts to reinforce the “success sequence” of high-school completion and delayed marriage and childbearing (discussed below) should be redoubled, as should those aimed at expanding school choice through vouchers, charter schools, and other innovative alternatives. Meanwhile racism, systemic or otherwise, must be fought wherever it is detected or suspected, both legally and socially.

My focus here, however, is not to evaluate these and other specific policy remedies, as I have done in other publications. Instead, I would like to call attention to some of the problems and opportunities that the current preoccupation with systemic racism obscures, and may even aggravate. The following discussion has two purposes, the first of which is to detail some of the facts that impede blacks struggling to escape poverty’s depredations. The second is to discredit the idea, which seems ubiquitous among reformers and activists on the left, that systemic racism continues to be a, if not the, principal cause of these enormous problems. As I emphasize above, systemic racism was indeed a most shameful, tragic feature of American history, and there is no doubt that some elements of its terrible legacy remain. But to say that ongoing systemic racism is the primary driver of current disparities between black and white Americans today is to distract attention from what may actually be causing or worsening the problem. It also likely contributes to a sense of despair that hobbles efforts to pursue meaningful change.

The first social factor contributing to socioeconomic disparities between blacks and whites in America is the fragility of the black family. Families represent the core of any healthy society, and the steady decline of two-parent households among Americans of all races is probably the most important, and most troubling, social trend that has materialized since World War II. For black families in particular, the development has been devastating.

In terms of family formation, black men today are far less likely than white men to get married. And unlike higher-income white men, who are more likely to marry than low-income white men, educated, economically prosperous black men are no more likely to marry than their poorer black counterparts. In fact, these men are less likely than poor blacks to have ever married at all.

For those who do marry, the statistics remain grim. Black men experience greater rates of divorce and separation than white men, and when their marriages dissolve, they are far less likely to remarry. Meanwhile, black women typically spend only 22% of their lives married — half the percentage of white women. And while unmarried women often cohabit with men, prominent marriage scholar Andrew Cherlin has found that these relationships tend to be relatively short-lived.

The breakup of marriages among black couples, combined with their failure to form in the first place, has had a predictably tragic impact on black children. Even as racism — both institutional and individual — in America has declined over the past century, the incidence of out-of-wedlock births within the black community has soared. According to the most recent National Vital Statistics data, 70% of black children were born to an unmarried mother in 2020 — triple the rate Daniel Patrick Moynihan cited when he first sounded the alarm over the deteriorating state of the black family in 1965. For whites in 2020, the rate was just over 28%. (Moynihan’s report placed it at 3% in 1963.)

The best predictor of low prospects for children, regardless of race, is growing up in a single-parent household. Over half of all poor children come from female-headed households, while a child raised without a father at home is four to five times more likely to be poor than a child of married parents. As family expert Kay Hymowitz has shown, these broken families often consist of “a revolving cast of stepparents, half-siblings, stepsiblings…and short-term romantic partners.” Such instability, she observes, “can be every bit as damaging to children as poverty itself.”

All of these elements — family and custodial chaos, low marriage rates, and high divorce rates — contribute to the persistence of disproportionate levels of poverty among black children. That these and other troubling trends in black family life have worsened at a time of diminishing racism, rising economic gains, and escalating political power among black Americans strongly suggests that systemic racism, whatever the term might mean, cannot persuasively explain them. Indeed, the fact that many of these same trends are also corroding impoverished white families while leaving black immigrants (whose marriage rates are over 70% higher than those of native-born blacks) relatively untouched indicates that racism, systemic or otherwise, is not the primary driving force behind the patterns described.

A second factor contributing to socioeconomic disparities between black and white Americans is isolation. Poor blacks are isolated in several ways that tend to keep them impoverished. The digital divide, for example, deprives them of information and social connections. But a related, and perhaps even more limiting, form of isolation is geographic — some of which reflects systemic racism of the past. As researchers like Harvard’s William Julius Wilson have observed, blacks tend to live in areas of low economic growth, modest wage levels, and high unemployment, which limits their access to institutions and resources that contribute to upward mobility. Extensive research by Chetty and others suggests that these geographic elements are predictive of future economic prospects.

