It has been just over a week since the death of George Floyd.
The video of Mr. Floyd (an unarmed Black man) dying from the weight of a white police officer kneeling on his neck spoke to America’s persistent issues with police brutality and anti-Black inequality. In response, the protests and diffuse discussion of racism in the US are bringing to light a broader story about modern segregation, white supremacy, and economic disenfranchisement.
All of this has also been occurring in the midst of possibly the worst recession since the Great Depression and a global pandemic. The effects of both of these forces, however, have been disproportionately felt by Black Americans, as well as Hispanic people, young people, and low-wage workers. In addition to being more likely to lose their source of income, Black Americans have been more likely to die from the coronavirus. This inequality manifests even in nursing homes; places with a significant number of Black or Hispanic residents have been twice as likely to contract the coronavirus as those where the population is overwhelmingly white.
Though there have been signs of an economic recovery with new applications for unemployment insurance in decline, things are still bad. The unemployment rate is expected to hit 17 percent this month, and the number of workers seeking assistance remains about 10 times higher than before coronavirus related lockdowns began in March. The number of jobs lost is quite literally off the charts, and nearly half of adults live in households that have lost income in the two months since the shutdown began, according to the Census Bureau.
This recession is not only bringing high-wage companies like Facebook to consider a permanent shift to remote work; it is also kindling fears that companies may hasten the shift toward higher levels of automation and the replacement of workers with productive capital.
Meanwhile, the crisis is also exposing and exacerbating the effects of American financialization on inequality: Goldman Sachs foreclosed on 10,000 homes for ‘consumer relief’; about 15 million credit-card accounts and three million auto loans haven't gotten paid since the start of the crisis; consumers seeking debt relief face jammed phone lines. And bracing for hard times, Americans are saving a record 33 percent, just as consumer spending experienced a record drop.
This month’s newsletter is primarily oriented around issues of race inequality. The Spotlight section discusses how the coronavirus has already increased inequality, in line with predictions two months ago. The “From the Bookshelf” section discusses a 2018 report by Raj Chetty that I strongly recommend you look at it. It shows how Black individuals have substantially lower levels of upward mobility than other demographics. These effects are particularly pronounced for Black men.
The newsletter concludes with a link to a recent interview I did with Walter Scheidel on how pandemics shape inequality. You can listen to that here and read it here. I also link to a recent blog post I published on how inequality is reshaping the sound of music.
Finally, as with previous months, here is a list of ways you can help out during this crisis. And here is a link to some anti-racist resources for non-Black people that I hope will be helpful.
Thank you for reading. See you in July.
—Julian, writing to you from Ghent, Belgium
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(In “Spotlight”, we highlight one report or story from the past month that deserves particular attention.)
The Coronavirus Recession Made Inequality Worse and Hurt Minorities, Young People, and Women Most(Iowa State University; W.E. Upjohn Institute; Becker Friedman Institute) There has been considerable speculation about how the Coronavirus Recession would affect inequality. The early data that we have, however, seems to show that the crash made the gap between America’s rich and poor worse. A study by Iowa State University found that this recession disproportionately hurt Black and Hispanic people as well as young people and less educated individuals. This follows trends from previous recessions, which also tended to disproportionately hurt those demographics of people.
The impact on race, gender, and generational inequality is stark. The Bureau of Labor Statistics reported that US unemployment reached 14.7 percent in April. Yet the unemployment rate for teenagers rose to 31.9 percent, 20.9 percent for high school dropouts, 16.7 percent for Black people, and 18.9 percent for Hispanic people. The Upjohn institute corroborates these results but adds that women were also disproportionately likely to exit employment. Their study goes on to show that the loss of employment for Black and Hispanic people cannot simply be explained by the scale of the economic shock. In other words, employers were more likely to fire Black or Hispanic workers than others. Moreover, those unemployment figures also considerably underreport the scale of the economic damage caused by the coronavirus because about 40 percent of individuals who lost employment simply exited the labor force (i.e. they are not “actively” looking for work and so are not considered unemployed).
