POLICY DRIFT

In addition to straining America's existing welfare infrastructure, the pandemic has fundamentally altered labor markets and generated a wide range of new social needs. Policy responses to these changing circumstances have the potential to shape the trajectory of US inequality for decades to come.

In a 2010 paper, JACOB HACKER and PAUL PIERSON argue that failure to adapt to political developments is more than just passive inaction; in recent American history, it has been among the most effective strategies for active welfare dismantlement.

From the paper:

"A convincing political account of American inequality must explain its defining feature, namely, the stunning shift of income toward the very top. Equally important, it must explain how public policy has contributed to this trend. This means not only identifying public policies that can be linked to large increases in inequality; but also providing an account of the political processes that have led to the generation of those policies.

One oversight of existing political accounts is the presumption that if government played a central role in rising inequality, then a host of new laws and policies must have been created over the past thirty years to drive the upward distribution of income. Very important inequality-inducing laws and policies have in fact been created. But these are but one of the two principal mechanisms through which politics can reshape how an economy works. A second mechanism, which we call drift, is equally, if not more, important. Drift describes the politically driven failure of public policies to adapt to the shifting realities of a dynamic economy and society. It is not the same as simple inaction. Rather, it occurs when the effects of public policies change substantially due to shifts in the surrounding economic or social context and then, despite the recognition of alternatives, policy makers fail to update policies due to pressure from intense minority interests or political actors exploiting veto points in the political process. The design of U.S. political institutions makes policy enactments especially difficult, while maximizing opportunities to pursue policy agendas based on the exploitation of drift."

Link to the article, link to the book.

• "Drift is difficult to study empirically because it refers to change through inaction. We suggest that closer attention to case-specific empirical implications of the effectiveness of policy implementation can make drift a more tractable concept." Daniel Bélanda, Philip Roccob and Alex Waddan analyze US retirement security and health care coverage. Link.
• Michael Caniglia asseses how policy drift has shaped implementation of mortgage interest deduction policy. Link. And Daniel J. Galvin examines how changing labor markets have undermined the utility of the Fair Labor Standards Act: "The eroding value of the minimum wage as the cost of living rises is only the best-known example of how drift undermines the FLSA. Most pernicious, however, is the declining enforcement capacity of the Wage and Hour Division." Link.
• "Studies of drift have paid surprisingly little attention to its feedback effects—the ways in which drift, like the adoption of new policies, may alter institutional arrangements, reshape the universe of organized interests, and recast the dynamics of political action." A new piece by Hacker and Galvin situates drift within the literature on policy feedbacks. Link.

STABLE SHOCK

Remittances across contexts

Among the many corona-induced shocks rippling through the global economy is the crash in remittance payments to developing countries. The World Bank predicts that remittance flows will fall 20% this year—a decline of $100b—largely as a result of shutdowns and wage losses in the global north. The politics of remittances are complex: the scholarly literature both touts the positive development effects of countercyclical cash inflows, and questions the effects of a system that supports consumption at the expense of longer-term economic development.

In a fascinating study on remittances from GCC countries—where migrant workers tend to have few rights while making up a large share of the population—FAISAL Z. AHMED looks at the political effects of remittance economies.

"Using duration models of government turnover for a sample of 97 countries between 1975 and 2004, this article demonstrates that the combination of aid and remittance inflows can empower governments in autocracies to survive longer. The link between the effects of foreign aid and remittances on government survival hinges on the fact that these inflows of money constitute forms of unearned foreign income that a government can potentially exploit for nefarious purposes. This is achieved via two channels. In the first, governments direct some foreign aid to finance patronage goods (income effect). In the second, governments respond to shocks in unearned and largely untaxable household income (i.e., remittances) by diverting expenditures from the provision of welfare goods in favor of patronage goods (substitution effect). My findings suggest that domestic political institutions (and the incentives they generate for governments) mediate the impact of aid and remittance inflows on the quality of governance and the endurance of governments in autocracies."

Link to the paper.

• A 2019 analysis from the Financial Times provides an excellent overview of remittances to emerging market economies. Link. Part of a FT series on remittances, including case studies on Zimbabwe and Nepal, and reporting on the nations attempts to issue "diaspora bonds" to attract the earnings of expatriate workers. Link to the series.
• A paper by Muhammed Tariq Majeed looks at the effects of remittances on poverty across 65 countries from 1970-2008. Link. Relatedly, a 2015 paper by Phanindra Wunnava et al looks at the impact of financial liberalization on remittances across 84 countries from 1986-2005, and finds mixed results: increased economic freedom in the financial sector has a positive impact, while improved robustness of financial markets has a negative and lagged effect. Link. h/t Alison Oh
• A 2011 paper by Rui Esteves and David Khoudour-Castéras examines remittances and capital flows in the European periphery from 1870-1913. Link.

