Welcome back to “The Difference Principle”.
For those that are new, this is a monthly newsletter that links to and summarizes developments in the politics and academic analysis of inequality. This includes a broad range of topics—from technological change, to trade, to legislation, and to demography. And after a brief hiatus for the holidays, we’re back up and running.
First, let’s begin by acknowledging the most obvious news since our last December 2020 issue: there is a new presidential administration leading the United States. For anyone that cares about America’s widening gap between the rich and poor—whether this is along geographic, racial, gender, or education level—, the entrance of a Biden Administration is a good thing.
And yet, it has been difficult to start the new year with any real sense of buoyancy. Half a million Americans have died from COVID, and millions of people are struggling with worsening mental health. Thousands of Americans—especially young people—are taking their lives.
Beyond this, The Trump Administration had a disastrous effect on inequality in the US. According to the Federal Reserve, the wealth—i.e. assets and income minute debt— of the top one percent was roughly $28.17 trillion right before Trump took office. By the end of his presidency, however, that number ascended to $36.18 trillion. And despite modest increases in real wages prior to COVID, a disequalizing pandemic coupled with tax cuts for the wealthiest Americans and corporations has produced a historically significant bifurcation in wealth in the US.
Of course, inequality was clearly a problem before Trump took office. When measured through income, a total of $47 trillion dollars have been transferred from America’s bottom 90 percent to the top one percent since 1975, according to a study by the Rand Corporation. The problem of inequality will continue to be a defining challenge for the US, and the effort to reduce it should be a key measure by which we evaluate the success of the Biden Administration. This is not only because high levels of inequality produce a self-reinforcing calcification of privilege, it also reduces economic mobility, produces worse recessions, and correlates with crime, the erosion of faith in democracy, and worse mental health.
Five questions facing the Biden Administration
With this in mind, here are five key questions the Biden Administration faces in its effort to bring the US to a fairer distribution of wealth and income.
With this new political context in mind, our February Edition will be turning its attention to a number of fascinating studies relevant to US inequality. In our Spotlight section, we will be discussing the impacts of artificial intelligence on the labor market. In this month’s Inequality Briefing, we summarize, among other topics, how the Affordable Care Act reduced inequality, the homeownership gap between races, the presence of a US poverty trap, and how better data collection might improve outcomes for unhoused LGBTQ youth of color. Please feel free to write to me with topics for a future newsletter.
A concluding note on mental health
Before we turn to the research summaries, however, I would like to conclude with a note about mental health. In the last edition of this newsletter, we briefly discussed the quiet suffering of the millions of people struggling with mental health, in part due to the isolation of the COVID pandemic. This suffering is increasingly demonstrated through flooded suicide hotlines, over-extended mental health resources, and tragically also in an increase of suicides. Unfortunately, this is an issue that has been deeply personal throughout the past two months—last December a friend took their life, and just last week a family member took their life.
Many of the readers of this newsletter are young, and therefore in the group most likely to be struggling with mental health right now. And so I want to conclude with three points. First, if you are struggling with mental health, know you are not alone and do not hesitate to ask for help. Second, if you have the capacity and bandwidth to reach out, doing so can go a long way. And third, if you have the ability, consider donating to the American Foundation for Suicide Prevention. By doing so, you can play a part in improving mental health infrastructure that can save lives.
Thank you for reading. See you in mid-March.
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Thank you to Maanasi Natarajan for research assistance with these summaries.
How Artificial Intelligence is Quietly Reshaping the Economy
(Daron Acemoglu, David Autor, Jonathon Hazell, Pascual Restrepo, NBER)
Artificial intelligence (AI) is getting better. Although AI innovators often have a reputation for overly optimistic projections about the growth and application of the technology, it would be difficult to look at the past decade and fail to note the significant progress. The radical capacity to automate labor that AI seems to promise is why politicians and commentators—from Bernie Sanders to Tucker Carlson—are worried about AI. While some believe that AI could help complement human productivity and increase work efficiency, others believe it may completely eliminate the need for humans in the workforce.
This report examines AI adoption in the US and the implications it may have on the labor market and the growth of work automation. By analyzing occupations as a collection of tasks, the authors find there was a takeoff in AI vacancy postings in 2010, accelerating five to six years later. Moreover, AI exposure in an occupation is associated with the emergence of new skills and a decline in the demand for some of the skills previously required for work. This shows that AI is having a gradual impact on the nature of occupations.
The authors also find evidence of lower hiring among companies with greater AI exposure, and they offer results that suggest the recent AI surge is driven by task substitution. They find no evidence that a surge in AI will increase hiring due to a rise in productivity, but they acknowledge that there could be other applications of AI that require a human labor component. In what might be a surprise to many doomsday theorists, this study finds no relationship between AI exposure and employment or wage levels. This indicates that the impact of AI on the US economy is still too small to have significant macroeconomic effects. And yet, the trends presented in this study seem to suggest that AI is slowly reshaping the economy and may soon have a disequalizing effect. Read more.
