Edward Conard

Top Ten New York Times Bestselling Author

  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, January 18, 2023

AI Summary. A decline in total banking system reserves may have been an important factor behind increased borrowing from the Federal Reserve's discount window, as smaller banks' cash balances have fallen sharply relative to their asset size. Smaller banks are generally more willing to use the discount window because they are usually not publicly traded and face less public scrutiny.

Helene Lee and Asani Sarkar Federal Reserve Bank of New York
Date Posted:

2022 saw an uptick in banks accessing the Fed’s discount window, likely driven by declining reserve balances in the banking system. @NewYorkFed

Are falling bank reserves driving increased discount window borrowing?

Core argument: Banks with less than $3 billion in assets visited the Federal Reserve's discount window on average twice as often as other banks in 2019, just before the pandemic.

The notable decline in the total level of reserves in the banking system this year may have been an important factor for the rise in DW [discount window] borrowing. Indeed, as the Fed has gradually shrunk its balance sheet, the cash balances of smaller institutions, particularly those with total assets less than $10 billion, have in aggregate declined sharply relative to their asset size, reducing their liquidity positions.  Smaller banks are generally more willing to come to the DW than their larger counterparts, as they are usually not publicly traded companies and are less subject to public scrutiny. Banks smaller than $3 billion in assets on average visited the DW twice as much as other banks in 2019, just prior to the pandemic.

Takeaways by Macro Roundup® AI

  1. Banks with less than $3 billion in assets visited the Federal Reserve's discount window on average twice as often as other banks in 2019, just before the pandemic.
  2. The decline in total banking system reserves may have been an important factor behind the rise in discount window borrowing, as the Federal Reserve gradually shrank its balance sheet.
  3. Cash balances at institutions with total assets under $10 billion have in aggregate declined sharply relative to their asset size, reducing their liquidity positions.

AI Summary. Male workers who stayed with the same employer averaged 2% annual earnings growth across the lifetime earnings distribution, but among those who changed employers the lowest earners saw no growth while workers at the 65th percentile averaged 3%. More than 35% of job switches by the lowest earners followed a significant unemployment spell, versus about 15% for the top third.

Serdar Ozkan and Cassandra Marks Federal Reserve Bank of St. Louis
Date Posted:
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According to a new analysis from the @stlouisfed, job switching is associated with lower earnings growth for lower-earning prime-age male workers but higher earnings growth for their higher-income peers.

Do job switches raise earnings equally across the earnings distribution?

Core argument: Male workers in the bottom two percentiles of the lifetime earnings distribution saw no average earnings growth when switching employers, while 65th-percentile workers averaged 3% growth, though both averaged 2% growth when staying with the same employer.

Let’s consider two male workers, one in the bottom (in the first two percentiles) and the other in the 65th percentile of the lifetime earnings distribution. Both experienced on average a 2% growth in annual earnings if they stayed with the same employer. However, if they changed employers, the bottom earner did not see any growth in his earnings, whereas the 65th-percentile earner enjoyed, on average, 3% growth. This large heterogeneity among switchers indicates that the nature of job switches is very different throughout the lifetime earnings distribution. More than 35% of job switches were a result of a significant unemployment spell for the bottom earners, compared with only around 15% in the top third of earners, suggesting a much higher unemployment risk for bottom earners. Finally, earnings growth for both job stayers and job switchers increases steeply in the top third, reaching around 10% for the highest earners.

Takeaways by Macro Roundup® AI

  1. Male workers in the bottom two percentiles of the lifetime earnings distribution saw no average earnings growth when switching employers, while 65th-percentile workers averaged 3% growth, though both averaged 2% growth when staying with the same employer.
  2. More than 35% of job switches among bottom earners followed a significant unemployment spell, compared with around 15% in the top third of earners, suggesting much higher unemployment risk for bottom earners.
  3. Earnings growth for both job stayers and job switchers rises steeply across the top third of the lifetime earnings distribution, reaching roughly 10% for the highest earners.

AI Summary. US Census Bureau figures show new business applications rose 44% between 2019 and 2022, with the sharpest increases in Southern states. Roughly 5.1m applications were filed in 2022, down from a record 5.4m the prior year but above 3.5m in 2019.