On incorporating distributional concerns into macroeconomic models

Recent years have seen the revival of academic conversation around rising wealth inequality and its distributional consequences. But while applied, microeconomics-oriented fields like public and labor economics have long engaged with questions around inequality, macroeconomics has historically paid less attention to these questions, particularly as they relate to business cycles. Instead, it has focused more on the relationships between aggregate macroeconomic outcomes—such as unemployment, income, and consumption—and how they fluctuate during booms and recessions. As a result, research on rising income and wealth inequality in the United States tends to overlook the macroeconomic consequences of these developments, as well as the long-term macroeconomic trends which have contributed to their rise.

In order to assess what rising inequality means for our society, and what policies we should enact to mitigate its effects, we must understand its relationship to the economy as a whole. What macroeconomic forces have contributed to rising inequality, and how might elevated levels of inequality be shaping our economy? We need macroeconomic research to fully understand how income and wealth inequality have evolved in the United States. Particularly, we need a range of macroeconomic models, each of which can capture meaningful differences in household income or wealth but emphasizes different, potentially relevant features of the economy.

SELECTED MOBILITY

Examining the college premium

Higher education is widely understood to be a major driver of intergenerational mobility in the United States. Despite the clear (and growing) inequalities between and within colleges, it remains the case that higher education reduces the impact that parental class position has on a graduate's life outcomes.

In an intriguing paper, associate professor of economics at Harvard XIANG ZHOU scrutinizes the implied causal relationship between college completion and intergenerational mobility. Specifically, Zhou uses a novel weighting method "to directly examine whether and to what extent a college degree moderates the influence of parental income" outside of selection effects, seeking to distinguish between the "equalization" and "selection" hypotheses of higher ed's impact on intergenerational mobility.

From the paper:

"Three decades have passed since Hout’s (1988) discovery that intergenerational mobility is higher among college graduates than among people with lower levels of education. In light of this finding, many researchers have portrayed a college degree as 'the great equalizer' that levels the playing field, and hypothesized that an expansion in postsecondary education could promote mobility because more people would benefit from the high mobility experienced by college graduates. Yet this line of reasoning rests on the implicit assumption that the 'college premium' in intergenerational mobility reflects a genuine 'meritocratic' effect of postsecondary education, an assumption that has rarely, if ever, been rigorously tested.

In fact, to the extent that college graduates from low and moderate-income families are more selected on such individual attributes as ability and motivation than those from high-income families, the high mobility observed among bachelor’s degree holders may simply reflect varying degrees of selectivity of college graduates from different family backgrounds."

In sum, Zhou finds that the "selection" hypothesis carries more weight than the "equalization" hypothesis. One implication of this finding is that "simply expanding the pool of college graduates is unlikely to boost intergenerational income mobility in the US." Link to the paper.

• A 2011 paper by Michael Bastedo and Ozan Jaquette looks at the stratification dynamics affecting low-income students within higher ed. Link. A paper from the same year by Martha Bailey and Susan Dynarski surveys the state of inequality in postsecondary education. Link.
• An op-ed by E. Tammy Kim in the Times argues for higher-education as a public good. Link.
• Marshall Steinbaum and Julie Margetta Morgan's 2018 paper examines the student debt crisis in the broader context of labor market trends: "Reliance on the college earnings premium [as a measure of success] is that it focuses primarily on the individual benefit of educational attainment, implying that college is worthwhile as long as individuals are making more than they would have otherwise. But in the context of public investment in higher education, we need to know not only how individuals are faring but also how investments in higher education are affecting our workforce and the economy as a whole." Link.

RESERVE GUARDS

Labor and discipline in the economy

As inequality has grown in salience as a political issue and object of research over the past decade, increasing numbers of social scientists are mapping the distribution of power and access throughout society. This new attention joins longstanding work that maintains, among other things, that free economic relations are accompanied by unequal property relations, involuntary employment, and an institutional framework to assure against incomplete contracts.