Another study by the Becker Friedman institute shows that the impacts of the economic contraction were also felt primarily by low-wage workers: “Workers in the bottom quintile of the wage distribution experienced a 35 percent employment decline while those in the top quintile experienced only a 9 percent decline.” All of this tells a grim story about how the Coronavirus Pandemic has impacted inequality.
Read Becker Friedman Institute. Read Iowa State University. Read Upjohn Institute.
(“Big Ideas” showcases particularly interesting stories and reports from the past month—organized by subject.)
~Business and Finance~
High middle-class borrowing and income stagnation have led to the rise of household indebtedness(Alina Bartscher, et al., Institute for New Economic Thinking) The rise of private debt (e.g. student and credit card debt) may be a consequence of high levels of economic inequality. This report shows that data supports this theory. As the authors argue, debt growth was concentrated among households with low-income growth and rose most dramatically for households between the 50th and 90th income percentiles. This demographic is responsible for 55 percent of the total increase in household debt, as opposed to lower-income households. On the other side, the rise of this debt has been matched by the ability of the rich to save. The authors make the interesting point that much of the increased tendency to borrow comes from the perception that rising household prices in the 2000s would continue to increase the value of their assets. When these trends collapsed, the household debt boom, which partially financed consumption in the face of stagnant incomes, became more of a burden. Read
A successful Texas program is providing guaranteed tuition-free admission to high achieving low-income students. (Sandra E. Black, Jeffrey T. Denning, and Jesse Rothstein, The National Bureau of Economic Research) The Texas “Top Ten Percent” rule guarantees admission to any Texas public university to all Texas students in the top ten percent of their high school class. This program increases access to quality education for high achieving students that come from underrepresented schools; however, due to a limited number of spaces, it comes at the expense of other students’ admission. This study analyzes the earnings, college enrollment, and graduation of students affected by the program. It finds that students who join a public Texas university through the program see a positive impact on their earnings 7-9 years after graduation as well as higher rates of enrollment and graduation. Students who lost a spot at a Texas public university did not see any impact on their graduation rate, enrollment, or earnings. So the program benefits students from underrepresented schools with no obvious costs to anyone else. Read
Interactive Data: The impact of colleges and universities on improving economic mobility varies considerably by the institution. (Sarah Reber and Chenoah Sinclair, The Brookings Institution) In the face of historically high levels of economic inequality, higher education degrees have traditionally been regarded as a primary means of improving one’s odds of achieving upwards economic mobility. Research by David Autor and Claudia Goldin, which we discussed in March, however, shows that the returns on college degrees are increasingly being concentrated among a more rarified group of graduates. This report from Brookings presents an interactive graphic that saliently shows how certain institutions are better at promoting upwards economic mobility (for lower and middle-income students) than others. Using data from Opportunity Insights, they show that mobility varies considerably across colleges and that institutions that promote middle class to upper-class mobility do not necessarily promote bottom-to-top mobility, and vice versa. The most selective four-year colleges tend to have the highest rates of middle-class mobility. For-profit colleges and two-year colleges less so. Read
Mental illness reduces employment prospects and income, which in turn can spur mental illness(Matthew W. Ridley,, et al., The National Bureau of Economic Research) Three to four percent of the world population suffers from anxiety or depression at any given time, and they are collectively responsible for eight percent of the total years lived with a disability. This report assesses how poverty affects the likelihood of developing a mental illness. Contrary to some perceptions, anxiety and depression are not “diseases of affluence”. Instead, the report argues, individuals living in poverty are 1.5 to three times likely to suffer from depression, anxiety, or suicidal tendencies than their wealthier counterparts. The authors argue that this relationship is causal, and they point out that negative economic shocks have negative impacts on mental health while the converse is true of positive shocks. This may be self-reinforcing to some degree since poor mental health can result in further entrenched poverty and thus worse mental health. Read
~People and Places~