Legs Alexandre Tanzi Bloomberg
Date Posted:

Americans are filing new business applications at higher levels in the aftermath of the pandemic; between 2019 and 2022, new business applications rose by 44%. Business applications are up the most in Florida and Texas. @bloomberg

Has the surge in new US business applications continued?

Core argument: New US business applications rose 44% from 2019 to 2022, with the sharpest increases in Southern states, according to US Census Bureau figures.

New business applications rose by 44% from 2019 to 2022, with the sharpest increases in Southern states, according to US Census Bureau figures released Tuesday. About 5.1 million applications were filed last year, down from the record 5.4 million in 2021, but up from 3.5 million in 2019.

Takeaways by Macro Roundup® AI

  1. New US business applications rose 44% from 2019 to 2022, with the sharpest increases in Southern states, according to US Census Bureau figures.
  2. About 5.1 million US business applications were filed in 2022, down from the record 5.4 million in 2021 but above the 3.5 million filed in 2019.

AI Summary. 40% of global goods trade consists of cases where the importing economy relies on three or fewer supplier nations for a given manufactured good or resource, and about 15% relies on two or fewer. About three-quarters of that concentrated trade reflects choices to source from few countries despite other potential suppliers being available.

Olivia White, Jonathan Woetzel, et ak McKinsey Global Institute
Date Posted:

A @McKinsey_MGI analysis finds that 40% of global trade value is concentrated, in that the importer relies on three or fewer countries for their supply.

How concentrated is global goods trade among few supplier nations?

Core argument: 40% of the value of global goods trade corresponds to cases where the importing economy relies on three or fewer nations for a given manufactured good or resource, and about 15% relies on two or fewer.

For many products, countries rely on a diversified pool of trade partners. This is particularly true for larger economies. For example, China imports crude oil from more than 40 economies, and the United States imports cars from more than 25 nations. A significant portion of global trade is concentrated in the sense that an economy relies on only a handful of nations to source almost all of its imports of a specific product. Indeed, 40% of the value of global goods trade corresponds to cases where the importing economy relies on three or fewer nations for the supply of a given manufactured good or resource. Narrowing the focus further, about 15 percent of global goods trade corresponds to cases where the importing economy relies on only two or fewer nations. Most concentration is due not to a lack of supplier economies. Instead, concentration arises because of specific choices to source products from only a few countries despite the fact that other potential supplying countries are available. In this research, this type of concentration is described as “economy-specific concentration.” Of the 40% of global trade value that relies on three or fewer supplier economies, about three-quarters corresponds to economy-specific concentration.

Takeaways by Macro Roundup® AI

  1. 40% of the value of global goods trade corresponds to cases where the importing economy relies on three or fewer nations for a given manufactured good or resource, and about 15% relies on two or fewer.
  2. About three-quarters of the 40% of global trade value that depends on three or fewer suppliers is "economy-specific concentration," arising from choices to source from a few countries despite other potential suppliers being available.
  3. Many countries, particularly larger economies, rely on a diversified pool of trade partners, with China importing crude oil from more than 40 economies and the United States importing cars from more than 25 nations.

AI Summary. Some supply chain experts argue India's phone manufacturing growth is overstated, noting the 200M phones made there last year are mostly models selling for $250 or less, while iPhones average near $1,000 and require more sophisticated automation and labor. One analyst projects Apple shifts just 10% of iPhone production outside China by 2030, or at most 20%.

Patrick McGee Financial Times
Date Posted:

The iPhone makes up 80% of smartphone operating profits on less than 20% of handset shipments. The sophistication of the product will be a challenge to moving more than 10-20% of manufacturing to countries like India and Vietnam by 2030. @ft

Can Apple move iPhone production out of China?

Core argument: Woo-Jin Ho, hardware analyst at Bloomberg Intelligence, projects Apple will shift just 10% of iPhone production outside China by 2030, or at most 20% if it moves aggressively.

Some supply chain experts argue that the growth numbers in iPhone “manufacturing” in India are more hype than reality. Although 200M phones were made in India last year, they are not in the same league as Apple’s products. The most popular models typically sell for $250 or less, while average iPhones cost nearly $1,000 and require more sophisticated automation and labor intensity. Woo-Jin Ho, hardware analyst at Bloomberg Intelligence, projects that Apple will shift just 10% of iPhone production outside of China by 2030, or at most 20% if it moves aggressively.

