A happy and healthy March to you. Welcome to “The Difference Principle: a Newsletter on Inequality”.
First, given the rapid spread of the coronavirus (COVID 19), I want to begin by wishing all readers and their families safety and good health. If you have not already, please consult the CDC’s recommendations on how to avoid contracting coronavirus and infecting others.
Since this is our first issue, I’ll begin by briefly sharing why I think it is so important to study inequality and what my plan for “The Difference Principle” is.
Modern US inequality is historically high but not unprecedented. During the “Gilded Age” of the late 19th and early 20th centuries, a new industrial elite emerged alongside stagnating working-class wages and higher living costs. These same forces have been present today, although there are good reasons to believe the modern problem of inequality is worse. Since inequity began to increase in the mid-1970s, I argue there have been effectively five major causes of inequality: the decline in unionization, globalization, financialization, bad policy, and technology.
High inequality matters because it is a scourge on society. It correlates with mobility, which is at the core of America’s promise to promote equality of opportunity and a capitalism that remains competitive. Higher inequality also correlates with a country’s homicide rate, depression rate, suicide rate, the prominence of drug use, and the shift towards radical and often intolerant politics. It also results in more costly economic recessions and lower rates of long-run growth. This is to say nothing of ethics and the notions of political justice that might provide ample reasons to resist inequality.
By highlighting major reports and news stories each month that can teach us about the causes and effects of US inequality, I hope this newsletter will be a useful resource. And I am excited to say that there are currently over 300 subscribers—people from diverse backgrounds, including scholars, policymakers, politicians, students, and journalists.
You will find all of the content below divided into four sections.
First, the “Top Story”, where I highlight a development that I think should receive particular attention. Second, “Big Ideas”, where I summarize major reports, research, and news stories from the past month that are relevant to US inequality and its discontents. Third, “What Else I’m Reading”, which is a brief collection of other reports and developments that deserve some attention. Fourth, “From the Bookshelf”, which will include older pieces of research or texts that are of particular interest. Then there is a quote of the month and a brief summary of what else I’ve been working on.
Since this is the first edition of “The Difference Principle” it is also longer than I anticipate subsequent issues of the newsletter will be—I cast a wide net and, to make sure readers don’t miss out on some of the most interesting work that has come out recently, included pieces that were up to three months old. This edition is also coming later in the month than subsequent issues will come. Expect future editions of the newsletter to pop into your inbox on the first of every month.
This March, our top story is about the rise of economic returns on college degrees and the role those returns have played in spurring greater wage inequality. We also highlight twenty-one reports in our “Big Ideas” section on a diverse array of topics, including the Black-white wealth gap, the role of student debt in reducing homeownership, and the spread of automation and skills-biased technological change.
Then, we briefly discuss thirty-four other reports and news stories that are worth checking out. We conclude with the “From the Bookshelf” section, where we turn to Walter Scheidel’s seminal text on the history of inequality from the Stone Age to the present: “The Great Leveler”.
See you again in April.
—Julian, writing to you from Ghent, Belgium.
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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)
(In “Spotlight”, we highlight one report or story from the past month that deserves particular attention.)
The race between education and technology… redux
(David Autor, Claudia Goldin, and Lawrence Katz, Journal of Labor Economics)
More than a decade ago, Harvard University economists Claudia Goldin and Lawrence Katz published a seminal study on the relationship between technology and the demand for high skills and college degrees by employers. Their research—titled “The Race Between Education and Technology”—showed that the earnings gap between the average high school graduate and the average college graduate doubled from 1980 to 2005 and that the increase in economic returns for college graduates was responsible for about 60 percent of the rise in wage inequality from the 1973—2005 period.
Seven years later, MIT economist David Autor showed that the gap between median college-educated and high-school-educated annual wages for men measured in 2012 dollars was $17,411in 1979 and $34,969 in 2012. And a paper Autor co-authored prior to the Goldin and Katz study showed that computerization might be responsible for 60 percent of the increase in demand for high skill/college-educated workers from 1970 to 1998. The findings of these studies are incredibly relevant to anyone studying inequality—they give a sense of both the scale of America’s growing gap between the rich and the poor as well as the underlying economic mechanisms spurring that movement forward.