Blacks’ isolation is not limited to geography, however; they tend to be socially isolated as well. Upward mobility depends heavily on people’s social capital — their embeddedness in social networks and institutions — which helps them gain the kind of experience, reputation, and relationships that they can use to their advantage. Orlando Patterson’s work on social networks provides dismaying insight into how social isolation perpetuates poverty among black Americans, even as a large black middle class has emerged against great odds. According to his research, blacks’ networks are smaller, denser, and include remarkably few kinsmen compared to those of other races; indeed, almost half of black individuals surveyed had no kinsmen in their networks at all. In a finding he characterized as “truly startling,” Patterson observed no relationship whatsoever between network density and education levels among this population. In other words, greater levels of education — which, as sociologist Robert Putnam has found, tend to correlate with larger social networks in the general population — did not extend blacks’ ties by much. Again, ongoing systemic racism is not the likely culprit here.

A third factor contributing to continuing black-white disparities in America is schooling. Years of education and skills training are strongly correlated with wealth and income, and in recent decades, blacks have made significant gains in their rates of high-school graduation (which hovered around 25% in 1965 and are now at 88%) and college enrollment (38% in 2018, compared with roughly 15% in 1968). This progress is laudable, but graduation statistics conceal large skill gaps that remain.

At the same time, blacks’ college-graduation rates continue to lag behind those of whites. One significant factor behind this continued disparity is black students’ greater likelihood of dropping out of post-secondary school, which frequently saddles them with substantial student-loan debt but no credentials. Those who do graduate often leave with credentials that are too meager to sustain a promising occupational future.

At the primary- and secondary-school levels, black students are disproportionately cited for misconduct, which leads to higher drop-out rates and what some advocates decry as a “school-to-prison pipeline.” Civil-rights officials in Barack Obama’s Department of Education (many of whom have been restored during President Joe Biden’s term) blame these discrepancies on racial bias among school administrators and teachers — accusations these groups stridently deny. John Ogbu and other educational researchers, by contrast, have pointed to an “oppositional culture” among many black students that manifests itself in less time spent on homework, high rates of truancy, elevated drop-out rates, and greater indiscipline. The latter in particular harms classroom learning for other students and has increased teacher attrition rates in many urban schools, which further undermines educational progress in black neighborhoods. The remedies for these conditions are elusive, but they surely lie to a large extent within the black community and black families.

A fourth factor contributing to social and economic disparities between blacks and whites is crime. Heightened levels of criminal activity continue to plague impoverished urban neighborhoods, where blacks not only disproportionately represent the perpetrators, but also the victims. Those who decry systemic racism often point to higher rates of incarceration as the main driving force behind disproportionate rates of black poverty. And indeed, this factor clearly contributes to racial socioeconomic disparities. Imprisonment, especially for long periods of time, ruptures a person’s ties with his family and community — both of which offer legitimate sources of upward mobility. It also harms his future employment prospects, as many employers screen for applicants with criminal records. And as systemic-racism theorists almost invariably point out, blacks in America are imprisoned at much higher rates than whites.

Activists insist that these disparities call for large-scale de-incarceration, but releasing or diverting those convicted of minor offenses would have little real impact on incarceration rates. People whose only offense is drug use almost never go to prison today, and if they do, they rarely spend much time there. Moreover, recidivism rates in the United States are extraordinarily high: Two-thirds of those released from prison are arrested for a new crime within three years, while half end up re-incarcerated. Given that the victims of these crimes tend to be overwhelmingly black themselves, the costs of de-incarceration would fall most heavily on the black community. The same is true of “defund the police” measures, which many activists called for during mass protests against highly publicized police shootings of unarmed black individuals in 2020 and 2021. Wiser public officials — many of whom are black themselves — have opposed these demands.

Historically speaking, much of the damage to black families and communities had occurred long before black incarceration rates began their rapid rise several decades ago, suggesting that these elevated rates were at least in part a result, rather than a cause, of those communities’ socioeconomic decline. To be sure, the two trends have likely precipitated a vicious cycle, whereby increased poverty begets increased incarceration and vice versa. Yet the order of the trends indicates that poverty — abetted by familial breakdown — was the leading impetus.

Fifth, many people — black and otherwise — find themselves in an impoverished state for a reason they may admit to themselves and others: They have made poor choices in the past that continue to harm them in the present. Observers who make this point are often accused of lacking compassion, “blaming the victim,” and ignoring the structural causes of behavior. Such causes obviously matter, but any analysis that fails to consider the role of self-harming choices misses an important clue to what causes and sustains some poverty in black communities — and also what might reduce it.

By “poor choices,” I am referring to decisions that squander or shut out opportunities to better one’s prospects in the future. Some of these behaviors, like excessive gambling or the abuse of alcohol or tobacco, are merely self-destructive. Others, such as the abuse of illicit drugs, are also punishable by law. If detected, they will foreclose many paths out of poverty.