Takeaways by Macro Roundup® AI

  1. Woo-Jin Ho, hardware analyst at Bloomberg Intelligence, projects Apple will shift just 10% of iPhone production outside China by 2030, or at most 20% if it moves aggressively.
  2. India produced 200 million phones last year, but some supply chain experts argue those figures are more hype than reality, since the most popular models sell for $250 or less.
  3. Average iPhones cost nearly $1,000 and require more sophisticated automation and labor intensity than the phones typically made in India.

AI Summary. The Supplemental Nutrition Assistance Program (food stamps) has grown from about $20bn a year to more than $100bn a year over two decades, an increase the authors argue cannot be explained by greater economic need. Unemployment was lower in 2017–2019 than at the prior economic peak, yet millions more people received benefits.

Angela Rachidi American Enterprise Institute
Date Posted:

.@AngelaRachidi notes that over the past two decades SNAP has grown from a $20B a year program to $100B a year. @AEIecon

Does economic need explain the fivefold rise in food stamp spending?

Core argument: SNAP spending has risen from about $20 billion per year two decades ago to upwards of $100 billion per year.

In the past two decades, SNAP has transformed from a $20 billion per year safety net program, to upwards of $100 billion per year. Increased economic need cannot explain the upward trend in the SNAP caseload, though. Unemployment rates fluctuated over the past 20 years, but rates were lower in 2017–2019 than they were in the previous economic peak of 2000–2001, yet millions more people received SNAP in 2019 than in the early 2000s.

Takeaways by Macro Roundup® AI

  1. SNAP spending has risen from about $20 billion per year two decades ago to upwards of $100 billion per year.
  2. Increased economic need does not explain the upward trend in the SNAP caseload, since unemployment rates in 2017–2019 were lower than at the previous economic peak of 2000–2001.
  3. Millions more people received SNAP in 2019 than in the early 2000s, despite lower unemployment rates in the later period.

AI Summary. The authors estimate that declines in religious attendance following repeals of laws restricting Sunday commerce explain an important part of the initial increase in middle-aged "deaths of despair" from suicide, liver disease, and poisoning. The effect appears driven by falling formal religious participation rather than by changes in belief or private activities such as prayer.

Tyler Giles, Daniel Hungerman, and Tamar Oostrom National Bureau of Economic Research
Date Posted:
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The uptick in so-called “deaths of despair” was preceded by a decline in religious participation. @econburner @D_Hungerman @TamarOostrom offer evidence that the repeal of blue laws is associated with the rise of such deaths.

Does declining religious attendance help explain rising deaths of despair?

Core argument: The authors estimate that a 10-percentage-point effect on religious attendance implies about 10,000 of every 100,000 middle-aged adults stopped attending services weekly following blue law repeals.

Put differently, a 10-percentage-point effect on religious attendance implies that following the blue law repeals, about 10,000 out of every 100,000 middle-aged adults stopped attending services weekly. If mortality grew by 2 per 100,000 as a result, and assuming that the subsequent increase in middle-aged deaths came from this group, about 1 out of 5,000 of these of “marginal attenders” would consequently die from suicide, liver disease, or poisoning annually. Our back-of-the-envelope calculations suggest that declines in religious attendance can explain an important part of the initial increase in mortality due to deaths of despair. Of course, since the introduction of OxyContin in 1996, deaths of despair for middle-aged white Americans have increased dramatically both overall and relative to trend.  The impact that we witness seems to be driven by the decline in formal religious participation rather than in belief or personal activities like prayer.

Takeaways by Macro Roundup® AI

  1. The authors estimate that a 10-percentage-point effect on religious attendance implies about 10,000 of every 100,000 middle-aged adults stopped attending services weekly following blue law repeals.
  2. Back-of-the-envelope calculations by the authors suggest that if mortality rose by 2 per 100,000, roughly 1 in 5,000 of these "marginal attenders" would die annually from suicide, liver disease, or poisoning, explaining an important part of the initial rise in deaths of despair.
  3. The authors attribute the observed impact to declining formal religious participation rather than to belief or personal activities such as prayer, and note that deaths of despair among middle-aged white Americans have increased dramatically since OxyContin's 1996 introduction.

Thursday, January 19, 2023

AI Summary. Researchers estimate that US employment among the poorest quarter of the workforce remained 13.5% below pre-pandemic levels after adjusting for wage growth, a shortfall of roughly 2.6m people. Low-wage workers are scarcest in the local areas where high-income households cut spending most sharply.