Your Inequality Briefing
Why gender matters when analyzing high school graduation rates.
(Richard V. Reeves, Eliana Buckner, and Ember Smith, The Brookings Institution)
Though states provide data on high school completion rates for a variety of racial, ethnic, and economic subgroups, a glaring omission is data on high school graduation rates by gender. Using publicly available graduation data from 2016-2019, the authors find that girls graduated at a higher rate than boys and that the data showed a stark gender gap; graduation rates for boys were at 82 percent, which was only slightly higher than the rate for economically disadvantaged students (80 percent). These gaps are even wider for Black and Hispanic boys, who have an eight to 10 point graduation gap relative to their female counterparts. The authors emphasize that the gender graduation schism is wide and important enough to justify adding gender to the list of subgroups that the Department of Education tracks. Read
The Affordable Care Act reduced inequality.
(Matthew Buettgens, Fredric Blavin, Clare Wang Pan, Urban Institute)
This report is significant for its use of broader measures of income to assess the impacts of the Affordable Care Act (ACA). The authors find that the ACA reduced income inequality, not only in states that expanded Medicaid but also among the states that did not do so. These reductions were, however, particularly pronounced among states that expanded Medicaid. The ACA also reduced income inequality between different age groups, people of higher and lower educational attainment, and racial/ethnic groups. The authors of this report argue that the repeal of the ACA would likely increase income inequality to its previous levels. Read
A poverty trap is the most likely cause of persistent extreme poverty.
(Clare Balboni, Oriana Bandiera, Robin Burgess, Maitreesh Ghatak, and Anton Heil, LSE)
Over 700 million were classified as living in extreme poverty by 2015. It is therefore unsurprising that a central goal of development theory is understanding the conditions that spur and maintain poverty. The authors of this study argue that there are two competing views on why people stay poor: one view holds that poor people have the same opportunities as others, but it is their undesirable qualities that keep them in poverty. The poverty trap explanation, on the other hand, holds that poor people have different opportunities than others, which traps them in low-earning jobs. This paper provides evidence that the average low-income household is trapped in poverty and cannot move into more lucrative occupations because of a lack of initial assets. Read
~People and Places~
The 2020 Census: The US is becoming older, more diverse, and less mobile.
(William Frey, The Brookings Institution)
This report examines estimates of the 2020 Census results and what story those results tell about the changing nature of the United States. The author finds that the Census could show “the smallest decade-long growth rate in America’s history,” due to the effects of the Great Recession, stricter immigration policies, and the COVID pandemic, as well as a sharp growth divide between old and young populations. Moreover, waning geographic mobility is increasingly being felt on both a local level and across states. And the author argues that a decline in the white population from 2010 to 2019 is a major contributor to the US’ demographic stagnation. Population growth is thus primarily being spurred by minority demographics—this trend is made patently clear in the greater racial diversity among Gen Z and Millennials. To combat population stagnation, however, the author argues the US would need to drastically increase immigration to three times its current level. Read
Better data collection can improve outcomes for unhoused LGBTQ/GNCT youth of color.
(Jahnavi Jagannath, Kierra B. Jones, Constance Hull, Urban Institute)
Texas has one of the largest populations of lesbian, gay, bisexual, questioning/queer, gender nonconforming, and transgender (LGBQ/GNCT) youth. This group is more likely to be unhoused than the general youth population because of a number of biases and barriers that disproportionately impact them. Remediating gaps in data is one area that philanthropists can focus on in order to both better understand the challenges faced by LGBQ/GNCT youth and address the housing challenges facing them. This report proposes a partnership with youth-serving organizations in Texas to provide training, research, and technical support to advance data collection efforts. Of course, data collection is only part of the solution; the report also lays out other funding priorities for philanthropy, including supporting the implementation of non-carceral service programs and decarceration models. Read
Marriage, divorce, and child-rearing often have big effects on wealth, which are more likely to be positive for white Americans.
(Gopi Shah Goda and Jialu Liu Streeter, NBER)
This study looks at the impacts of life milestones—marriage, divorce, and childrearing— on an individual’s wealth. Unsurprisingly, the report finds that retirement and homeownership are associated with the largest positive changes in wealth, while both early and late health shocks and disability are associated with large negative changes. The authors find that most long-run shifts in wealth are gradual rather than sudden, and the short-run changes that do occur tend to be smaller. The extent of these shifts in wealth does, however, vary by demographic. Perhaps most notably, non-whites experience long-run reductions in wealth for the same life milestones that result in long-run increases in wealth for whites. Read
Race inequality is producing greater homeownership inequality.