Most poor choices, however, are simply shortsighted; they sacrifice the real possibility of future, durable gains for more immediate, transitory ones. Common examples include chronic truancy; mingling with anti-social people; ignoring schoolwork in favor of television, the internet, or video games; engaging in habitual indiscipline; dropping out of school; excessive borrowing and spending; parenting children whom one cannot afford or care for; and quitting jobs or training programs from which one could acquire useful skills, experience, or certifications. Here, too, systemic racism’s causal role is obscure. Though external remedies may help at the margins, solutions to these largely self-inflicted conditions must also include a change in individuals’ behavior.

Indeed, studies have long shown that simple prudence and self-discipline — of which almost anyone is capable — can nearly eliminate the prospect of poverty for black and white teenagers alike. The so-called “success sequence” analyzed by Brookings Institution scholars — finishing high school, marrying after the age of 20, and doing both before having a child — reduces the risk of falling into poverty to 2%; failure to follow this path raises it to 75%.

To reiterate, racism was indeed a systemic phenomenon for most of America’s history. And where racism persists, it remains a pernicious force in American life. But the insistence that racism continues to be both systemic and endemic, and that it alone or primarily accounts for ongoing disadvantages in black communities, is unpersuasive. The claim neither accords with crucial social realities nor points toward constructive solutions to the serious problems afflicting black Americans. As long as would-be reformers and their audiences take systemic racism as their principal target, real progress toward genuine and necessary policy and cultural solutions will be even more elusive.

AGENTS OF CHANGE

The challenge we confront today is to identify and overcome those obstacles to black Americans’ progress that were placed there not only by racist systems of the past and programmatic failures of the present, but also by behaviors over which they and their communities have some control today. All three of these elements are crucial.

The vast array of federal and state policies that have been established and expanded for decades to address the challenges black Americans face have not sufficiently accomplished their missions. For better and for worse, the community’s main challenges and opportunities today lie closer to home — in families, schools, workplaces, health practices, local mobilization, and well-targeted self-interest. This is one battleground where the future struggle must be waged and won.

Peter H. Schuck is the Baldwin Professor of Law, Emeritus, at Yale Law School and a Distinguished Scholar in Residence at New York University Law School. He is the author most recently of One Nation Undecided: Clear Thinking about Five Hard Issues That Divide Us (Princeton University Press).

“…This analysis focuses on the evolution of household balance sheets over the course of the COVID-19 pandemic. Balance sheets have been buffeted by many factors, including weakness in labor-market income, strength in federal benefits, increases in asset prices, increases in household debt, and pandemic-constrained consumer spending. In aggregate, the result has been that households’ financial positions in 2022 are significantly improved relative to 2019. Savings held in deposits and other financial accounts have increased, real estate and stock market wealth has increased, and borrower distress has decreased. That improvement in financial strength will be a source of support to the aggregate economic recovery in coming quarters. The overall increase in after-tax and transfer income and the decrease in consumer spending have resulted in an extraordinary run-up in aggregate household savings. Although labor-market income was quite weak early in the pandemic, federal benefits more than compensated overall. In part as a result of relatively strong overall income growth,we estimate that households accumulated $2.5 trillion in excess savings (inflation-adjusted to 2020 dollars) between March 2020 and January 2022, much of which appears to have been deposited in checking and savings accounts.The difference is notable relative to the Great Recession, when income remained below its pre-recession trend for several years..”

Mitchell Barnes, Wendy Edelberg, Sara Estep, and Moriah Macklin, "Bolstered Balance Sheets: Assessing Household Finances since 2019," March 2022, The Hamilton Project, https://www.hamiltonproject.org/assets/files/ES_20220322_householdfinances_finalreport.pdf

“…Figure 11 shows various estimates of the distribution of excess savings that incorporate recent data on spending, income, and wealth. These estimates differ primarily by whether these models assume that the distribution of excess savings matches the pre-pandemic distribution and composition of savings, as the traditional Distributional Financial Accounts (DFA), released by the Federal Reserve, does. The traditional DFA based on historical patterns would suggest the share of excess savings held by households in the lowest two income quintiles to be just 4 percent. Estimates from Moody’s and Morgan Stanley, which more closely follow historical savings distributions, produce results that are similar to the traditional DFA, where roughly two-thirds of excess savings are held by the top income quintile….”