Ben Steverman Bloomberg
Date Posted:
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Raj Chetty and his @OppInsights team find that America’s workforce earning <$29k/year is down about 20% relative to its January 2020 level. Adjusting for workers now earning over $29k, the low-wage workforce was 13.5% under its pre-pandemic level. @BSteverman

Does high-income spending explain the missing low-wage workers?

Core argument: Employment for the poorest quarter of the US workforce remained 13.5% below pre-pandemic levels at the end of 2021 after adjusting for wage growth, researchers found, with about 2.6 million people missing from the job market.

The US is missing about a fifth of its pre-pandemic low-income workforce. At least some of those workers moved to higher-paying jobs, but, after adjusting for wage growth, researchers found employment for the poorest quarter of the workforce was still 13.5% below pre-pandemic levels at the end of 2021. Analyzing local trends, researchers found an important clue to where those missing workers went: Low-wage workers are scarcest where 2020’s devastation was worst. “It is clear there are large swaths of the population who are still not employed, and these are low-wage workers who lost their jobs in precisely the places where high-income people cut back on spending so sharply a couple of years ago,” Chetty said.

Takeaways by Macro Roundup® AI

  1. Employment for the poorest quarter of the US workforce remained 13.5% below pre-pandemic levels at the end of 2021 after adjusting for wage growth, researchers found, with about 2.6 million people missing from the job market.
  2. The US is missing roughly a fifth of its pre-pandemic low-income workforce, and at least some of those workers moved into higher-paying jobs.
  3. Researchers analyzing local trends found low-wage workers are scarcest where 2020's devastation was worst, and Chetty said these workers lost their jobs in precisely the places where high-income people sharply cut spending.

AI Summary. Underlying durable goods prices are deflating while underlying services inflation remains around 5% over three months, and adjusted core services inflation has decelerated from an annualized 7.2% over three months to 4.7%. The risk is that core services inflation settles near 4-5% annualized rather than returning to the pre-pandemic 2% pace.

Chris Marsh Money: Inside and Out
Date Posted:

.@GeneralTheorist notes that, while durable goods are deflating, service inflation has decelerated from 7.2% in the three months ending October to 4.7% in December, but remains well above the 2% pre-pandemic run-rate.

Will services inflation settle near 4-5% instead of returning to 2%?

Core argument: U.S. adjusted core service inflation decelerated from 7.2% annualized over the three months to October to 4.7% in December, an improvement the author calls clear.

While underlying durables are now deflating, underlying services remain high—at about 5% over 3 months, accelerating to 7% month-over-month annualized in Dec. On the bright side, adjusted core service inflation has decelerated from 7.2% over 3 months (annualized) to Oct. to only 4.7% in Dec. This is clearly an improvement. But is that only because Oct. and Nov. prints were unusually soft, or was Dec. the outlier in an otherwise strong disinflation trend? The fear for the Fed then is super core services settling around 4-5% annualized instead of returning to the 2% run-rate that characterized the pre-pandemic norm. What will it be? It may take until March until we can be sure.

Takeaways by Macro Roundup® AI

  1. U.S. adjusted core service inflation decelerated from 7.2% annualized over the three months to October to 4.7% in December, an improvement the author calls clear.
  2. Underlying U.S. services inflation remains near 5% over three months and accelerated to 7% month-over-month annualized in December, even as underlying durables prices deflate.
  3. The risk for the Federal Reserve is super core services inflation settling at 4–5% annualized rather than returning to the pre-pandemic 2% run-rate, with clarity unlikely before March.

AI Summary. During the inflation surge, younger people and people without a college degree faced higher inflation than the overall average, reflecting their larger spending shares on transportation, particularly used cars and motor fuel. Those gaps later narrowed and reversed as transportation inflation fell back toward overall inflation while housing inflation, which weighs more on college-educated households, rose faster.

Rajashri Chakrabarti, Dan Garcia, and Maxim Pinkovskiy Federal Reserve Bank of New York
Date Posted:

During 2021 and 2022, inflation disproportionately impacted young people and those without a college degree (largely driven by used car and fuel expenses), though inflation for those groups has now converged with older and college workers. @NYFedResearch

Did inflation hit younger, less educated households harder, then reverse?

Core argument: Inflation gaps by age and education widened steadily from early 2021 through June 2022, with younger people and people without a college degree facing the highest inflation, then narrowed rapidly and partly reversed by December 2022.