In a 2004 paper, Samuel Bowles and Arjun Jayadev argue that these dynamics are actively reproduced by guard labor: a section of the labor force whose primary function is to discipline other workers. Bowles and Jayadev find that all governments allocate a significant portion of their labor force towards these ends. Moreover, they find a strong correlation between the proportion of the labor force devoted to guard labor and domestic levels of economic inequality:

"The differences in the extent of guard labor among countries are substantial, ranging from a tenth of the labor force in Switzerland to over a fifth in the U.K and the U.S. Broadly, three groups are evident. Social Democratic countries which display low levels of guard labor, English-Speaking countries which display high levels of guard labor (with substantial supervision), and Southern European economies which exhibit unusually high unemployment rates and thus, large amounts of guard labor.

The composition of guard labor differs substantially among the nations, especially in the proportions of the two largest components: supervision and unemployment. The top four in guard labor—Spain, the U.K., the U.S. and Greece—for example, devote about a fifth of their labor force to supervision and unemployment combined. But the U.S. is distinctive, with less than half the amount of unemployment as either Spain or Greece and 50 percent more supervisory labor. A comparison between the English speaking countries suggests a similar story. The U.S displays between 90 and 50 percent more supervisory labor than Canada, Australia and New Zealand, but about 50 percent less unemployment than these countries."

Link to the paper, link to a 2014 Times op-ed by Bowles and Jayadev.

• Drawing a comparison between unregulated American labor markets in the Gilded Age and those of the present, Suresh Naidu and Noam Yuchtman find that "the unregulated labour market generated militant and coercive labour movements and employer organizations, and led to increased allocation of resources toward the domestic policing and military capacities of the US government." Link.

• "Between 2007 and 2017, the U.S. added more than twice as many guards as teachers," mapped by Richard Florida. Link.

• From the article’s footnotes, a debate over the relationship between military capacity and economic development: In his 2000 book, Kenneth Pommeranz argued that England’s military capabilities explain why the industrial revolution took place there rather than in other rapidly growing economies like those of the Yangzi Delta; by contrast, Robert Brenner and Christopher Isett’s 2002 paper holds that greater reliance on markets compelled English elites to "allocate their resources so as to maximize their rate of return." Link to the first, link to the second.

MODELED WISDOM

Modeling policy levers for housing affordability in urban centers

In nearly every major urban center, housing affordability is in crisis. Since the 1960s, median home value has risen by 112% across the country, while median owner incomes rose just 50%. For renters, especially since 2008, the problem is increasingly acute:nearly half of renters (over 20 million people) pay over 30% of their income on rent.

In New York City, nearly two-thirds of all residents are renters (half of whom are rent-burdened), and the politics of housing policy remain correspondingly fraught. In a recent paper, researchers JACK FAVILUKIS, PIERRE MABILLE, and STIJN VAN NIEUWERBURGH at Columbia Business School develop a dynamic stochastic spatial equilibrium model to quantify the welfare implications of various policy tools. Calibrating the model to New York City, the authors examine the interactions between funding and affordability policies to chart a possible path forward. From the paper:

"Policy makers are under increasing pressure to improve affordability. They employ four broad categories of policy tools: rent control (RC), zoning policies, housing vouchers, and tax credits for developers. Each policy affects the quantity and price of owned and rented housing and its spatial distribution. It affects incentives to work, wages, commuting patterns, and ultimately output. Each policy affects wealth inequality in the city and in each of its neighborhoods.

While there is much work, both empirical and theoretical, on housing affordability, what is missing is a general equilibrium model that quantifies the impact of such policies on prices and quantities, on the spatial distribution of households, on income inequality within and across neighborhoods, and ultimately on individual and city-wide welfare. Consistent with conventional wisdom, increasing the housing stock in the urban core by relaxing zoning regulations is welfare improving. Contrary to conventional wisdom, increasing the generosity of the rent control or housing voucher systems is welfare increasing."

Link to the paper, and link to a press release from Columbia Business School.

• Data for Progress analyzed housing proposals from the leading 2020 candidates. Link to the reports, and link to an updated version of Senator Warren's proposal.
• A report from last spring by authors Peter Gowan and Ryan Cooper advocates for an across-the-board expansion of social housing in the United States. Link.
• Tangentially related, a JFI letter from last year highlighted thinking and proposals around the implementation of a land value tax. Link.

