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Pascual Restrepo is a leading scholar studying automation, technology, and inequality. Along with Daron Acemoglu, he has co-authored some of the most impactful studies that attempt to understand the relationship between technological shocks and economic inequality
You can listen to the interview, which focuses on how artificial intelligence will affect unemployment and inequality, here
Welcome to this August Edition of The Difference Principle.
In this month’s “Headline” section, we discuss a new study that shows how Black and Hispanic communities were disproportionately likely to see larger numbers of coronavirus cases and deaths. This month’s Inequality Briefing summarizes eight recent studies, detailing, for example, how the current pandemic has exacerbated inequality through the shift to online work and education. In The Bookshelf, we talk about Carl Benedikt Frey’s 2019 book “The Technology Trap”, which focuses on the historical relationship between technological innovation and inequality.
First, here are some of the important developments that took place in July.
At the start of last month, there were signs that the worst of this recession was over, as unemployment fell to 11 percent. Yet a new surge in coronavirus cases throughout the US has led to serious concerns about a more prolonged lockdown. The term “second wave” now feels like an odd phrase because it implies there was some calm intermediate period immediately following the “first wave”. A survey by the Wall Street Journal found that more than 90% of business and academic economists agreed “somewhat” or “strongly” that economic recovery depends on containing the virus.
Things would have been much worse had it not been for the stimulus. As we discussed last month, the poverty rate did not radically increase despite the scale of the economic crash. Yet an unprecedented 14 million children in the US are not getting enough to eat. And as millions continue to lose their source of income, a spike in fraudulent jobless claims delayed the distribution of aid to hundreds of millions of Americans who are desperate for government assistance.
Meanwhile, the extra $600 a week in unemployment benefits that have helped keep America’s jobless afloat is set to expire tomorrow. Republican leadership (the same one that endorsed an unpaid for $2.3 trillion tax cut that disproportionately helped corporations and the wealthiest Americans) oppose an extension of the benefits because they believe it is too generous. If additional unemployment benefit money is not included in a future wave of fiscal stimulus, economists argue it could trigger a deeper recession, as people cut spending. And if the funding is gutted, as many as 43 million Americans may soon be at risk for eviction.
A failure to continue strong stimulus measures may also catalyze a crisis of private debt. For the past three months, I have written about America’s glut of private debt and how that debt has created conditions for both a deeper downturn and less equal recovery. So far, federal aid has helped avert personal bankruptcies. If that aid dries up, highly indebted consumers could be forced to file. As an aside, it’s worth noting that, despite historically high levels of private indebtedness, the Consumer Bureau scrapped restrictions on payday loans that often leave borrowers trapped.
This month, we also saw how this pandemic has encouraged companies to shift toward labor-saving automation. As we saw in the meatpacking industry, social distancing measures have driven some firms to make the leap from workers to capital. This has the potential to increase inequality—previous periods of technological disruption resulted in a spike of economic inequity in at least the short run. On the other side, Amazon, Facebook, Apple, and Google—whose combined market cap approaches $5 trillion—found themselves in the peculiar position of having to convince Congress that they’re actually not all that powerful. Hmm…
In the midst of all of this, Joe Biden is attempting to offer a number of policy prescriptions that he hopes will speak to economic discontent on the one hand and conversations about race inequality on the other. He wants to increase corporate taxes from 18.7 percent to 26.7 percent and impose a minimum tax of 15 percent on large companies, which would also add nearly $40 billion to the tax bills of more than 100 companies in the S&P 500. Meanwhile, his over $7 trillion spending plan aims to address “systemic racism” through, in particular, health care, infrastructure, and education spending.
We’ll be discussing many of these issues in this month’s summaries, but before we turn to that, I want to announce that “Connect: College Access Tutors”, which provides free remote college essay tutoring to low-income students, is looking for volunteers. Connect is currently working with five public high schools to provide free essay tutoring to as many as 4,000 students. You can read more about the project and apply to volunteer here. You can also reach out to me with any questions.
As with previous months, here is a list of ways you can help out during this pandemic as well as a link to anti-racist resources. Finally, I want to plug GiveDirectly, which is an excellent charity that is providing direct cash transfers to the most vulnerable low-income people in the US and Kenya, Uganda, Rwanda, Liberia, and Malawi.
Thanks for reading. See you in September.
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The shift to online learning is exacerbating inequality in the classrooms, as lower-income students with weaker broadband access and computer resources lag behind.
The Difference Principle: “Assuming the framework of institutions required by equal liberty and fair equality of opportunity, [The Different Principle states that] the higher expectations of those better situated are just if and only if they work as part of a scheme which improves the expectations of the least advantaged members of society.”
—John Rawls, A Theory of Justice (1971)
Data from Six Large Cities Illustrate the Racial Divide in Coronavirus Outcomes (Joseph A. Benitez, Charles J. Courtemanche, Aaron Yelowitz, NBER) The coronavirus pandemic has resulted in over 2.3 million confirmed infections and 121 thousand fatalities in the United States. Over the past few months, we have covered the distinct racial divide in coronavirus outcomes, showing how Black and, especially, Hispanic Americans were more likely to test positive and die from the disease. This study is significant for its methodological approach to isolating race as a pandemic “risk factor”.