During the inflationary period of 2021-22, younger people and people without a college degree faced the highest inflation, with steadily widening gaps relative to the overall average between early 2021 and June 2022, followed by a rapid narrowing of the gaps and a reversal of some of them by December 2022. This pattern arises primarily from a greater share of the expenditures of younger people and people without a college degree being devoted to transportation—particularly used cars and motor fuel—which led the 2021 inflationary episode but has since converged to general inflation. As of December 2022, the disparity has reversed, with no-college households experiencing lower inflation over the last twelve months than college households did. The reversal of the earlier rise in inflation disparities can be explained by 1) transportation inflation, which affects no-college households relatively more, declining back to the headline CPI, and 2) housing inflation, which affects college households relatively more, rising faster than headline CPI.

Takeaways by Macro Roundup® AI

  1. Inflation gaps by age and education widened steadily from early 2021 through June 2022, with younger people and people without a college degree facing the highest inflation, then narrowed rapidly and partly reversed by December 2022.
  2. The disparity arose primarily because younger and no-college households devote a greater share of expenditures to transportation—particularly used cars and motor fuel—which led the 2021 inflationary episode before converging to general inflation.
  3. As of December 2022, no-college households experienced lower twelve-month inflation than college households, as transportation inflation declined back to the headline CPI while housing inflation, which weighs more on college households, rose faster than headline CPI.

AI Summary. United States inflation is largely driven by cyclical, demand-sensitive components such as housing and labor-intensive services, while Eurozone inflation is driven mainly by food, energy, and manufactured goods more indicative of supply shocks. Euro area wage growth has stayed below 4%, in line with pre-pandemic levels, as American wage growth set new records.

Joseph Politano Apricitas Economics
Date Posted:

.@JosephPolitano notes differences in wage growth in the US and EU, and argues that Eurozone inflation is largely being driven by shocks related to the Russo-Ukrainian War, while inflation in the US is broader.

Is Eurozone inflation driven by supply shocks rather than demand?

Core argument: Euro area wage growth has remained below 4% on negotiated wage and labor cost index measures, in line with pre-COVID levels, while American wage growth set new records.

American inflation is now largely driven by cyclical or demand-sensitive components like housing and labor-intensive services. Eurozone inflation is still driven mainly by rapid price increases in components like food, energy, and manufactured goods that are more representative of supply shocks than excess demand. Fundamentally, the biggest difference between Europe's and America’s inflation situation comes from wage growth. Measured through negotiated wage growth or the labor cost index, Euro area wage growth has remained tempered, below 4%, and in line with pre-COVID levels as American wage growth set new records. Growth in listed wages on job postings in the Euro Area was 5.1% over the last year and less than 2% the year before. The comparable number in the US has grown by over 6%/yr for the past two years.

Takeaways by Macro Roundup® AI

  1. Euro area wage growth has remained below 4% on negotiated wage and labor cost index measures, in line with pre-COVID levels, while American wage growth set new records.
  2. Listed wages in Euro Area job postings rose 5.1% over the past year after growing less than 2% the year before, versus over 6% a year in the US across the past two years.
  3. US inflation is largely driven by cyclical, demand-sensitive components such as housing and labor-intensive services, while Eurozone inflation stems mainly from food, energy, and manufactured goods more representative of supply shocks than excess demand.

AI Summary. The mortality rate for Americans aged 15 to 34 reached its highest level since 1973, driven mostly by external causes such as accidents including drug overdoses, suicides and homicides. Covid causes heart inflammation at higher rates than vaccines do, and heart-disease deaths among 15-to-34-year-olds did not increase after vaccines became available.

Justin Fox Bloomberg
Date Posted:

The mortality rate for Americans aged 15-34 in 2021 was the highest since 1973. Deaths due to accidents (including drug overdoses,) suicides, and homicides were up 32% percent from 2019. @foxjust

Why are death rates among young Americans at multi-decade highs?

Core argument: The 2021 U.S. mortality rate for ages 15–34 was the highest since 1973, and for ages 25–34 the highest since 1950, mostly from external causes such as accidents including drug overdoses, suicides and homicides.