This past January, Goldin and Katz joined Autor in publishing an updated version of their initial 2007 study. In this new version of “The Race Between Education and Technology”, they undertake the “Herculean task” of tracing the wage gap between high skill and low skill workers from 1825 until 2017.
What their findings reveal is that, as new technologies require workers to upskill, premiums on education increase. If the US fails to adequately increase educational attainment and schooling appropriately, wage inequality emerges. This was true in the early 20th century—it took a movement to send all students to high school in order to decrease the high school wage premium and earnings gap. Shortly after this period, rising premiums on college-degrees emerged, though they decreased during the Second World War and around the 1970s.
After 1980, however, things changed. This paper shows that 75 percent of the rise in US wage inequality from 1980 to 2000 is directly attributable to the premium on college degrees. Autor, Goldin, and Katz argue that this increase in premiums was a consequence of the slowdown in the growth of college-educated people. From 2000 to 2017, the role of the college premium was weaker—rising returns on high skills account for 38 percent of the rise in wage inequality. And, beyond this, it seems that there is a rising premium gap among college graduates—most of the increase in wage inequality occurred within that group as opposed to among non-college educated. This corroborates the notion that inequality is growing and that incomes are increasingly concentrated among an even smaller subset of people than the past.
(“Big Ideas” showcases particularly interesting stories and reports from the past month—organized by subject.)
~Business and Finance~
High levels of student debt are decreasing homeownership for young people
(Alvaro Mezza, Daniel Ringo, Shane Sherlund, and Kamila Sommer, Journal of Labor Economics)
By utilizing a unique dataset, members of the Federal Reserve Board looked at how student debt was affecting the homeownership rate of people in their mid-20s. For context, from 2005—2014, the homeownership rate plummeted by nine percentage points for people aged 24-32. That’s almost twice as high as the decrease for the rest of the population. Meanwhile, student debt has been increasing—in 2005, 30% of 22-year-olds had student debt, averaging $13,000. By 2014, those numbers increased to 45% and $16,000 respectively. With this in mind, the study finds that a $1,000 increase in student loan debt causes between a one and two percent decrease in the homeownership rate of student loan borrowers in their mid-20s. The report also finds that student debt tends to negatively impact borrowers’ credit scores, possibly excluding them from the mortgage market. Read.
Wage gains during “markups” are likely to go to “expansionary workers”
(Greg Kaplan and Piotr Zoche, Becker Friedman Institute for Economics at the University of Chicago)
In the past, economists have regarded laborers as individuals who produced existing things for the economy. This paper shows that, contrary to this belief, between 20 to 35 percent of US labor income pays for expansionary activities, which involve the creation of new products or the expansion of market share. Prior to this study, economists and policymakers put this number at zero. Expansionary workers are more likely to see benefits than other workers during a markup (when the gap between marginal costs and product prices grows). The report also finds that the portion of expansionary workers has increased since the 1970s, alongside economic inequality. Read
Why finance has not created faster economic and productivity growth
(Neil Irwin, The New York Times)
Why has finance-driven capitalism not catalyzed greater economic growth since the expansion of American financialization? Using a failed budget shoe chain as a case study, this article in the New York Times makes the case that private equity groups—tasked with improving poorly run corporations—often don’t make the companies they finance more productive or dynamic. As the author shows, in extreme cases, private equity seems clueless—electing to sell World-Cup themed sandals that wouldn’t arrive until after the World Cup, for example. The undergirding problem, this article shows, is that private equity often has a preference for swift profitability and improvements in productivity that might look good in the short-run but ultimately leave a company in a more precarious long-run position. Read
High inequality reduces mobility through declining high school attainment
(Melissa S. Kearney, University of Maryland; Philip B. Levine, Wellesley College)
In 2006 the economist Miles Corak showed that as a country becomes more unequal, economic mobility (i.e. your ability to improve or worsen your economic conditions) tends to decline. Six years later, economist Alan Krueger introduced the concept of the “Great Gatsby” curve to describe this phenomenon. It is unclear, however, whether higher inequality is causally responsible for the decline in economic mobility. This paper argues that one way higher inequality directly reduces mobility is through the perception among low-income students in highly unequal places (especially boys) that school is unlikely to improve their lives—as the authors put it, the perception of a “lower rate of return on investment in their own human capital”. This is measured through the increase in dropout rates, in cases where students’ stated reason for dropping out is not due to a difficulty keeping up with coursework. The authors see support for their hypothesis in survey data and discuss the potential policy implications of their findings. Read
