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Inequality, Jobs, Growth: The postwar experience in the U.S.

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Role of Fiscal Policy in Contemporary Economics session at 12th International Conference

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Inequality, Jobs, Growth: The postwar experience in the U.S.

  1. 1. Inequality, Jobs, Growth The postwar experience in the U.S. Pavlina R. Tcherneva, Ph.D. Bard College and Levy Economics Institute tchernev@bard.edu http://pavlina-tcherneva.net @ptcherneva
  2. 2. INEQUALITY
  3. 3. -20% 0% 20% 40% 60% 80% 100% 120% 1949 - 1953 1954 - 1957 1958 - 1960 1961 - 1969 1970 - 1973 1975 - 1979 1982 - 1990 1991 - 2000 2001 - 2007 2009 - 2012 bottom 90% top 10% source: Pavlina R. Tcherneva calculcations based on Piketty/Saez data and NBER Distribution of average income growth during expansions bottom 90% vs. top 10% of families
  4. 4. 0% 20% 40% 60% 80% 100% 120% 1949 - 1953 1954 - 1957 1958 - 1960 1961 - 1969 1970 - 1973 1975 - 1979 1982 - 1990 1991 - 2000 2001 - 2007 2009 - 2012 Distribution of average income growth during expansions bottom 99% vs. top 1% of families bottom 99% top 1% source: Pavlina R. Tcherneva calculcations based on Piketty/Saez data and NBER
  5. 5. 0% 20% 40% 60% 80% 100% 120% 1949 - 1953 1954 - 1957 1958 - 1960 1961 - 1969 1970 - 1973 1975 - 1979 1982 - 1990 1991 - 2000 2001 - 2007 2009 - 2012 bottom 99.99% top 0.01% Distribution of average income growth during expansions bottom 99.99% vs. top 0.01% of families source: Pavlina R. Tcherneva calculcations based on Piketty/Saez data and NBER
  6. 6. UNEMPLOYMENT
  7. 7. Inequality and the labor market • Long term unemployment • Slower recovery in payrolls • Decline in wage share as % GDP • Collapse in labor force participation rate • Collapse in employment-population ratio • Spike in hidden unemployment
  8. 8. Secular rise in long term unemployment 0% 10% 20% 30% 40% 50% 60% 70% 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 Number unemployed for 15 weeks & over, as % of total unemployment
  9. 9. Slower recovery in payrolls 0 10 20 30 40 50 60 70 80 90 1950 1955 1959 1960 1969 1974 1981 1990 2000 2008 months to recover lost payrolls months
  10. 10. Decline in wages as % GDP 43% 45% 47% 49% 51% 53% 55% 1947 1951 1955 1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 wages and salary accruals as % of GDP
  11. 11. Labor market during the Great Recession 54 56 58 60 62 64 66 68 1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 Labor Force Participation Rate Employment-to-Population Ratio
  12. 12. 0 1 2 3 4 5 6 7 8 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 difference between official unemployment rate and broader BLS U6 measure Spike in hidden unemployment
  13. 13. The mark of unemployment • Costs of unemployment • “The unemployed need not apply” • “9 months of unemployment = 4 years off work experience” (Eriksson, S. and Rooth, AER, 2014)
  14. 14. UNEMPLOYMENT - INEQUALITY LINK
  15. 15. Policy strategies • Supply side: cuts in top marginal tax rates • incentives  investment  growth  employment • Alternative monetary policy • Asset price stabilization  bank balance sheet improvements  confidence wealth effect  lending  investment  growth  employment • Demand “stimulus” • Transfers, firm subsidies and contracts with guaranteed profits: investment  growth  employment
  16. 16. Fiscal policy and inequality • Pro-growth, pro-investment orientation • Erodes income inequality between labor and capital • Erodes income inequality within labor
  17. 17. Employment by occupation -10% -8% -6% -4% -2% 0% 2% 4% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 low and medium wage occupations high wage occupations Source: Pavlina R. Tcherneva calculations based on www.bls.gov data
  18. 18. Two ways to improve the income distribution 1. distribute income after it was generated 2. change the way income is generated • Increase the wage share of economy • Stabilize incomes from employment at the bottom • Policy regime  full employment over the long run (tight labor markets) • Establish living wages as a floor to all wages (eliminate race to bottom) • Ensure that wages at the bottom grow faster than those at the top • Bubble up policy, not trickle down economics • Rethink and redesign government countercyclical stabilizers • Rethink the safety-net
  19. 19. RETHINKING COUNTERCYCLICAL STABILIZERS
  20. 20. Conventional stabilizer • Unemployment pool x unemployment insurance • Income from forced idleness
  21. 21. Unemployment buffer stock thousands,yoychange -8000 -6000 -4000 -2000 0 2000 4000 6000 8000 1955 1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 private nonfarm unemployment rate
  22. 22. Proposed stabilizer • Employment pool x base wage • Wage income from work • ELR
  23. 23. RETHINKING THE SAFETY-NET
  24. 24. Rethinking the safety-net • Retirement income insecurity • social security • Homelessness • housing • Hunger • food • Unemployment • job • Job Guarantee • Employer of Last Resort • Full employment through Social Entrepreneurship
  25. 25. Two roads to full employment • TOP DOWN “stimulus” and “bank bailouts” • BOTTOM UP direct job creation
  26. 26. Thank you

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