The 2021 mortality rate for those 15 to 34 was the highest since 1973, and for those 25 to 34, it was the highest since 1950. That something, it should be clear from the chart, is mostly external causes such as accidents (including accidental drug overdoses), suicides and homicides. Covid itself has been found to cause myocarditis, pericarditis and other heart troubles at a higher rate than the vaccines do, and given that the initial increase in heart-disease deaths coincided with the arrival of Covid, the simplest explanation is that Covid is chiefly to blame. There certainly was no big increase in heart-disease deaths after the vaccines arrived: in the 12 months starting in July 2021, there were 106 fewer heart-disease deaths among 15-to-34-year-olds than in the previous 12.

Takeaways by Macro Roundup® AI

  1. The 2021 U.S. mortality rate for ages 15–34 was the highest since 1973, and for ages 25–34 the highest since 1950, mostly from external causes such as accidents including drug overdoses, suicides and homicides.
  2. In the 12 months starting July 2021, heart-disease deaths among 15-to-34-year-olds were 106 fewer than in the prior 12 months, indicating no large increase after Covid vaccines arrived.
  3. Covid has been found to cause myocarditis, pericarditis and other heart troubles at a higher rate than the vaccines do, and the initial rise in heart-disease deaths coincided with Covid's arrival, making Covid the simplest explanation.

AI Summary. The author argues that large, persistent trade surpluses exist only because businesses in some countries can underpay domestic workers and households to gain international competitiveness, making it absurd to label the United States—which typically absorbs 40–50% of global trade surpluses—protectionist. If such policies partly reversed these imbalances, they would improve the efficiency of global trade.

Michael Pettis China Financial Markets
Date Posted:

.@michaelxpettis notes that policies to reduce the American trade deficit would in fact “improve the efficiency of global trade by reducing the imbalances” driven by Chinese and other chronic surplus countries’ beggar-thy-neighbor policies.

.@michaelxpettis notes that policies to reduce the American trade deficit would in fact “improve the efficiency of...

Are trade surpluses caused by underpaying domestic workers and households?

Core argument: The United States typically absorbs 40–50 percent of global trade surpluses, which the author argues makes it absurd to criticize the country as "protectionist.".

Large, persistent trade surpluses exist only because businesses in certain countries are able directly and indirectly to underpay domestic workers and households in order to become more competitive internationally and to grow more rapidly. It is especially absurd to criticize the United States, the country that typically absorbs 40–50 percent of global trade surpluses, as “protectionist.” If countries like the United States were to implement policies deemed “protectionist” and these were able even partly to reverse the trade imbalances (a big “if”), they would actually improve the efficiency of global trade by reducing the imbalances.

Takeaways by Macro Roundup® AI

  1. The United States typically absorbs 40–50 percent of global trade surpluses, which the author argues makes it absurd to criticize the country as "protectionist.".
  2. Large, persistent trade surpluses exist only because businesses in surplus countries directly and indirectly underpay domestic workers and households to gain international competitiveness and grow faster, according to the author.
  3. The author contends that if countries like the United States adopted policies labeled "protectionist" and these even partly reversed trade imbalances, global trade efficiency would improve through smaller imbalances.

AI Summary. The number of US workers earning under $29k a year has fallen 20% since before the pandemic, a 13.5% drop even after accounting for those who moved into higher-paying jobs. With the labor force participation rate still below pre-pandemic levels, roughly 2.6m potential workers are unaccounted for despite a 3.5% unemployment rate.

Ben Steverman Bloomberg
Date Posted:
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Americans’ workforce earning <$29,000 a year is down 20% relative to January 2020 level; adjusted for workers earning more than $29K, workforce is down 13.5%.

Why are millions of low-wage workers missing from the labor force?

Core argument: The US workforce earning under $29,000 a year has shrunk 20% since January 2020, and 13.5% even after accounting for workers who moved into higher-paying jobs.

The US workforce earning <$29k/year has decreased by 20% since January 2020, with a 13.5% drop even after accounting for those who moved to higher-paying jobs. This decline highlights a significant gap in low-wage employment, particularly in areas hardest hit by the pandemic, such as affluent neighborhoods where spending sharply decreased. Despite a low unemployment rate of 3.5%, the labor force participation rate remains below pre-pandemic levels, leaving 2.6m potential workers unaccounted for. Factors like high real estate costs, lack of affordable childcare, and inflation exacerbate the issue, pushing workers to seek more flexible or rewarding opportunities elsewhere. The absence of a comprehensive labor supply policy further complicates recovery efforts, necessitating innovative local solutions to address these workforce shortages and prevent long-term economic damage.