Meanwhile, higher college attainment reduces inequality… a little bit
(Brad Hershbein, Melissa Schettini Kearney, and Luke W. Pardue, NBER)
Just as declining high school attainment was found to be both a cause and effect of inequality, this study provides a simulation of what might happen if college attainment increased for men and women aged 25—54 who are seeking either a bachelor’s or associate degree. By estimating the impact on earnings inequality, the authors find that higher college attainment would increase individuals’ average earnings and that those effects are concentrated in the lower half of the earnings distribution. This shows that higher college attainment can be a meaningful way of both reducing poverty and near-poverty rates as well as reducing inequality. The authors do concede, however, that the effects on overall US inequality would be relatively small, and certainly not large enough to reduce the income and wealth gap back to 1970s levels. This is because higher college attainment will do little to affect the earnings of the wealthiest individuals in the US income distribution, and that demographic is where most of the rise in inequality has taken place. Read
Graduating during a recession has long-term negative health consequences
(Hannes Schwandt and Till M. von Wachter, NBER)
This is the first paper to study the negative effects of entering the workforce during a recession has on mortality and the socioeconomic status of individuals after the age of forty. By focusing on groups born in the late 1970s—mid-1980s, the authors found that individuals who came of age and entered the workforce during the recession of the early 1980s saw a rise in mortality, which appeared in their late 30s and got worse through age 50. This rise in mortality was driven through both diseases (heart disease, cancer, etc.) as well as drug overdoses. Individuals who were unlucky while entering the workforce during the recession also earned less, were less likely to be married, and were more likely to be divorced and without children. These effects on overall mortality were similar by race; however, they were most pronounced among white men. Finally, it is worth noting that the study utilizes mortality as a benchmark for negative health outcomes. Since this study does not capture all the other long-term health effects that do not end in death, the authors note this study’s estimates should be considered lower bound. These findings are supported in an unrelated paper published by the Upjohn Institute. Read
Charts showing how working-class life is killing Americans
(David Leonhardt and Stuart A. Thompson, The New York Times)
In 2015, the economists Anne Case and Angus Deaton published an influential study that tracked the rise of American “deaths of despair”—dying from suicide, alcoholism, or drug abuse— which were concentrated in working-class white communities and, especially, among the non-college educated. This piece in the New York Times creates a portrait of the increase in these deaths of despair, highlighting who the people most affected are and what recent US trends have been. In short, the victims of deaths of despair tend to be white, non-college educated men. And non-college educated individuals are less likely to be married, more likely to suffer from chronic pain, more likely to drink heavily, less likely to attend church, and are generally less happy. The rise in deaths of despair has correlated with the rise of inequality in the US. Read
Emmanuel Saez’s latest work shows the efficient UE rate is as high as 6%
(Emmanuel Saez UC Berkeley; Gabriel Zucman UC Berkeley)
Emmanuel Saez is an economist who has been very influential in the study of inequality. A study he co-authored last year, which I recommend reading, created a blueprint for a progressive wealth tax, which subsequently became a central policy proposal in Senator Elizabeth Warren’s 2020 Presidential Campaign. In this paper, Saez estimates that the efficient unemployment rate, in which welfare is maximized, is 6 percent. By contrast, most economists put the natural rate of unemployment between 4.1 percent and 4.7 percent. To reach his conclusion, Saez relies on something called the “Beveridge curve”, which describes the relationship between unemployment and job vacancies. Of course, high unemployment and job vacancies (indicative of a recession) both come with welfare costs. And yet, the Beveridge curve shows that both cannot be reduced at the same time. Lower unemployment requires more vacancies and fewer vacancies create more unemployment. Saez’s 6 percent figure is where he reckons unemployment is most efficient along the Beveridge curve—that is, where it maximizes welfare. Read.