“…The JPMorgan Chase Institute documents flows into and out of 7.5 million active JPMorgan Chase checking accounts, aggregating the accounts across four income quartiles grouped by 2019 income. Figure 10 shows the medianchecking account balances for those quartiles grouped by 2019 income. The distribution of those changes is informative, with the caveat that the families holding those accounts are not representative of the U.S. population; those holding bank accounts and, moreover, those holding bank accounts at JPMorgan Chase over-represent financially secure households relative to the U.S. population as a whole. While outflows from accounts initially fell in early 2020 for each income quartile, that decline was largest and most persistent for those with higher incomes. As a result, checking account balances grew for higher-income account holders even though they experienced temporary declines in inflows. In contrast, spending rebounded for lower-income families and then rose above pre-pandemic levels. Those increases in outflows were more than offset by a surge in DPIs relative to 2019 (Greig, Deadman, and Noel 2021…”

“…Significant changes in labor-market income, government transfers, and the ability to consume goods and services have resulted in remarkably strong savings relative to prepandemic trends. Excess savings during the COVID period is defined as the difference between two measures. The first measure is the difference between actual disposable personal income (DPI) and the level of DPI if it had increased in 2020 and 2021 at the same average pace as over the 2018-19 period (“disposable income contribution” on figure 1b). The second measure is the difference between actual personal outlays and the level of outlays if they had continued at their pre-pandemic pace (“personal outlay contribution” on figure 1b). Because DPI was higher than trend in 2020 and 2021 and outlays were lower than trend (figure 1a), the result is excess savings out of income. From March 2020 through January 2022, elevated incomes contributed roughly $1.3 trillion while spending shortfalls contributed roughly $1.2 trillion to an estimated $2.5 trillion in excess savings held by households in inflation-adjusted 2020 dollars…”

“…the 10 fastest growing counties last year accounted for nearly 80 percent of the national total, a testament not so much to the rapid pace of change in these places, but to the lack of significant growth in the rest of the nation. The bureau had previously called 2021 the slowest population growth year on record, with the nation growing by just 0.1 percent.....New York, Los Angeles, Chicago and San Francisco lost a total of over 700,000 people from July 2020 to July 2021, according to the Census Bureau. Meanwhile, Phoenix, Houston, Dallas, Austin and Atlanta gained more than a total of 300,000 residents....Despite the latest figures, many major cities are optimistic about growth. New York City lost more than 300,000 residents through June 2021, the census shows, which city planning officials said was consistent with their own analysis. But, they said, the city’s sharp population decline through mid-2021 resulted largely from temporary patterns earlier in the pandemic, including an uptick in residents fleeing to the suburbs and exurbs, fewer immigrants, deaths from Covid and lower birthrates. They said these patterns had most likely lessened or reversed during the second half of 2021, which is not captured in the data. “The city is on its way back,” said Arun Peter Lobo, the city’s chief demographer. “The initial indicators, at least for us, are in the right direction.”

Robert Gebeloff, Dana Goldstein and Winnie Hu, "Cities Lost Population in 2021, Leading to the Slowest Year of Growth in U.S. History,"New York Times, March 24, 2022, https://www.nytimes.com/2022/03/24/us/census-2021-population-growth.html

Cities Lost Population in 2021, Leading to the Slowest Year of Growth in U.S. History

Substantial population loss in some of the nation’s largest and most vibrant cities was the primary reason 2021 was the slowest year of population growth in U.S. history, new Census data shows.

Although some of the fastest growing regions in the country continued to boom, the gains were nearly erased by stark losses last year in counties that encompass the New York, Los Angeles and San Francisco metropolitan areas.

The pandemic played a role, as the number of people dying rose substantially and many Americans left cities for smaller places. But experts say that skyrocketing housing costs were also to blame, and that some of the changes are a continuation of fundamental shifts in American demographics that began before the pandemic, such as the steadily falling birthrate and steep drop in immigration.

New York, Los Angeles, Chicago and San Francisco lost a total of over 700,000 people from July 2020 to July 2021, according to the Census Bureau. Meanwhile, Phoenix, Houston, Dallas, Austin and Atlanta gained more than a total of 300,000 residents. And there was also substantial growth in some rural areas and smaller cities like Boise, Idaho, and Myrtle Beach, S.C.

Population loss, particularly of working-age adults and their children, can separate extended families and lead to funding cuts and labor shortages in schools, health care facilities and other services that are essential to the residents who remain.

The pattern is a notable contrast from a decade ago, when large cities were growing, bolstered by a decades-long boom in immigration and the rising popularity of urban living. At that time, most of the counties losing population were rural or experiencing economic decline.

In the years immediately preceding the pandemic, those factors began to shift. Immigration slowed, urban housing costs rose, and suburban and exurban growth began picking up steam, trends that continued through the pandemic.