The authors acknowledge that housing, socioeconomic status, and occupation, among other forces, play a significant role in coronavirus outcomes. Yet by utilizing ZIP code-level data on confirmed coronavirus cases from six cities — New York, Chicago, Atlanta, Baltimore, San Diego, and St. Louis — as well as data on fatalities from New York and Chicago, the authors are able to produce a deeper portrait of who is most at risk during this pandemic and why.
They found that a 10 percent increase in a ZIP code’s Black share of the population is associated with 9.2 additional confirmed COVID-19 cases per 10,000 population, while a similar change in the Hispanic share is associated with 20.6 additional COVID-19 cases. The chief significance of this report is that, even after accounting for variables, a significant share of coronavirus race disparities remained unexplained. Moreover, this study convincingly shows that socio-economic risk factors are unevenly distributed across communities. (Read)
Your Inequality Briefing
~Business and Finance~
Paycheck Protection Program loans boosted employment among the firms that received it. (David Autor et al., MIT) The Paycheck Protection Program (PPP) has been an indispensable fiscal tool to maintain employment in the midst of a historically large recession and global pandemic. This report assesses the PPP’s efficiency in sustaining employment at small firms, and it finds that the companies that received a PPP loan were more likely to see employment growth when compared with firms that were ineligible to receive a PPP loan. In total, the report estimates that the PPP increased the level of employment at eligible firms by between 2 percent and 4.5 percent through the end of May. Read
Students from wealthier households found it easier to make the shift to online learning. (Andrew Bacher-Hicks, Joshua Goodman, and Christine Mulhern, The National Bureau of Economic Research) The shift to online learning brought on by the Coronavirus Pandemic sparked fears that low-income K-12 students may fall behind because they are more likely to have weaker access to the tools necessary for an entirely digital education. Amidst a sharp increase in demand for online resources, this study looks at the geographical and income demographics that were most likely to express demand for digital learning based on internet searches. The authors found that a surge in nationwide searches for learning resources increased during and after March 2020, with a greater share of searches occurring in higher-income households with and better technological access. These areas tend to also be whiter and in richer states. The report goes on to propose policy responses that address these inequalities. Read
“Digital equity offices” could help ensure a basic standard of broadband access for all communities. (Adie Tomer and Lara Fishbane, The Brookings Institution) For most people, the internet is an indispensable part of what it means to be able to participate in the modern American economy. This was true even before the Coronavirus Pandemic, but the national shift to remote work and online learning has made internet accessibility even more important. Currently, however, tens of millions of American households remain unable to access digital resources due to gaps in broadband networks, unaffordable subscription plans, and a lack of digital skills. This report assesses the role that “digital equity offices” could play in addressing structural barriers and ensuring digital access reaches all households. By prioritizing historically disadvantaged groups and neighborhoods, these offices could play a role in alleviating some of the major challenges to equitable internet access. Read
~People and Places~
As college-educated workers moved into rich cities, opportunities for the non-college-educated declined. (David Autor, MIT) Since 1980, college-educated workers have been steadily moving into affluent cities while non-college workers have been moving out—a reversal from previous trends that saw the migration of less-educated and lower-income individuals toward high-wage cities. This report by David Autor assesses how the opportunities offered by urban and non-urban environments to college and non-college workers has changed since 1980. It considers how policy can improve the quality of urban non-college jobs while also encouraging adults to seek work outside of urban labor, where the quality of jobs has not kept pace with the cost of living. Autor finds that, although cities remain good places to work for people with college degrees, earnings for non-college workers have waned and lost their ability to lift workers up the income ladder. This is true especially of Black and Hispanic workers. Read
It’s not just the Virus. The Coronavirus Recession is having a devastating impact on the economic well-being of Hispanic families(Gabriel R. Sanchez, Edward D. Vargas, and Adrián A. Pedroza, The Brookings Institution) As we discussed in the Headline section, Hispanic Americans are more likely than white Americans to contract the Coronavirus, and they face disproportionately high mortality rates when they contract the virus. Yet, as this report argues, Hispanic families are also disproportionately likely to face severe economic stress due to the Coronavirus Recession. This study shows that 29 percent of Hispanic families have had an immediate household family member lose their job, 33 percent of Hispanic parents have seen their business shut down or experiencing significant drops in revenue, and 41 percent of Hispanic parents are struggling to pay their rent or mortgage. The authors argue that the Coronavirus Recession has exacerbated the economic pains of Hispanic families, which were already more likely to have a limited financial safety net. Read