Higher inequality results in a preference for longer working hours
(Constantinos Alexiou and Adimulya Kartiyasa, Bulletin of Economic Research)
Drawing on research by Thorstein Veblen, this study looks at the relationship between economic inequality and an individual’s time spent working and in leisure. The authors find that greater inequality tends to correspond with longer working hours, and they attribute this conclusion to the apparent preference for conspicuous consumption (e.g. luxury goods) over conspicuous leisure (e.g. idleness) among the wealthy. The authors speculate that the corresponding rise in working hours may be a result of “consumption emulation”, whereby middle and low-income individuals seek to enhance their financially-derived social status by taking on more work. In other words, the consequence of the rich getting richer is greater consumption of luxury goods. And this, in turn, creates a psychological-pressure for the non-rich to work longer hours to keep up. Read
A brief history of US economic inequality
(Chad Stone, Danilo Trisi, Arloc Sherman, and Jennifer Beltran, Center on Budget and Policy Priorities)
This piece by the Center on Budget and Policy Priorities provides a brief summary of the recent history of US inequality. It’s a useful briefer on the topic because it summarizes some of the most important pieces of research that give us an insight into the rise of inequality since the Second World War. In short, the years from World War II to the 1970s were years of strong growth, less inequality, and the presence of a robust middle class. During this period, incomes double across all income demographics. This changed at the beginning of the 1970s—economic growth slowed and the income gap grew. Today the income gap is the highest it has been since the 1920s, during the Gilded Age. Wealth is even more dramatically concentrated—the share of wealth held by the top 1 percent rose from 30 percent in 1989 to 39 percent in 2016, while the share held by the bottom 90 percent fell from 33 percent to 23 percent. This report summarizes these statistics and offers guidance on how to read the recent history of US inequality. Read
Thomas Piketty has a new book out
(Thomas Piketty, book review in the New York Times, New Yorker, and Economist)
In 2013, Thomas Piketty published a 700-page account of rising wealth and income inequality in the US and Europe. It became a New York Times bestseller, despite an analysis of Kindle readership, which found that the typical reader only made it through an average of 26 pages. The new book “Capital and Ideology” is a one thousand page text with a central thesis that, as Piketty says, “Inequality is neither economic nor technological; it is ideological and political.” What results is a book perhaps even more ambitious than its predecessor. Using the lenses of philosophy, sociology, economics, political science, and history, Piketty attempts to retell the history of the world through a prism of inequality. The case studies “Capital and Ideology” looks at are unsurprisingly diverse—from the pre-colonial Hindu kingdom of Pundukkottai to contemporary Swedish corporate boards. Piketty ultimately proposes a type of modern socialism, with a more “democratized economy” and wealth taxes up to 90 percent. Read reviews in the New York Times, New Yorker, and Economist. Buy here.