A closer look at Minneapolis data shows that George Floyd’s death is just one example of the policy violence the devalues black lives(Andre Perry and Tawanna Black, The Brookings Institution) This piece by Andre Petty and Tawanna Black highlights the ways in which George Floyd’s death in Minneapolis was indicative of a larger problem: an economy and system of law enforcement that leaves Black people disadvantaged and without opportunity. By focusing on the Minneapolis/St. Paul Metropolitan Statistical Area, the authors show that that Black people in the city are far more likely to be stopped by police, less likely to own homes, more likely to be in asset poverty, more likely to have lower annual wages, and more likely to live in communities with real estate that has been devalued. This leads the piece to conclude that the racist attitudes that lead police to choke Black people are the same that exclude Black people from employment and investment opportunities. Read
The advantages and obstacles millennials face in growing their wealth(William G. Gale et al., The Brookings Institution) Wealth (i.e. the value of an individual’s assets minus any debt) inequality has been increasing for decades. There are numerous explanations for this; however, wealth is also generationally divided. Younger people have had less of an opportunity to purchase homes, which traditionally has been a great source of wealth. This report focuses on the millennial generation’s prospects for accumulating wealth. The authors make the case that millennials have the advantage of being the most educated generation ever; however, the current recession and 2008 Financial Crisis have given them a rough start in wealth accumulation. They are also burdened by high levels of public debt (which the US must pay back) and private debt (which they must pay back). Finally, they are also more racially and ethnically diverse, and research shows that minority status is negatively associated with one’s ability to accumulate wealth. In fact, the wealth gap between white and Black households has been increasing. Read
Explaining the gender gap in STEM (Kevin Boudreau and Nilam Kaushik, The National Bureau of Economic Research) This study attempts to understand the mechanics of women’s’ lack of representation in technology, in a world where many tech companies struggle to achieve employment gender equality. Contrary to previous explanations that argued women were less willing to work in competitive organization environments, the study shows women were more or less likely to participate in a STEM field depending on how male or female-dominated it was. Outside of stem, however, women showed an aversion to competitive environments, and the authors of this study argue these results provide further evidence of the tendency for non-STEM men to possess overconfidence. Read
~Social Security and Taxation~
Finland’s basic income experiment shows mixed results (Kela: Finland’s Social Insurance Institution) From 2017-2018, Finland carried out an experiment looking at how a basic income would affect employment, perceived economic security, and mental well being. Complete data from this research project, which provided 2,000 unemployed people with a monthly tax-exempt basic income of 560 euros, is now available. The results of the experiment are mixed. Recipients of a basic income reported higher levels of mental well being and slightly better economic security. Yet there were only very modest improvements in employment for recipients of the basic income. In a bifurcating economy like the US, it is worth asking whether or not a basic income would improve mobility and opportunity or instead provide a stipend that may be both unaffordable and insufficient without changing the underlying structures that make the US economy unequal. Read
The digital economy is creating a “winner-take-all” system that hurts workers(David Autor et al., The Quarterly Journal of Economics) This study led by a number of prominent economists looks for evidence to support the “superstar” theory of modern wealth and market concentration. In short, the theory states that modern digital technology makes it possible for single firms to provide services to the entire world, resulting in a winner-take-all economy. After all, you don’t need to use your town’s local internet browser. You can use Google. This report utilizes data from the US Economic Census since 1982 to show that this superstar effect has resulted in sales concentration for a small number of firms. This in turn produces a decline in workers’ share of income. Read
Labor union laws need to be updated to extend organization opportunities to more workers.(Lynn Rhinehart and Celine McNicholas, The Economic Policy Institute) In 1935, the passage of the National Labor Relations Act established organizing rights for workers in the private sector. Yet the percentage of private-sector workers covered by a labor union has been steadily declining for decades, currently standing at just over seven percent (a third of what it was 40 years ago). Unions can be a helpful tool for workers to win higher pay, better health care, stronger safety protections, and retirement benefits. This report shows why the current legal framework for collective bargaining is ill-prepared to deal with the realities of today’s workplaces. In particular, there are significant obstacles to bargaining with employers that operate in many different geographically spread out worksites. The piece explains this in detail and offers policy solutions. Read
What Else I’m Reading
(“What Else I’m Reading” is a very brief rundown of other noteworthy reports and stories.)
