 *Everything you need to vote is here at Vote.org* What a month. There’s a lot to talk about this time around, and this newsletter is coming late so let’s just dive into it. In this edition’s Headline” section, we discuss the role of unions in improving worker happiness and quality of life. This month’s “Inequality Briefing” summarizes eight recent studies, detailing, for example, how the current pandemic is resulting in lower-income households falling further behind on their student debt. First, here’s a snapshot of the US economy at large: The economy shed over 11.5 million jobs and $2 trillion in output during the coronavirus pandemic and its aftermath. This amounted to a GDP contraction at an annualized pace of 32.9 percent in the second quarter. This was no surprise to economists. What was a surprise to some was the sluggishness of the recovery due to the possible reimplementation of strict social distancing protocols. The headlines in August weren’t all bad though. The unemployment rate fell at its second-highest one-month rate ever, and almost one million people joined the labor force as the total number of unemployed fell by 2.8 million. Meanwhile, spending was also up again and the retail sector seems to be rebounding. In the past, we’ve mentioned that if demand fell considerably, it could put downward pressure on prices leading to a possible deflation. Americans bumped up their spending in July, but they did so at a slower pace than in previous months, and spending is still well below its pre-pandemic level. Since the beginning of the pandemic, the economy has been kept afloat by stimulus provisions, especially by the extension of an extra $600 a week unemployment provision. That $600 a week benefit has expired and been replaced by a $300 benefit, which is already running short in some states and may not be sufficient to continue boosting consumer spending. Then there’s the question of debt. I argued in a previous newsletter that the decimation of incomes due to COVID could severely hurt individuals who are heavily indebted. Although stimulus provisions are less generous this time around, the extension of emergency funds to Americans allowed many people to pay off their debts. This is unlikely to continue unless a recovery is swift or stimulus provisions are made more generous again. Where did this debt go? It effectively became absorbed by the US government. Whenever private debt increases and is made unsustainable, it often is transferred into public debt when the government steps in with bailouts. In this case, the debt never really goes away, it’s just moved elsewhere. This is why it is also no surprise that government debt has soared to levels not seen since the Second World War. The picture for inequality? Not good. We might look at the state of the US economy and think to ourselves that things are rocky but generally looking up. Yet when we actually peek into the underlying data and study what’s going on along lines of economic status and demographics, the picture is far bleaker. Here’s one you didn’t hear at the RNC: 30 million Americans don’t have enough to eat on a given week. That number is higher than it was a month ago and amounts to roughly 12 percent of all adults (for Black and Hispanic households, the share was about 21 percent). And the presence of rising hunger was occurring prior to the expiration of the beefed-up unemployment benefits, which seems likely to both reduce spending and increase the number of people who are not getting enough food. Meanwhile, although the employment rate for high wage workers has almost entirely recovered (it was only down by one percent), the employment rate remains 15.4 percent lower for low-wage workers. In addition, the number of people who are “long-termed unemployed” and at risk of being locked out of the labor market and prevented from accessing unemployment benefits is increasing. Although Black Americans were not hit as hard by this recession as they had been by previous ones, they have seen the smallest month-to-month decline in their unemployment rate. The millennial generation is also still lagging behind due to the enduring impact of the 2008 Financial Crisis. And this second crash could keep them from acquiring the wealth of older generations—the unemployment rate for millennials is higher than it is for Generation X and the baby boomers. In previous editions of this newsletter, we have discussed at length how women (and especially Black and Hispanic women) have been disproportionately hurt by the Coronavirus Recession. We have also discussed how over one-fifth of Black and Hispanic adults said their household either missed June rent or mortgage payment or paid late—that’s double the number of white households. We pick up on those topics in this month’s Inequality Briefing; however, it is also worth focusing attention specifically on the damage the pandemic and downturn have done to lower-income households with children. New data shows that the highest rate of loss of income loss was in households with children (about 40 percent) followed by single-parent households. 60 percent of these groups have postponed health care visits. Research shows that online schools could force more than four million working parents out of the labor force. But wait, haven’t stocks been doing well? Although the stock market has certainly been jerky, with tech stocks (Apple and Tesla, for example) plummeting for a period, August was the best month for the stock market since April. The problem here is twofold. First, the ascent of the stock market has been driven almost entirely by a small number of massive tech companies. Second, the top 10 percent of Americans by wealth own 87 percent of all stocks, according to the Federal Reserve. That share is on the rise, which means that the stock market has been in even greater dissonance with the real economy. Given all of this, it’s not entirely a surprise that billionaires—people whose taxes (for money not stored in offshore havens) decreased by 79 percent since 1980—have seen their net worth grow by over half a trillion dollars during the Coronavirus Pandemic. The effects of this pandemic on inequality may also be long-standing because the shift to remote work has hastened the shift from labor to capital (i.e. replacing workers with machines). As work becomes substituted for capital, labor’s share of income may decline and decent-paying middle-skill jobs could be shuttered. Furthermore, the massive debt that the US is in means that cities and the federal government may attempt to narrow deficits by cutting back on social services. Not a bad time to remind ourselves to vote… Before you read on: “Connect: College Access