~People and Places~
The Black-white wealth gap is bigger and more widespread than we thought
(Kriston McIntosh et al, The Brookings Institution)
When studying inequality, wealth—the value of all an individual’s assets (physical and intangible) minus all debt—is an essential unit of measurement. Unlike income, wealth serves as a safety net to keep people from losing their livelihoods during short-term hardships, such as losing a job. Wealth—and the safety net it provides— is essential to taking career risks, accessing housing in safe neighborhoods, and it is also taxed at much lower rates than income. Though economic inequality along lines of race is understood, this report by The Brookings Institution shows that the wealth gap between white households and Black households is higher than previously thought. In 2016, the net worth of the average white family was nearly ten times larger than the net worth of a black family ($171,000 compared with $17,150). This disparity is higher today than it was at the start of the century, in part because Black families were hurt particularly badly by the 2008 Recession. Though some of this gap may be due to the higher median age of white people when compared with Black people, this study shows that the wealth gap persists within age demographics and even within income brackets—the top 10 percent of income earners (only 3.6 percent Black) see its white members hoovering up 5 times more wealth than Black people. The report’s authors argue this is due, in large part, to the role of inheritance, and they conclude with a set of policy prescriptions. Read
The growth of the technology sector is highly unequal
(Mark Muro and Robert Atkinson, American Enterprise Institute)
Studying geographic inequality is an essential component of studying inequality generally speaking. Especially today. This report by two leading scholars discusses the consolidation of the technology sector (and the high wages and profits it commands) in a geographically unequal way. Despite the perception that the tech sector is becoming increasingly diffuse in the US, it continues to concentrate in a small group of wealthy cities. The authors identify San Francisco, San Jose, Austin, and Seattle as the places particularly benefitting, all while the US heartland has continued to stagnate. The report discusses these observations and offers policy suggestions about how the US can kindle faster economic growth in heartland cities. Read
Black businesses are valued less than white ones, regardless of quality
(Andre M. Perry, Jonathan Rothwell, and David Harshbarger, The Brookings Institution)
This report from The Brookings Institution’s Metropolitan Policy Program discusses the presence of consumer biases against businesses. By matching data from Yelp with financial performance data from the National Establishment Time-Series (NETS) Database, the authors highlight the economic costs of those biases. In total, the report reckons that Black-majority neighborhoods experience an annual loss of business revenue as high as $3.9 billion. And although Black people make up 12.7 percent of the US population, they comprise only 4.3 million of the country’s 22.2 million business owners—much of this may have to do with a lack of access to capital and credit. By using Yelp ratings as a measure for business quality, the authors found that establishments in Black-majority neighborhoods grow at roughly the same rate regardless of quality, and even highly rated establishments in those communities perform worse than poorly rated ones in neighborhoods that are less than 1 percent Black. Read
~Social Security and Taxation~
Wharton economists argue wealth inequality has not actually increased
(Sylvain Catherine, Max Miller, and Natasha Sarin (Wharton/UPenn Law)
Scholars from the University of Pennsylvania’s Wharton School argue that contemporary estimates of inequality vastly overstate the presence of wealth concentration. By incorporating the impact of social security retirement benefits into measurements of wealth inequality, the authors find that wealth inequality has not increased in the past three decades. Moreover, social security wealth increased from $5.6 trillion in 1989 to $42.0 trillion in 2016, when social security represented 58 percent of the bottom 90 percent of household wealth. Read
Developing a new progressive tax policy
(Emily Moss, Ryan Nunn, and Jay Shambaugh, The Brookings Institution)
The presence of an aging US population has created a need for greater government taxation. And meanwhile rising inequality necessitates that such a change in taxation policy be more progressive than what currently exists. This report by the Brookings Institution highlights some of the failures of the modern tax system before suggesting alternatives that would allow the US to reach its funding goals in a progressive way. The authors argue that modern tax policy relies on both payroll taxes and income taxes, while corporate taxes raise less revenue than they used to and capital gains and the estate tax raise a small share of income taxation. The report advocates the embrace of a more progressive tax system. Read
Automation creates a bias for high-skill labor, which increases inequality
(Daron Acemoglu, Claire LeLarge, and Pascual Restrepo, NBER)