Reducing gender inequality in the workplace would make the US economy as a whole better off. (Ata Can Bertay, Ljubica Dordevic, and Can Sever, International Monetary Fund) Gender inequality in the US owes itself to an amalgam of forces. This includes, for example, barriers to entry for women in certain industries, child-leave policies that can derail a woman’s career, and also explicit sexism in the workplace. Today, women constitute just a third of the actual workforce. The study by the IMF estimates the economic effects of reducing gender economic inequality and promoting an increase in female employment; it finds that doing so is causally linked with higher economic growth that can make everyone better off. The authors conclude by arguing that gender inequality should consequently not simply be viewed as a human rights issue, but also as one about prosperity. Read
~Social Security and Taxation~
Adequately Funding the IRS Would Be One Small Step Toward Racial Equity in the Tax Code(Jenice R. Robinson, Institute on Taxation and Economic Policy) This month, IRS Commissioner Charles Rettig vowed to work with Congress to explore how the federal tax system contributes to the racial wealth gap through tax policies enacted by Congress and IRS enforcement of those policies. A 2018 report by ITEP and Prosperity Now shows that the 2017 Tax Cuts and Jobs Act exacerbated the racial wealth divide because 80 percent of its benefits went to white households. Disinformation campaigns allowed anti-tax advocates and their allies to strip funding from the agency, resulting in racist enforcement of tax laws—the IRS admitted to auditing low-income people at a higher rate than affluent families. The article argues that, while tax policy may not fix the racial wealth gap, it can be part of the solution. Read
The coronavirus may lead to more automation. (Alex W. Chernoff and Casey Warman, The National Bureau of Economic Research) In the midst of a historically significant pandemic and recession, this report shows that many employers are beginning to substitute workers with computers and robots in order to avoid the threat of a future pandemic. The authors assess which labor markets may be most impacted by the potential push to automate jobs and look at what demographic groups may be vulnerable to automation. This marks another entry into the canon of literature that speculates about which demographics will be most affected by automation. For more on this, I recommend reading Mark Muro’s 2019 study. Read
Here’s What Else You Should Know
The Windfall Clause is an ex-ante commitment by artificial intelligence firms to donate a significant amount of presumed extremely-large-future-profits. The idea is to help address the problem of inequality in the midst of AI-driven economic growth. (Future of Humanity Institute)
Tech CEOs continue to be some of the highest-paid executives, beating out Wall Street bankers. (Bloomberg)
Daron Acemoglu argues that essential workers on the front lines of Coronavirus Pandemic deserve higher minimum wages and an embrace of technology that complements human labor rather than replacing it. (Project Syndicate)
A study shows that the Paycheck Protection Program did not have a substantial effect on employment during its first round. (BFI)
The end of the $600 weekly unemployment bonus included in the stimulus could mean economic hardship for millions. (The New York Times)
A survey by The New York Times asked readers to disclose their 2019 earnings and whether they felt they were fairly compensated. (The New York Times)
Women earn less on average over the course of a lifetime than men do, making it harder for women to save for retirement (Brookings)
The rising share of women in the top 1 percent of the UK’s income distribution is accounted for by an increase in the amount of time British women, relative to men, spend in full-time education. (NBER)
A West Michigan workforce agency’s selection model increases the accuracy of candidate selection, which in turn strengthens the quality of the employer’s workforce and reduces turnover (Brookings)
Some economists say the most prestigious academic economic journals have not been receptive to scholarly work related to race and discrimination. (Wall Street Journal)
The University of Pittsburgh Medical Center did not comply with Pennsylvania Governor Tom Wolf’s executive order requiring the state’s hospitals and doctors to stop performing elective procedures, which tend to be highly profitable. (Washington Monthly)
A new study argues that measures of reduced worker power are associated with lower wage levels and higher profit shares going to capital owners. (NBER)
“The Technology Trap: Capital, Labor, and Power in the Age of Automation”, Carl Benedikt Frey (2019)
In 2013, Carl Benedikt Frey co-authored a study, which famously estimated that 47 percent of all current US jobs could be automated. The claim was widely circulated in mainstream outlets, though it was heavily criticized by economists for its weak methodology. In 2019, Frey authored “The Technology Trap”, in which he offers a more nuanced assessment of how technological change produces greater inequality. His argument in short? During periods of labor-saving innovation, productivity (output per worker) increases because each worker has new tools to do more with their labor. Yet, in the short run, wages do not rise. This “Engels Pause” moment means that capital owners see an increase in wealth, while workers’ real wages stagnate. In other contexts, however, technology may benefit workers and increase their wages, if their employment is complemented by that technology—a construction worker with an excavator, for example. Today, high-skill workers (e.g. college graduates) with digital skills are generally complemented by the new technologies that are reshaping the workplace. By contrast, low and middle-skill workers have been losing out. As Frey writes, this has resulted in a world that has seen “the percentage of men aged between 25 and 54 who go to work in the morning plummet since the new millennium while opportunities for high school graduates (those without a university degree) have diminished.” Buy.
Quote of the Month
“In a political system where nearly every adult may vote but where knowledge, wealth, social position, access to officials, and other resources are unequally distributed, who actually governs?”
—Robert A. Dahl, “Who Governs?” (1961)
Thanks for reading! See you in September.
That’s a wrap on this edition of “The Difference Principle”.
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