Tutors”, which provides free remote college essay tutoring to low-income students, is still recruiting volunteers. Connect is currently working with six 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. Next, a recommendation: “Nice White Parents” is an excellent podcast about building a better school system. You can check it out here. And 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. Thanks for reading. See you in October. —Julian, writing from New York City Forwarded this email? Sign up for “The Difference Principle” here. To receive emails when I publish my own work, sign up here. Like the Facebook page here. If you enjoyed this newsletter, feel free to share it. The Headline Thank you to Maanasi Natarajan for excellent research assistance with these studies. Union membership now leads to job satisfaction and greater well-being, contrary to pre-2000s data, (David G. Blanchflower and Alex Bryson, NBER) Previous scholarship showed that trade union membership and job satisfaction were negatively correlated, reflecting the attitudes of people born in the 1940s and 1950s. This report shows that things have changed significantly, and today there is a positive correlation between job satisfaction and union membership. One reason scholars believe there is a historical tendency for unionization to negatively correlate with worker satisfaction is that unions had an interest in kindling a spirit of dissatisfaction in order to strengthen their bargaining hands. Academics spent years trying to determine whether these correlations were causal or not, and they found that these results were not unique to the United States—similar correlations were found in Canada, Australia, and the United Kingdom. By the 2000s, however, a new wave of research showed that there was a partial correlation between union membership and job satisfaction in the US and other countries. In their own research, the authors of this report sought to revisit this research by using large-scale survey data for the US and Europe to examine whether the partial correlation between union membership and well-being had changed since pre-2000s studies. They find strong evidence that there are positive correlations between union membership and worker well-being in both the US and Europe. US data shows that, although a negative correlation between job satisfaction and unionization historically existed in the 20th century, this is no longer the case today. More specifically, this study’s findings show that union membership benefited from a boost in the aftermath of the Great Recession because the downturn made union-offered insurance attractive. What are some of the other reasons for the shift? As inequality rises, unionized workers are more likely to experience substantial wage premiums. Moreover, in an economy where the share of decent middle-wage jobs is decreasing, union members’ often feel that it would be difficult to find other good work. Read Announcements
Your Inequality Briefing ~Business and Finance~ The Dodd-Frank Act hasn’t leveled the playing field; it’s benefitted the big banks. (Edward J. Kane, Institute for New Economic Thinking) The Dodd-Frank Act was enacted in an effort to reform the financial regulatory system in the aftermath of the 2007-2008 Great Recession. Yet this report argues that it was designed to benefit big banks and has helped those banks increase their market share during the last 10 years. The study explains that the US rescue of banks following the Great Recession absolved them of responsibility for the crisis and instead rewarded them for their bad behavior. This manifested most notably in the form of (1) massive subsidized support to megabanks in the US and in Europe and (2) in the continuation of those subsidies long past the panic’s ended. Genuine reform, the study says, will require changes in fraud laws and an effort to reduce the safety-net subsidies that megabanks enjoy. Read ~Education~ Low-income households are falling further behind on their student debt in the midst of COVID. (Jason Jabbari, Olga Kondratjeva, Mathieu Despard, and Michal Grinstein-Weiss, The Brookings Institution) The Social Policy Institute at Washington University in St. Louis conducted a national survey between April and May 2020 to explore the influence that the COVID Pandemic has had on student debt. This report shows that, as lower-income students fell behind on student debt payments, higher-income households used relief payments to catch up on payments. The report finds that of 1,264 households, roughly 23 percent reported that they had fallen behind on student loan payments, with over half stating they were behind on payments as a result of COVID. It’s worth noting here that pre-pandemic research showed that 40 percent of all students were on track to default on their student debt by 2023. That number may well be higher today. Read ~Macroeconomy~ It’s not just the top 1 percent. Inequality is growing in the economy at large. (Stephen Rose, The Brookings Institution) Most existing economic literature on income inequality and the shrinking size of the middle class does not follow the same groups of individuals over time. This study is unique because is author examined changes in income and class position over two fifteen-year periods — 1967 to 1981, and 2002 to 2016. The report looked at factors such as group income growth, individual income losses and gains, and income class composition by race and education, among others. Although the findings confirm much of the broadly accepted research about rising inequality, the study also makes a few additional points. First, gains in recent decades have not just gone to the top 1 percent—the upper-middle class has grown as the middle class shrunk, chiefly because a larger number of people have higher incomes. Second, education matters more than ever in securing a place in a high or middle-income bracket. Third, on aggregate, there is a growing number of Americans experiencing downward mobility, and the growth of median incomes for adults precipitously fell over the past 15 years. Read ~People and Places~ Recessions have lingering effects on hard-hit regions, especially among lower-income households. (Brad J. Hershbein and Bryan A. Stuart, UpJohn Institute) The COVID Pandemic has hit dense urban areas particularly hard. Those areas have not just seen the largest number of cases; they have also seen some of the most dramatic spikes in unemployment during this recession. This report discusses how places that lose five percent or more of their employment during a recession see lingering reductions in their employment by one to two percentage points a decade later. This means that local recessions