New technologies, such as artificial intelligence, are expanding the scope of what labor can be automated. This paper models the effects of automating existing tasks that workers perform alongside the “counteracting” effects of new skill demands and the emergence of new work, which automation creates through efficiency gains. The authors find that automation has been a significant source of displacement and that demand for skills has grown since 1987 due to counteracting effects. These results are significant because they represent another account of how the US economy has shifted in a way that values “high skills” more highly than in previous decades. And all of this powerfully affects inequality and has the potential to reduce real wages, with potentially marginal changes in productivity. Read
Robots result in a decline in manufacturing work, as seen in France
(Daron Acemoglu, NBER)
Another study by Daron Acemoglu. This one takes France as a case study and looks at how the introduction of labor-automating industrial “robots” by a firm affects its workers. Perhaps unsurprisingly, Acemoglu finds that robots reduce the number of manufacturing jobs and increase productivity. For an individual firm, the introduction of robots can actually create more job openings in the short run because the efficiency gains (money saved in production) allow that firm to open new branches or increase production. These effects, however, are more than offset by the large reductions in employment at competitor firms. This leads Acemoglu to conclude that adopting robots has an overall negative impact on workers employed in manufacturing. Read
AI is most likely to automate routine and rural work done by young men
(Mark Muro, Robert Maxim, and Jacob Whiton, The Brookings Institution)
There have been numerous studies attempting to predict the numbers and types of jobs that will be automated by digital technology, such as artificial intelligence. A particularly significant attempt to do this came from the McKinsey Global Institute, which focused, not simply on what jobs would be automated, but instead on what tasks would be automated. The Brookings Institution’s Mark Muro uses data from that McKinsey report to analyze the impact of automation from 2016 to 2030 across 800 occupations. In total, he finds that about 25 percent of US employment—that’s 36 million jobs in 2016—face “high exposure to automation”. Meanwhile, 36 percent of jobs are at medium level exposure and 39 percent are at low level of exposure. In general, work that is easily automatable tends to be routine and rural, performed by young men--another Brookings report reaches similar conclusions. Read
A survey of research finds evidence that free trade can increase inequality
(Ann Harrison, John McLaren, and Margaret McMillan, World Bank)
There is little question that outsourcing and global liberalization has led to a significant upheaval of US labor markets—see this paper on the effects of shipping jobs off to China. Yet there is mixed evidence that trade and globalization have been a major force spurring inequality in the US. This report by the World Bank provides a survey of significant pieces of economic research (theoretical and empirical) that attempt to assess the impacts of trade on US inequality. It finds that available evidence supports the notion that greater openness increases wealth and income disparities, possibly through rising returns to “skilled labor” and declining returns to “unskilled labor”. Many economists remain skeptical, however, that trade—as opposed to technology or government policy—has been a chief engine of inequality. Read
Immigration slightly reduces low skill wages
(Vasil I. Yasenov, The Upjohn Institute)
How does an influx of immigration affect wages? This report by the Upjohn Institute shows that, since 1980, immigrants have been increasingly overrepresented in low-skill and low-wage work. Some of this, the author argues, may be a consequence of Americans downgrading the value of education and experience obtained abroad. Through two different methodological approaches, this study finds that a one percent increase in the number of immigrants in the US results in only a 0.2—0.3 decrease in wages. This indicates that immigration has not been a chief contributor to the rise of US inequality in the past few decades. The author notes that some of the attention immigration receives may stem from the perception of distinct winners and losers from an influx in foreign-born individuals. Read
What Else I’m Reading
(“What Else I’m Reading” is a very brief rundown of other noteworthy reports and stories.)
The coronavirus is decreasing student loan refinancing rates, benefiting students (Credible)
The coronavirus is disproportionately hurting low-income Black and Latino communities (The New York Times)
The British columnist Owen Jones argues the coronavirus shows that high inequality can harm peoples’ health and even kill (The Guardian)
Affordable housing is too often placed at a distance from where available jobs actually exist (Urban Institute)
New apartment buildings in low-income areas do not accelerate gentrification; they slow rent increases and increase migration from other low-income neighborhoods (Upjohn Institute)
Despite pre-corona headlines that indicated the US has a strong economy, the country has seen an affordability crisis, in which families and individuals were “bled dry” by rent, medical fees, university fees, and child care costs (The Atlantic)
At least 3.2 million more people should be classified as being “in poverty” based on inflation changes alone (American Progress)
Roughly a third of adults aged in their 40s—early 60s has given a parent money in the past year for things like groceries and housing (New York Times)
There are deep racial and economic inequalities in Long Island (Urban Institute)