The virus wrought other changes. Because Covid-19 caused so many deaths, only 828 counties had more births than deaths in 2021, the figures show, down from more than 1,900 a decade ago.

And the rise of remote work made it less of a requirement for many workers to live in expensive cities to take advantage of high-paying jobs.

The decline in fertility started a decade ago during the Great Recession, and reflects the ways in which women and men of the Millennial generation are prioritizing education and work, delaying marriage and parenthood, and struggling to gain their economic footing as they deal with student debt, slow wage growth and steep housing costs.

Alison Grady and Ernest Brown, both 31, moved to Atlanta from Oakland, Calif., in March 2021 after nearly five years of living with roommates to save money on rent. Most recently, they had paid $1,500 a month for one room in a three-bedroom, 1,200-square-foot apartment that they shared with two friends.

The couple, who plan to marry and start a family, had wanted to buy a home in Oakland, but they found that houses in move-in condition started at $700,000, which was more than they could comfortably afford.

As they worked from home during the pandemic, and the virus and wildfires curtailed their social life, they spent more time in their cramped apartment and questioned whether it was worth it. They eventually decided to return to Atlanta, where they had met in 2014. They were able to buy a 1,000-square-foot, two-bedroom apartment for $315,000. And they no longer have roommates.

“The price of living in the Bay Area was so out of sync with the quality of life we were getting,” said Ms. Grady, a public health strategist.

Cities like New York and Los Angeles remain alluring, as evidenced by bidding wars for homes and big companies investing in office space. But many residents have been pushed away by a lack of affordable housing, as well as by pandemic-related changes to how they order their priorities.

Across the nation, counties with more modest housing costs gained in population, the data showed.

Five years ago, counties ranking above the 90th percentile for housing stress — a measure of housing costs as a share of income — accounted for a third of the nation’s population growth, suggesting that the high prices represented high demand.

But in 2021, those counties were net population losers, suggesting that costs have gotten out of hand.

In the Los Angeles area, for example, nearly half a million renters do not have access to an affordable unit, according to a 2021 report from the California Housing Partnership. For this group — including essential workers such as home health aides, janitors, child care professionals and medical assistants — homeownership can be all but impossible.

Regions where state and local governments do not make it easier to build affordable housing will face a troubled future, according to Dowell Myers, a demography and urban planning expert at the University of Southern California. There will be too few working-age adults to support a growing population of aging baby boomers. Jobs in nursing, utilities and other fields will go unfilled.

This demographic risk “is just deadly,” Professor Myers said. “We’re not building enough housing to keep our own kids.”

In Houston, like other growing Southern metro areas, the influx of relatively high earners has contributed to a real estate crunch that could erode the city’s reputation for affordability.

Kayli Thompson, 34, and her daughter, Analiese, 13, arrived in Houston last year from Ithaca, N.Y., where Ms. Thompson’s hours as a librarian were cut in half during the pandemic.

She was drawn to Houston by its stronger job market and warm climate. Still, relocating was a struggle. The rent money she set aside from savings, stimulus payments and a tax credit did not stretch as far as she had hoped. Her two-bedroom apartment costs $1,500 per month, nearly double her rent in Ithaca. She did not find a job right away, and received an eviction notice; in February, her church paid her rent.

Last month, she began working for a community newspaper, and she now feels the risk she took has paid off. She is delighted to be living downtown in a much more walkable neighborhood. When Ms. Thompson’s car broke down, it wasn’t as much the crisis it would have been in Ithaca.

“We’re happy,” Ms. Thompson said.

Gina Vargas, a 38-year-old consultant, joined the exodus from New York City in the spring of 2020. After 18 years in a city she thought she would never leave, she relocated to the Houston area, where she grew up, drawn mostly by the need to assist her aging parents.

The Houston she returned to was far different from the conservative place she remembered from her childhood, Ms. Vargas said. When her parents, an interracial couple, first moved decades ago to the working-class city of Pasadena, southeast of Houston, there had been a Ku Klux Klan meeting place near their home. Now, as a mixed-race Mexican American, she has felt welcomed into a cosmopolitan community, she said — though she noted there were more Trump flags.

And her New York salary has stretched a long way. Ms. Vargas was renting a one-bedroom apartment in Sunnyside, Queens, but she was able to purchase a three-bedroom house in a planned community in Cypress, 30 miles north of downtown Houston. She also bought a house for her parents, moving them to a more upscale neighborhood.