(Laurie Goodman, Jun Zhu, Urban Institute)
This report analyzes homeownership over time and how race inequality has caused homeownership gaps to widen. It offers suggestions as to how systemic barriers to homeownership can be addressed in the future. The authors project many forecast new household formation will decline to 7.6 million per decade in 2030 to 2040, that almost all future net household growth will be from non-white and senior households, and that there will be a decline in homeownership for most age groups through 2040, especially among Black households headed by 45-74-year-olds. The authors also forecast that net new homeowners during this time will be non-white and almost entirely Hispanic, and the pace of renter growth will be more than double the pace of homeowner growth. The authors utilize their findings to argue in favor of more affordable housing, increased financial education, and the implementation of sustainable programs for minority borrowers to ensure that homeownership does not lose its value as a wealth-building tool. Read
To improve health care outcomes for incarcerated Americans, we need better research.
(Alexandra Kurland, Urban Institute)
This report examines how research can be used to improve healthcare in correctional facilities. The author stresses that the government has an obligation to provide adequate healthcare to incarcerated people and, moreover, to ensure that those who are released do not jeopardize those in their communities because they lack proper health care. Prisons don’t have significant mechanisms to ensure the health of incarcerated individuals, especially because measures used to track adequate health care vary between states. The metrics of accountability used to track the quality of care also vary, the author argues, elevating the importance of increasing accountability in quality of care and facilitating patient feedback. Moreover, the author finds that the health effects of incarceration are severe; prisons are overcrowded and have inadequate ventilation, poor dietary programs, and a lack of personal hygiene items. Unsurprisingly, individuals in prison are also more likely to be susceptible to mental illness. The author uses her findings to call for new research that better tracks the needs of the incarcerated. Read
Robots don’t reduce the number of jobs, but they do reduce job quality: evidence from Japanese nursing homes.
(Karen Eggleston, Yong Suk Lee, And Toshiaki Iizuka, NBER)
This report acknowledges the pervasive fear of emerging tech like AI, big data, and robotics on employment. The authors suggest, however, that automation could help solve some labor market challenges, including the negative effects of the declining employment to population ratios and aging populations. In this report, the authors study the effect of robots on nursing home staffing in Japan and find that robot adoption actually increased the number of nurses and care workers. The effects were concentrated, however, on non-regular employees with flexible contracts and fewer benefits. Moreover, robot adoption reduced the wages of regular nurses and the reported turnover rate. This provides further evidence for the thesis that new technology increases wage inequality, reduces job quality, yet does not necessarily reduce the total number of jobs in the economy. Read
U.S. wages have been suppressed as a result of the systematic erosion of workers’ power relative to their employers
(Lawrence Mishel, IMF)
Both political parties in the United States recognize the problem of wage stagnation, though they cannot agree on its cause. This International Monetary Fund paper shows that wage stagnation is a consequence of a business and the wealthy class disempowering workers by adopting anti-worker practices and blocking reforms. The mechanisms that cause this stagnation include globalization, excessive unemployment, and eroded labor standards. A larger number of people will benefit from future economic growth if bargaining power is restored to workers. The author consequently argues that the US should eliminate forced arbitration and non-compete agreements, take steps to encourage collective bargaining, and provide more robust restrictions on labor standards. Read
Here’s What Else You Should Know
Emmanuel Saez has a new report out on the role of social environments in determining the distribution of pre-tax market incomes (NBER)
The rise in unemployment due to the COVID pandemic will produce 0.8 million additional deaths over the next 15 years. (NBER)
Four reasons why more public housing isn’t the solution to affordability concerns (Brookings)
Historically Black Colleges and Universities offer excellent avenues for success with more limited resources. (Brookings)
Mental health innovation is important for economic recovery and upward mobility (Brookings)
The Family Origin of the Math Gender Gap is a White Affluent Phenomenon (NBER)
To create a stronger Black middle class, the US should restore the government and business investments that created a growing middle class in the three decades after World War II (Institute for New Economic Thinking)
Union workers had more job security during the pandemic, but unionization remains historically low (Economic Policy Institute)
How the pandemic is worsening inequality: Poor workers and nations suffer but rising markets boost the rich (Financial Times)
FAFSA’s expected family contribution is finally going away. The dollar figure that the federal financial aid form spits out has long left families confused and despondent. And then there are those great expectations. (The New York Times)
How the trading app Robinhood takes data from users and sells it to rich investors. (Jacobin)
Deficits still matter—if not for the dollar or inflation, then for inequality and productivity (Financial Times)
Biden is shifting to the left, touting workers over wealth (Financial Times)
Will Joe Biden’s fiscal stimulus overheat the American economy? If it does, higher inflation could be the consequence. (The Economist)
An excellent tool to track Biden’s first 100 days. (The Economist)
10 Challenges Biden Faces in Righting the Economy (The New York Times)
Bad economies usually hurt both workers and investors. Only the first part has been true this time, and the rich that disproportionately own stocks have benefited. (The New York Times)
Why are there so few Black economists at the Fed? The story of Monroe Gamble— the San Francisco Fed’s first Black research assistant. (The New York Times)
Washington State is experimenting with a one percent tax on wealth over $billion. (CounterPunch)
A universal basic income has limited support. A universal basic income for kids could be coming soon. (The Wall Street Journal)
Thanks for reading. See you in March.
That’s a wrap on this edition of “The Difference Principle”.
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