The criminalization of black and brown communities in the Midwest adds to public health crisis during the Coronavirus pandemic (Economic Policy Institute)
Three principles for an anti-racist and equitable state response to the Coronavirus. (Center on Budget and Policy Priorities)
Colleges are being pushed to a breaking point as all sources of funding are put into doubt due to the coronavirus pandemic. (Wall Street Journal)
The coronavirus is exposing Wall Street’s reckless gamble on bad debt (The New Yorker)
Martin Wolf: There is a clear link between the savings rate of the rich and dissaving of the less rich as well as the accumulation of credit and debt (Financial Times)
The rise in unemployment insurance claims was primarily due to the health shock of the Coronavirus Pandemic, not the lockdown measures states implemented. (The National Bureau of Economic Research)
Nearly a third of Kentucky’s labor force filed for unemployment insurance, the largest share of any state (Wall Street Journal)
Receipt of the paycheck protection program has varied widely by geography and not based on the number of cases. (Federal Reserve Bank of New York)
Daron Acemoglu: a more targeted lockdown could limit economic damage and prevent a mortality increase. (The National Bureau of Economic Research)
Automation the spread of robots may increase as a result of the pandemic, as companies replace labor for machines (Financial Times)
On average, it takes about eight years to reach the pre-crisis level of income after a financial crash (American Economic Association)
The Coronavirus Pandemic could lead to 75,000 additional “deaths of despair” from alcohol and drug misuse and suicide (Well Being Trust)
How the coronavirus might precipitate a decline in inequality (The Economist)
Inequality in the US may largely be a result of growing inequality within industries as opposed to growing inequality between industries. (The National Bureau of Economic Research)
The volume of investment-grade companies that have been downgraded to junk has already reached $150 billion, surpassing 2009’s record total. And we are still only two months into this crisis. Far more downgrades are to come. (Medium)
The shift to remote work could extend opportunities outside of wealthy cities to America’s heartland, and this would lower geographic inequality. (The Brookings Institution)
A new study shows how trade benefits “higher-skilled workers” and hurts low skill and low wage workers (The National Bureau of Economic Research)
The earned income tax credit is an excellent way of providing individuals with security, especially during an economic crisis; however, it should be expanded. (The Urban Institute)
For musicians, being a warm-up act for a bigger artist does not necessarily bring significant benefits. (The Economist)
A study by the New York Fed shows that the influenza mortality rate correlated with support for the Nazis in pre-World War II Germany (The New York Federal Reserve)
From the Bookshelf
(Each month, we highlight one older text that offers valuable insights into inequality.)
“Race and Economic Opportunity in the United States: An Intergenerational Perspective”, Raj Chetty et al. (2018)
This study led by Raj Chetty of Opportunity Insights, whose other work I strongly recommend checking out, offers a concerning portrait of race disparities in economic mobility. In short, this major report, which was widely circulated when it was released, shows that Black children have substantially lower rates of upward mobility than other demographics and are stuck in place across generations. Black men, in particular, consistently earn less than white men, regardless of whether they’re raised poor or rich. Black women showed less deviation from trends in white economic mobility, by contrast. Read
What I’ve Been Working On
(A brief summary of projects that I have been working on in the past month.)
Quote of the Month
“If incarceration had come to define the lives of men from impoverished black neighborhoods, eviction was shaping the lives of women. Poor black men were locked up. Poor black women were locked out.”
― Matthew Desmond, “Evicted: Poverty and Profit in the American City”, 2016
Thanks for reading! See you in July.
That’s a wrap on this edition of “The Difference Principle”
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