“The city is on its way back,” said Arun Peter Lobo, the city’s chief demographer. “The initial indicators, at least for us, are in the right direction.”The population estimates are the primary way the Census Bureau updates the population counts from the regular decennial census, which attempts to count every person living in every household and institutional setting. These estimates are largely based on administrative records, such as birth and death certificates and tax returns.

weeks of benefits claimed across all programs — traditional state-funded unemployment insurance (UI), the permanent law federal/state Extended Benefits (EB) program, and federally funded Pandemic Unemployment Assistance and other temporary federal benefit expansions — soared to a record 33 million in June 2020. That’s over two and a half times the pre-pandemic record of 12 million claims set in early 2010 in the wake of the Great Recession....That record level of claims significantly exceeded the number of unemployed individuals reported by the Department of Labor, which peaked at 23 million in April 2020 and by June 2020 had fallen to 17.6 million.... Overall, in the 18 months between when the pandemic struck in March 2020 and temporary federal unemployment programs expired on Labor Day 2021, a total of nearly 1.6 billion weeks of all unemployment benefit checks were paid out. That’s the equivalent of three full months of benefits for every one of the 121 million households in the US....State and federal unemployment benefits paid during the pandemic totaled around $900 billion, with over $700 billion in federal costs simply added to the deficit. Prior to the pandemic, the US in 2019 spent $27 billion on unemployment benefits, almost exclusively on state UI checks, which are supported by employer payroll taxes.

Matt Weidinger, "Visualizing the 1.6 billion weeks of unemployment benefit checks paid during the pandemic,"American Enterprise Institute, March 23, 2022, https://www.aei.org/poverty-studies/visualizing-the-1-6-billion-weeks-of-unemployment-benefit-checks-paid-during-the-pandemic/

Visualizing the 1.6 billion weeks of unemployment benefit checks paid during the pandemic

As I reviewed in recent congressional testimony, the pandemic and government’s response to it unleashed unprecedented demand for unemployment benefits. Major federal benefit expansions included $600-per-week (and later $300-per-week) supplements to regular unemployment benefits and the provision of weekly checks to groups never before eligible for unemployment benefits. Those and other expansions contributed to record benefit payouts, as depicted in the chart below:

As the chart shows, weeks of benefits claimed across all programs — traditional state-funded unemployment insurance (UI), the permanent law federal/state Extended Benefits (EB) program, and federally funded Pandemic Unemployment Assistance and other temporary federal benefit expansions — soared to a record 33 million in June 2020. That’s over two and a half times the pre-pandemic record of 12 million claims set in early 2010 in the wake of the Great Recession.

Overall, in the 18 months between when the pandemic struck in March 2020 and temporary federal unemployment programs expired on Labor Day 2021, a total of nearly 1.6 billion weeks of all unemployment benefit checks were paid out. That’s the equivalent of three full months of benefits for every one of the 121 million households in the US.

State and federal unemployment benefits paid during the pandemic totaled around $900 billion, with over $700 billion in federal costs simply added to the deficit. Prior to the pandemic, the US in 2019 spent $27 billion on unemployment benefits, almost exclusively on state UI checks, which are supported by employer payroll taxes.

The Department of Labor Inspector General testified last week that improper payments of unemployment benefits during the pandemic totaled at least $163 billion. Other experts have pegged misspending at as high as $400 billion.

“…To what extent does an incremental increase in labour productivity growth translate into increased compensation growth?. We look at both the US and Canada, over the period 1961-2019 (updating the analysis for the US in Stansbury and Summers 2018). We regress labour productivity growth on real compensation growth - measured at the average, at the median, and for measures of the compensation of ‘typical’ workers in both the US and Canada - with the possible results falling on a spectrum from complete delinkage (a one percentage point higher productivity growth rate is not associated with any change in the compensation growth rate) to complete linkage (a one percentage point higher productivity growth rate is associated with a one percentage point higher compensation growth rate).To focus on the impact of productivity growth over horizons longer than the business cycle, we use three-year moving averages and control for unemployment….We find strong evidence of linkage in the US. In years with a one percentage point higher productivity growth rate, there tends to be close to one percentage point faster growth in compensation - whether for average compensation, median compensation, or for typical workers (which we proxy using average compensation for production/nonsupervisory workers)…For Canada, the evidence on the linkage between productivity and pay is more mixed.For average workers, we find moderate linkage - over 1961 to 2019, a one percentage point higher productivity growth rate is associated with about half a percentage point faster rate of compensation growth. Over 1961-2019 we also find evidence of very strong linkage for typical workers, whose compensation we proxy using a newly constructed measure of the compensation of hourly-paid workers in five industries.2 However, for more recent periods, estimates for both average and typical compensation are too noisy to rule out strong delinkage (no translation of productivity increases to pay growth). We find no evidence of linkage for median compensation, but caution that our measure of median hourly compensation likely incorporates significant noise, which may substantially attenuate results estimated from year-to-year changes. While the picture is clearer for the US than for Canada, these results overall suggest that in both countries, marginal increases in productivity growth raise compensation on average, including for typical workers (holding all else equal). This is despite the divergence between productivity growth and compensation growth in the US and Canada over the last five decades….”