Takeaways by Macro Roundup® AI

  1. The US workforce earning under $29,000 a year has shrunk 20% since January 2020, and 13.5% even after accounting for workers who moved into higher-paying jobs.
  2. Despite a 3.5% unemployment rate, the US labor force participation rate remains below pre-pandemic levels, leaving 2.6 million potential workers unaccounted for.
  3. High real estate costs, scarce affordable childcare, and inflation push low-wage workers toward more flexible or rewarding opportunities, with no comprehensive labor supply policy in place to address the shortfall.

Chetty’s team finds that America's workforce earning <$29k/year is down about 20% relative to its January 2020 level. Adjusting for workers now earning over $29k, the low-wage workforce was 13.5% under its pre-pandemic level. “…The US is missing about a fifth of its pre-pandemic low-income workforce. At least some of those workers moved to higher-paying jobs, but, after adjusting for wage growth, researchers found employment for the poorest quarter of the workforce was still 13.5% below pre-pandemic levels at the end of 2021.Analyzing local trends, researchers found an important clue to where those missing workers went: Low-wage workers are scarcest where 2020’s devastation was worst. “It is clear there are large swaths of the population who are still not employed, and these are low-wage workers who lost their jobs in precisely the places where high-income people cut back on spending so sharply a couple of years ago” Chetty said…”

Ben Steverman, "Job Market’s 2.6 Million Missing People Unnerves Star Harvard Economist,"Bloomberg, January 18, 2023, https://www.bloomberg.com/news/articles/2023-01-18/job-market-update-2-6-million-missing-people-in-us-labor-force-shakes-economist

Job Market’s 2.6 Million Missing People Unnerves Star Harvard Economist

Behind the five-decade low US unemployment rate of 3.5% lies a 2.6 million-person mystery.

That’s roughly how many more Americans should be working or looking for jobs if the economy’s labor force participation rate was the same as before the Covid-19 pandemic. But something’s still off, leaving everyone from mom-and-pop businesses to Federal Reserve economists scrambling to answer a crucial question: Where are these workers?

Economist Raj Chetty and his big-data experts at Harvard University’s Opportunity Insights lab went looking for these missing people. Their research relies on an innovative method of tracking the economy, built in the early months of the pandemic, that blends anonymized transaction data from private companies.

The data highlight to Chetty and his team just how much those awful months in 2020 still haunt the US economy. Even as their tracker shows metrics like job listings, consumer spending and small business revenue surging back above January 2020 levels, the US is missing about a fifth of its pre-pandemic low-income workforce. At least some of those workers moved to higher-paying jobs, but, after adjusting for wage growth, researchers found employment for the poorest quarter of the workforce was still 13.5% below pre-pandemic levels at the end of 2021.

Job Markets 2.6 Million Missing People Unnerves Star Harvard Economist: Extended Excerpt Image 1


Analyzing local trends, researchers found an important clue to where those missing workers went: Low-wage workers are scarcest where 2020’s devastation was worst.

As it turns out, the hardest-hit businesses were in the richest neighborhoods. In areas like Boston’s Back Bay, New York’s Upper West Side and Brentwood in Los Angeles, the pandemic and its aftermath have thrown into chaos the lives of millions of employees who once waited on the wealthy in restaurants, bars, gyms and hair salons.

“It is clear there are large swaths of the population who are still not employed, and these are low-wage workers who lost their jobs in precisely the places where high-income people cut back on spending so sharply a couple years ago,” Chetty said.

The pandemic sent shockwaves throughout the US labor market and created a divide between the professional class — where many roles could be done remotely — and those in lower-income jobs like retail and hospitality, which require in-person interaction. That makes certain areas, like those with dense office space and businesses that cater to workers who may never fully return, a sharp focus for researchers seeking to understand the lasting economic consequences of the Covid era.

Missing Recovery

While almost every other gauge of the economy had fully recovered by the end of 2021, Chetty’s tracker shows low-wage employment levels have been stagnant for more than a year.

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Economists have puzzled over why, finding partial explanations in everything from opioids and immigration restrictions to an aging population and fear of Covid. Chetty and his team argue against a few of these theories, preferring to look at the local level instead.