tend to have a long-term impact on an areas income. In badly hit areas, long-term per capita earnings are between one and five percent lower than they would have been in the absence of the recession, and these losses hit those in the bottom half of the earnings distribution the hardest. The report explains that one of the primary reasons for these long-term effects is that employment opportunities shift across regions more quickly than people do. Read An Atlanta park found a creative way to bring social services to its homeless population. (Elena Madison, The Brookings Institution) The COVID Pandemic is exacerbating homelessness. In response, public spaces are becoming increasingly used to serve as homes for people seeking alternatives to homeless shelters or motels. This study discusses how Atlanta’s Woodruff Park infused social services and housing strategies into its everyday management. Instead of ignoring the homeless population or greeting them with law enforcement, the park is providing resources to its homeless population, offering games, information, and power outlets to anyone who needs it. The park also hired a full-time case manager that integrates social services with the park by building relationships with regular park users and offering referrals and services. Read ~Social Security and Taxation~ To effectively tax wealth and reduce inequality, consider an estate tax. (William G. Gale, Christopher Pulliam, John Sabelhaus, and Isabel V. Sawhill, The Brookings Institution) Wealth inequality is considerably higher than income inequality generally and also along lines of race. There has been a considerable push in the past year to evaluate the feasibility of a “wealth” tax, which would tax individuals based on the value of their assets, not just their income. Elizabeth Warren utilized research by Emmanuel Saez to propose a wealth tax model. And more recently, Bernie Sanders introduced a bill that would institute a one-time tax on billionaire wealth gains accrued during the COVID Pandemic. The report considers the virtues of expanding the estate tax as a means of reducing wealth inequality. The idea is to effectively target intergenerational transfers of wealth, which are a major contributor to growing wealth inequality. The authors explain that an estate tax raises a significant share of its revenue from taxing capital gains and encourages charitable giving. They offer up an estate tax calculator as well as estimates of the revenue this policy would generate. Read Here’s What Else You Should Know Policymakers are not doing enough to address the financial struggles of women of color, especially those that are frontline workers in healthcare and blue-collar professions, in the midst of the COVID pandemic. (New America) Unpredictable work hours lead to income volatility for hourly wage workers, especially those with family responsibilities, increasing the difficulty of making ends meet. (The Brookings Institution) The COVID crisis has had devastating effects on the creative industry, with losses in the sales of goods and services, employment, and earnings for musicians, artists, performers, and designers. (The Brookings Institution) The recession is over for the rich, but the working class is far from recovered. The stock market and home values are back at record levels, while jobs remain scarce for those earning less than $20 an hour (Washington Post) Unions are good for workers—especially in a crisis like COVID. (Economic Policy Institute) The presence of non-profit industries in a community correlates with a strong labor market, in part because those industries may help facilitate better social contacts. (Upjohn Institute) A parent’s job loss correlates with a reduction in the lifetime earnings of their child by between $22,000 and $72,000. (Upjohn Institute) The economic fallout of the COVID pandemic has been harder on millennials, who are already indebted and a step behind on the career ladder from the last financial crisis. This second pummeling could keep them from accruing the wealth of older generations. (Wall Street Journal) Individuals report having spent or planning to spend only around 40% of any stimulus money they received. 20 percent of the unemployed report that the stimulus payment made them search harder for a job. (National Bureau of Economic Research) A cool online virtual workshop on inequality. It includes 30-minute lectures and 18 contributing scholars. (Stone Center on Socio-Economic Inequality) Credit card debt plunged due to falling COVID-era spending. This drove a decline in overall household debt. (Federal Reserve Bank of New York) The rise in companies’ market power/monopolization explains a lot of “undesirable” trends in the economy, including rising income and wealth inequality. (The Federal Reserve) Michael J. Sandel: Disdain for the less educated is the last acceptable prejudice. It’s having a corrosive effect on American life — and hurting the Democratic Party. (New York Times) Janet Yellen and Jared Bernstein: The Senate is on vacation while thirty million households didn’t have enough food in the last week. (New York Times) The Opioid Epidemic was chiefly caused by the development and marketing of a new prescription opioids, rather than economic tumult. (National Bureau of Economic Research) Quote of the Month “If history shows anything, it is that there's no better way to justify relations founded on violence, to make such relations seem moral, than by reframing them in the language of debt—above all, because it immediately makes it seem that it's the victim who's doing something wrong.” ― David Graeber, Debt: The First 5,000 Years David Graeber was an anthropologist and critic of inequality who played a leading role in the Occupy Wall Street movement. He sadly passed away last week at the age of 59. Thanks for reading! See you in October. That’s a wrap on this edition of “The Difference Principle”. If you enjoyed this newsletter, consider donating to help make sure it continues. Any contribution would be greatly appreciated, and both single and recurring donation options are available. Let me know how I’m doing by using this form to submit any comments or feedback! I welcome any suggestions on ways this newsletter can be a greater tool for readers in the future. You can also email me at julianjacobs6@gmail.com with topics or reports you would like me to cover in the future or to unsubscribe. If you have not already, you may sign up for “The Difference Principle” here. To receive emails when I publish my own work, sign up here. If you enjoyed this newsletter, feel free to share it. Like the Facebook page here.
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