Jacob Greenspon, Anna Stansbury, Lawrence Summers, "Productivity and pay: A comparison of the US and Canada,"Center For Economic and Policy Research, February 15, 2022, https://voxeu.org/article/productivity-and-pay-comparison-us-and-canada

Productivity and pay: A comparison of the US and Canada

Real pay of typical workers has grown much more slowly than productivity over recent decades in several developed economies. This growing gap has been well-documented in the US (Bivens and Mishel 2015, 2021), Canada (Williams 2021), the UK (Teichgräber and Van Reenen 2021), and elsewhere. This phenomenon - often referred to as a ‘divergence’ or ‘decoupling’ of the pay of typical workers from productivity growth - is all the more striking because it has not always been this way. Bivens and Mishel (2015), for example, document that in the US, labour productivity and the average pay of typical workers grew at the same rate from the late 1940s until the mid 1970s, when the decoupling began.

The fact that productivity has grown so much faster than the pay of typical workers raises the question: Does productivity growth actually benefit typical workers by raising their pay? Or do the fruits of any incremental increase in productivity growth flow only to those higher in the income distribution?

Understanding the strength of this productivity-pay relationship is of considerable policy significance. Given the recent productivity slowdown (Goldin et al. 2021), economic policymakers have focused on measures to accelerate productivity growth such as promoting investment, technological progress, or better functioning markets. If productivity-pay divergence has been accompanied by ‘delinkage’ - whereby year-on-year increases in the rate of productivity growth are not associated with pay growth for typical workers - then success or failure of these efforts to boost productivity will have little impact on middle-class wellbeing. In this case, only measures targeting the income distribution will be effective at raising middle-class incomes. In contrast, if despite divergence between productivity and middle-class pay there is still linkage between the two, then an incremental increase in productivity growth should act to increase the pay of typical workers - even if other variables (like the declining bargaining power of workers, or the increase in globalisation) are at the same time acting in the opposite direction.

In our recent paper (Greenspon et al. 2021), we ask the question: To what extent does an incremental increase in labour productivity growth translate into increased compensation growth?. We look at both the US and Canada, over the period 1961-2019 (updating the analysis for the US in Stansbury and Summers 2018). We regress labour productivity growth on real compensation growth - measured at the average, at the median, and for measures of the compensation of ‘typical’ workers in both the US and Canada - with the possible results falling on a spectrum from complete delinkage (a one percentage point higher productivity growth rate is not associated with any change in the compensation growth rate) to complete linkage (a one percentage point higher productivity growth rate is associated with a one percentage point higher compensation growth rate).1 To focus on the impact of productivity growth over horizons longer than the business cycle, we use three-year moving averages and control for unemployment.

We find strong evidence of linkage in the US. In years with a one percentage point higher productivity growth rate, there tends to be close to one percentage point faster growth in compensation - whether for average compensation, median compensation, or for typical workers (which we proxy using average compensation for production/nonsupervisory workers).

For Canada, the evidence on the linkage between productivity and pay is more mixed. For average workers, we find moderate linkage - over 1961 to 2019, a one percentage point higher productivity growth rate is associated with about half a percentage point faster rate of compensation growth. Over 1961-2019 we also find evidence of very strong linkage for typical workers, whose compensation we proxy using a newly constructed measure of the compensation of hourly-paid workers in five industries.2 However, for more recent periods, estimates for both average and typical compensation are too noisy to rule out strong delinkage (no translation of productivity increases to pay growth). We find no evidence of linkage for median compensation, but caution that our measure of median hourly compensation likely incorporates significant noise, which may substantially attenuate results estimated from year-to-year changes.