When low-wage employment is plotted on a graph by county, the highest-rent areas are missing the most workers — the places where bars, restaurants and health clubs were most empty in 2020. Chetty, along with professors John Friedman of Brown University, Nathaniel Hendren of Harvard and Michael Stepner of the University of Toronto, write the “strongest predictor” of the drop in employment is “the size of the initial shock.”

Even before Covid, low-income workers were getting older — the US population’s median age has steadily risen since the 1970s — and struggling with employment barriers like a lack of affordable child care and housing. Then the pandemic made almost everything worse, including strains on families, effects on health, the hassles of commuting and the stress of the jobs themselves.

Of course, Covid-induced strains or job losses didn’t set off a downward spiral for every low-income worker. Many managed to reinvent themselves, switching industries, negotiating raises or moving to areas with better opportunities. And wage growth broadly has been higher for those in the lower income brackets.

Pressure Building

Still, even many of those who managed to replace their lost jobs have never been the same.

Rafael, an undocumented immigrant from Nicaragua who asked not to use his last name, was working in a kitchen whipping up Mediterranean food in 2020 when the orders stopped coming in. The Maryland restaurant shut permanently.

While Rafael liked the conditions at his last restaurant, he decided that, at age 57, he can’t risk returning to the kitchen.

In restaurants, “there’s a lot of pressure and they really expect a lot of energy and labor,” he said. “But with my age, I’m losing energy bit by bit every day.”

Since then, he has been earning money cleaning houses and caring for an elderly man. But the odd and unpredictable gigs aren’t enough, especially with rent and almost everything else getting more expensive. “Unfortunately, I just don’t have the necessary hours I need,” he said, speaking in Spanish through an interpreter.

Those trying to make it work in megacities say their former employees are following the higher-paid, work-from-home cohort to areas of the country that are more affordable.

‘Easier, Rewarding’

“People who had a year and a half to figure out what to do with their lives figured out they wanted easier jobs, or jobs that were more rewarding,” said Philippe Massoud, who has struggled with staff shortages at his Lebanese restaurants, named Ilili, in New York and Washington. “They moved to places they didn’t have to commute one hour each way to get to work,” like North Carolina, he said.

A shortage of affordable housing near good jobs is a national problem. Real estate costs in Portland, Maine, jumped when city-dwelling professionals descended on the charming New England city to buy second homes during Covid.

For lower-paid employees, “it’s getting tougher and tougher to live closer to downtown as time goes on,” said Andrew Volk, co-owner of cocktail bar Portland Hunt and Alpine Club.

Paying workers more is a partial solution — one that Volk and Massoud have tried, even though it required raising prices.

“It’s just a question of making sure your wages are attractive and you offer a good benefit package,” said Aaron Seyedian, owner of a cleaning service, called Well-Paid Maids, that prides itself on paying $22 per hour in Washington and $27 in New York.

He finds himself soaking up employees from other industries, including former managers at retail stores or restaurants who are relatively well-paid but fed up with those jobs.

Inflation Impact

But the extra money only goes so far when inflation has hit many lower-income families the hardest. And even a substantial raise won’t solve situations where life is making it impossible to get back to work.

Kayla Cooper, a 34-year-old mother of three young children, lost her job in 2020, then worked for two years as a contact tracer from home. But the trained social worker now can’t find anything that provides the same flexibility or sufficient pay and benefits to compensate for crushing child care bills.

“If I’ll be making $24 an hour but daycare is $25 an hour, why am I going back to work?” she said. “I feel pushed out of the workforce.”

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The US once led the world in the proportion of women who worked, but nearly every developed nation now surpasses the US in their labor force participation rate for women. The share of both men and women in the American workforce has been dropping since the turn of the century.

One difference is “the US has never had a comprehensive labor supply policy” to bring more workers onto the job, said labor economist Kathryn Edwards. Child care subsidies, paid sick and family leave, and the right to part-time work would lower the job barriers for parents and other caregivers, older workers and people with disabilities.

Divided control of Washington makes any major changes unlikely for the next couple years. In the meantime, local governments and businesses may need to get creative in strategies for bringing workers back, particularly to the places where they’re most scarce.

Despite unemployment and other economic measures looking pretty good, “policymakers need to not be lulled into a sense of complacency,” said Friedman, the study’s co-author and a co-director of Opportunity Insights. Long-term unemployment can cause “a lot of damage to careers and the economy long term.”