The Brookings Institution published its annual Metro Monitor report on the socio-economic conditions in 192 metropolitan statistical areas (Brookings)
The decline of US dynamism has been particularly pronounced in rural areas, in part due to migration into cities (American Enterprise Institute)
Private school choice improves public school outcomes (NBER)
In the years after the Great Recession, the economy structurally (not cyclically) shifted in a way that privileges high-skill (educated) labor (NBER)
A guide for students, parents, and counselors on the “right” amount of student debt to take on for college (Urban Institute)
Credit card debt has reached record levels—currently at $930 billion, which is much higher than it was prior to the 2008 crisis. (Wall Street Journal)
Higher labor inequality leads to larger government debt, but larger capital inequality may lead to less debt due to changed government incentives to borrow (Economic Letters)
Trump’s 2021 budget would increase income inequality and widen disparities across race and ethnicity (Center on Budget and Policy Priorities)
The Brookings Institution outlines four potential approaches to developing a robust wealth tax policy capable of raising $3 trillion over the next decade (Brookings)
A pre-funding mandate for retiree health benefits threatens the ability of the U.S. Postal Service to continue to provide good jobs and universal service (Institute for Policy Studies)
Increasing the minimum wage improves child health (NBER)
Wages will generally rise under medicare for all, however, this will not be true for everyone (New York Times)
On how employers identify whether to hire (and pay) interns
(NBER)The Economist’s annual index ranking of women’s equality in the workplace shows Iceland in the lead and the US at 22, behind the OECD average (The Economist)
According to the Labor Department, labor unrest reached its highest level in nearly two decades in 2019, with 25 labor-related work stoppages, including strikes and lockouts (Wall Street Journal)
Lower immigration may have a short-run benefit to wages; however, that is hardly a reason to impose tighter restrictions at the border (The Economist)
By applying machine learning techniques, economists estimate the impact of automation on US jobs and assess policies aimed at addressing the loss of work and higher inequality (Brookings)
Policymakers should worry about the changing nature and demands of work, not the end of work due to automation (Brookings)
Uber is considering radical financing options to fund its driverless cars (Financial Times)
Manufacturing automation means production-heavy developing countries must now export services (NBER)
Greater access to broadband can promote better and more equal health and economic outcomes (Brookings)
Contrary to the warnings of Elizabeth Warren, the subprime auto loan market does not pose a threat to the economy similar to the pre-recession subprime mortgage market. (Progressive Policy Institute)
The 2020 election may be influenced by voters’ views of inequality and the Democrat’s ability to capitalize on those views (Financial Times)
Self-employed individuals are more likely to tolerate high levels of inequality due to preferences for autonomy (British Journal of Sociology)
Inequality in Finland increased until it fell during World War I and increased again until it fell during World War II, supporting the hypothesis that inequality tends to get reduced by dramatic shocks (European Review of Economic History)
From the Bookshelf
(Each month, we highlight one older text that offers valuable insights into inequality.)
“The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century” (2017), Walter Scheidel
“The Great Leveler” traces the history of inequality from the stone age to the modern-day. The central thesis of scholar Walter Scheidel is that high levels of wealth polarization only ever get remedied—or leveled—through cataclysmic disasters of one sort or another. And throughout history, these disasters have taken on four distinct forms: plague, civil war, mass military mobilization, and government collapse. As he argues, “this was as true of Pharaonic Egypt as it was of Victorian England, as true of the Roman Empire as of the United States”.
In this regard, Scheidel offers a push-back against economists who attempt to explain egalitarian leveling as a consequence of cyclical market forces. On the contrary, when we consider the case of “Gilded Age” American wealth, Scheidel shows that inequality only declined because of the Second World War. As he explained, “the physical destruction wrought by industrial-scale warfare, confiscatory taxation, government intervention in the economy, inflation, disruption to global flows of goods and capital, and other factors all combined to wipe out elites’ wealth and redistribute resources.”
What I’ve Been Working On
(A brief summary of projects that I have been working on in the past month.)
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Quote of the Month
"Inequality isn’t just about the billionaires, it’s about the fact that the top 10%, and particularly the top 1%, have done disproportionately well. The vast mass of everyone else, including those who you’d consider to be middle-class, although in absolute terms they’re doing much better, in relative terms they’re doing much worse. That’s not how you build a successful country."
— James Crabtree, Associate Professor at the Lee Kuan Yew School of Public Policy.
Thanks for reading! See you in April.
That’s a wrap on the first edition of “The Difference Principle”
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