How can there be linkage between productivity and pay even as they diverge? If the productivity growth rate is consistently faster than the growth rate of median compensation - by a fixed amount, say a wedge of 1 percentage point - this leads to the gap between productivity and median pay expanding over time (i.e. divergence). But, conditional on this 1 percentage point wedge between the two growth rates existing, it may nonetheless be the case that in years when productivity growth was faster than average, median pay growth was faster than average too (and vice versa). This would tend to suggest that incremental increases in productivity growth rate feed through into higher pay growth for typical workers. Yet other, long-term factors have been pulling down pay even as productivity has been acting to raise it - so that on net, pay has grown much less than productivity.

This is illustrated by a simple metaphor. Consider a bucket containing some level of water (pay) being filled from a hose connected to a tap (productivity growth). The observed divergence between productivity and pay is analogous to the tap running, but the water level not increasing. This could have occurred because the hose does not actually connect the tap to the bucket, in which case increasing the water flow will not make any difference to the water level (delinkage - increasing the rate of productivity growth won’t affect pay). Or, the problem may not be with the hose but may be that there is a hole in the bucket. In this case, increased water flow from the tap cannot fix the hole in the bucket, but it nonetheless results in a higher water level in the bucket than would have occurred with a slower flow of water (linkage - faster productivity growth acts to increase pay relative to a world with slower productivity growth, even if other factors are acting to reduce pay at the same time).

Why does there appear to be a weaker linkage between productivity and pay in Canada than in the US? Canada is a smaller, more internationally open economy than the US. One possible explanation is therefore that the smaller and more open the economy, the greater the degree to which productivity and real compensation may be determined abroad rather than domestically - and the less, therefore, one might expect researchers to be able to detect a process where domestic productivity increases translate into increases in real compensation. We present some evidence consistent with this hypothesis: there is weaker linkage between average compensation and productivity in regions of the US - which are similar in GDP and population to Canada, and could be considered small open economies - than for the US as a whole. The coefficients estimated for US regions are similar in magnitude to those estimated for Canada.

Another interesting point of comparison is that despite much slower labour productivity growth in Canada than in the US, the growth in real median compensation has been about the same in both countries since 1976 due to relatively larger increases in labour income inequality in the US.

While our focus has been on the relationship between productivity growth and wages, both are of course determined by deeper economic forces like the extent of capital accumulation and the nature of technical innovation. It would be valuable in future work to explore possibility that changes in productivity growth coming from different sources have different impacts on wage growth.

Overall, our findings support the hypothesis that productivity growth still matters for middle-class income growth. Measures to boost productivity growth are important for raising pay for the average and typical worker - and conversely, a continued productivity slowdown will reduce the likelihood of increased real compensation. This does not mean policymakers should ignore measures to improve redistribution, since productivity growth alone is not enough to substantially raise middle-class incomes, particularly in the face of other downward pressures on pay. However, it does mean that policy should not focus only on these issues and ignore productivity growth. Policymakers should utilise all measures in their toolkits - both those that boost productivity growth and promote inclusion - in order to have the greatest impact on middle-class living standards.

References

Bivens, J and L Mishel (2015), “Understanding the Historic Divergence between Productivity and a Typical Worker’s Pay: Why It Matters and Why It’s Real,” Economic Policy Institute

Bivens, J and L Mishel (2021), “The Productivity-Median Compensation Gap in the United States: The Contribution of Increased Wage Inequality and the Role of Policy Choices,” International Productivity Monitor 41.

Greenspon, J, A Stansbury and L H Summers (2021), “Productivity and Pay in the United States and Canada,” International Productivity Monitor 41.

Goldin, I, P Koutroumpis, F Lafond and J Winkler (2021), “Re-evaluating the sources of the recent productivity slowdown”, VoxEU.org, 31 May.

Stansbury, A and L Summers (2018), “On the link between US pay and productivity” VoxEU.org, 20 February.

Teichgräber A and J Van Reenen (2021), “Have productivity and pay decoupled in the UK?,” International Productivity Monitor 41.

Williams, D (2021), "Pay and Productivity in Canada: Growing Together, Only Slower than Ever," International Productivity Monitor 40.

Endnotes

1 Specifically, we regress the change in log of annual labor productivity (measured as net output per hour) on the change in log of hourly real labor compensation, controlling for the level and lagged level of the unemployment rate. In our baseline specifications, all variables are three-year moving averages, standard errors are Newey-West heteroskedasticity and autocorrelation consistent, and compensation is deflated by the PCE in the US and the HCE in Canada.

2 These are five industries that we believe are most likely to provide employment opportunities during times of growth and for which historical time series data is available from 1961 onward: manufacturing, mining, construction, laundries, and hotels and restaurants. These made up 34 per cent of total employment in 1961 and 24% by 2011.