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Brad DeLong: Worthy reads on equitable growth, February 23–March 1, 2021

Summary:
Worthy reads from Equitable Growth: 1. Across a remarkably large chunk of the United States, employers seem to think that keeping their contract with their workers is an optional thing. It is very disturbing and distressing to me that the norm that contracts are to be observed appears to of fallen to the wayside to such a substantial degree. Read Equitable Growth’s “Executive action to combat wage theft against U.S. workers,” which documents: “Wage theft against U.S. workers exacerbates the long-run problem of low and stagnant wages. When companies commit wage theft, they impoverish families and deprive workers of the just compensation for their hard work, robbing workers of the value they contribute to economic growth and exacerbating economic inequality. The odds that a

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Worthy reads from Equitable Growth:

1. Across a remarkably large chunk of the United States, employers seem to think that keeping their contract with their workers is an optional thing. It is very disturbing and distressing to me that the norm that contracts are to be observed appears to of fallen to the wayside to such a substantial degree. Read Equitable Growth’s “Executive action to combat wage theft against U.S. workers,” which documents: “Wage theft against U.S. workers exacerbates the long-run problem of low and stagnant wages. When companies commit wage theft, they impoverish families and deprive workers of the just compensation for their hard work, robbing workers of the value they contribute to economic growth and exacerbating economic inequality. The odds that a low-wage worker will be illegally paid less than the minimum wage ranges from 10 percent to 22 percent, depending on overall economic conditions, and each violation costs that worker an average of 20 percent of the pay they deserve. Women, people of color, and noncitizens are especially vulnerable to wage theft and especially likely to feel they are not in a position to report the crime and get justice. Cracking down on lawbreaking companies that don’t pay workers what they are owed is a straightforward way for the Biden administration to raise the incomes and living standards of U.S. workers and their families.”

2. Restoring the minimum wage to something that actually has bite in the U.S. economy is the policy with the highest benefit cost ratio that I know of. Read Kate Bahn and Will McGrew, “Minimum wage increases are good for U.S. Workers and the U.S. economy,” in which they write: “Minimum wage increases significantly lower the poverty rate, increase earnings for low-wage workers, and decrease public expenditures on welfare programs. The earnings boost for low-wage workers from higher minimum wages extends beyond the immediate effect of the legal change and instead grows in magnitude for several years thereafter. A 10 percent increase in the minimum wage increases wages by 1.3 percent to 2.5 percent for workers in the food and beverage industry, according to a study of six cities with especially high minimum wages. Minimum wage increases can have some of the largest benefits for disadvantaged ethnic groups.”

3. Big business in the United States appears to have gotten itself into the minds of the Obama administration in a way that I do not remember it getting into the minds of the Clinton administration. Yes, the U.S. Department of Justice’s antitrust unit did very well in the Obama administration. But much of the rest of the executive branch over 2009­–2016—not so much. Now I fear that this pattern of forgetting that big businesses are not worthy people is taking hold in the Biden administration as well. That would not be a good thing. Read Hiba Hafiz and Nathan Miller, “Competitive Edge: Big Ag’s monopsony problem: how market dominance harms U.S. workers and consumers,” in which they write: “Agricultural markets are among the most highly concentrated in the United States. The markets for beef, pork, and poultry, grain, seeds, and pesticides are dominated by four firms. Three firms dominate the biotechnology industry. One or at best two firms control large farm equipment manufacturing. And a small number of firms are increasingly dominating agricultural data and information markets. Yet former Iowa Gov. Tom Vilsack (D)—President Joe Biden’s nominee for secretary of the U.S. Department of Agriculture, the same position Gov. Vilsack held during the Obama administration—has come out against breaking up Big Ag firms. “There are a substantial number of people hired and employed by those businesses,” he said last year. “You’re essentially saying to those folks, ‘You might be out of a job.’ That to me is not a winning message.” Gov. Vilsack couldn’t be more wrong on the economics.”

Worthy reads not from Equitable Growth:

1. It’s not just ethnic minorities that economics has a very hard time attracting. It’s the majority as well—the female majority. The pipeline leaks, massively, everywhere—and economics has been stalled for a generation in a way that no other academic discipline has. Read Shelly Lundberg and Jenna Stearns, “Women in Economics: Stalled Progress,” in which they write: “By the mid–2000s, just under 35 percent of Ph.D. students and 30 percent of assistant professors were female, and these numbers have remained roughly constant ever since. Over the past two decades, women’s progress in academic economics has slowed, with virtually no improvement in the female share of junior faculty or graduate students in decades … While differences in preferences and constraints may directly affect the relative productivity of men and women, productivity gaps do not fully explain the gender disparity in promotion rates in economics. Furthermore, the progress of women has stalled relative to that in other disciplines in the past two decades. We propose that differential assessment of men and women is one important factor in explaining this stalled progress, reflected in gendered institutional policies and apparent implicit bias in promotion and tenure processes.”

2. This is very, very good news indeed about the forthcoming robotization of the service sector. Human core capabilities appear to be straightforward to supplement, but nearly impossible to supplant, in at least one slice of services. Read Karen Eggleston, Yong Suk Lee, and Toshiaki Iizuka, “Robots and labour in the service sector,” in which they write: “Firm-level studies are important for understanding how robots augment some types of labour while substituting for others, yet evidence outside manufacturing is scarce. This column reports on one of the first studies of service sector robots, which suggests that robot adoption has increased some employment opportunities, provided greater flexibility, and helped to mitigate turnover problems among long-term care workers. The wave of technologies that inspires fear in many countries may be a remedy for the social and economic challenges posed by population ageing in others.”

3. The Texas blackout is worth studying closely. Apparently—obviously—there were insufficient market incentives in current and projected prices to incentivize and fund investments to secure reliable supply in the case of a weather event that was bound to come along sooner or later with probability one. Yet there was sufficient uncertainty and risk imposed upon consumers by the price process to make it a utility disaster for those who were not extremely nimble on their feet. It looks to me like a WOBW—a Worst of Both Worlds—situation. Was it? Where, exactly, did the market fail and why? I need to study this much much more. Read John Quiggin, “What Texas’s Blackouts Tell Us about Australia’s energy market,” in which he writes: “Texas lost power when neighbouring states, also experiencing the freeze, did not. The answer involves regulatory failures … Most of Texas is not connected to the rest of the US power grid. This is deliberate: the Texas Interconnection has been kept separate to ensure that it remains under Texas rather than federal control … Texas kept itself separate so it could replace its traditional integrated electricity supply with a structure that combined a pool market for the generation stage of electricity supply with a competitive market in retailing, and lightly regulated transmission and distribution. The system is run by ERCOT, the ironically titled Electric Reliability Council of Texas … The electricity market run by ERCOT… is an electricity pool market in which generators bid to supply power to the grid each day … When lots of power plants went offline, the market price of power soared to US$9000/MWh, producing ruinous bills for customers who had chosen supply deals based on the wholesale price rather than a fixed rate. Second, the system made it unprofitable for generators to invest in “winterising”… The maximum price is high enough to create both risk and opportunities for market manipulation, but not high enough to provide incentives to invest in reliable supply. In response to this mess, some electricity regulators have reintroduced an element of central planning by making “capacity payments” to generators willing to guarantee supply.”

Bradford DeLong
J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

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