EXPLICIT SPHERE

Wage boards, climate targets, and employment security

Just as universal basic income has its corollaries in more moderate policies like Earned Income Tax Credits (EITC) and Child Tax Credit (CTC) reform, a federal jobs guarantee (estimated by some measures to total nearly $543 billion in the first year) has organizational corollaries in collective bargaining institutions. Among them, wage boards have received renewed attention both by researchers and politicians in the United States. Distinct from trade unions, wage boards serve to centralize bargaining at the firm level through proportionate representation by employers, employees, and policymakers. Within the German context, they have been found to increase productivity and reduce social inequality. Unlike other policies aimed at mitigating income and wealth disparities, wage boards are virtually costless to implement.

Existing literature on codetermination has focused on its economic impacts. In a recent article, ROBERT SCHOLZ and SIGURT VITOLS broaden the inquiry to the sphere of corporate social responsibility (CSR). Using an original measure for the strength of codetermination institutions, they test whether wage boards influence the likelihood of firms to adopt socially conscious practices:

"Codetermination strength is strongly and positively related to all three of the substantive types of CSR we examine, the adoption of targets for emissions reduction, the publication of a CSR report and commitment to employment security. This suggests that worker representatives are selective with regard to the policies they support: they appear less likely to support symbolic than substantive forms of CSR.

We also shed light on the debate in comparative CSR literature regarding the adoption of CSR policies in coordinated market economies like Germany. All five policies examined are of the ‘explicit’ variety, adopted voluntarily by companies. They are often supposed to be most prevalent in liberal market economies like the USA and the UK where the need for business legitimacy is greatest… Our results suggest that worker representatives are also an important factor in explaining the spread of some types of explicit CSR policies to coordinated market economies."

Link to the paper.

• The development of codetermination in Germany and Sweden has been the subject of numerous academic debates. Peter Swenson’s widely cited account concludes that codetermination was the product of a persistent “cross-class alliance.” By contrast, Walter Korpi’s “power-resource” interpretation argues that these institutions reflect a “distributive conflict and partisan politics based in social class.” Link to an article which lays out the first analysis, and link to one which presents the second.
• A more recent paper by legal scholar Ewan McGaughey argues that codetermination in Germany was the result not of legal compulsion, but of the strength and unity of the German labor movement.[Link](http://eprints.lse.ac.uk/61593/1/The codetermination bargains the history of german corporate and labour law.pdf).
• Support for wage boards is growing among the American public, according to David Madland.Link to his analysis of the most recent public poll, his policy proposal, and coverage of the proposal on Vice.
• To understand the degradation of collective bargaining models across European economies, see Lucio Baccaro and Chris Howell’s most recent book, Trajectories of Neoliberal Transformation. See especially chapters 6 and 8, which discuss the pressures faced by bargaining institutions in Germany and Sweden. Link.

REMUNERATE EXPANSE

Social reproduction and basic income proposals

The most visible discourse on universal basic income focuses squarely on the labor market. Unconditional cash transfers are understood above all as a potential policy solution to wage stagnation, rising inequality, and labor displacement. This framework, which responds to rising income inequality in general, can be construed as a response to the decline of the family wage.

In a 2017 paper published as part of a forum on UBI in Global Social Policy journal, PATRICIA SCHULZ discusses uncompensated care work and enumerates the ways a basic income could signal a departure from forms of social protection tied to the gendered wage and its analogs in safety net programs:

"In industrialized countries, work organization, labor legislation, and social security systems developed progressively based on the model of the male breadwinner. Therefore, as most social security systems are based on contributions linked to remunerated work, the inferior income of women, their restriction to part-time jobs, as well as the interruptions in their careers due to care responsibilities will directly impact the level of social protection they can expect in case of old age, disability, illness, and so on, as well as expose them to dependency on a partner and/or the welfare state. It remains a huge political challenge to overcome the resistance against delinking social protection and remunerated work, even when the latter tends to become more and more uncertain.

A UBI would be the continuation of previous efforts to ensure that every person has a right to basic economic security, everywhere on the planet, women as well as men."

Link to the report.

• The 1960s-70s saw a major surge of advocacy and policy thought surrounding access to existing safety net programs, much of which was driven by the National Welfare Rights Organization. Linkto NWRO chairperson Johnnie Tillmon's 1972 manifesto on welfare and women's work, which includes a call for a "guaranteed adequate income," and link to historian Felicia Kornbluh's 2007 book on the movement. Economist Toru Yamamori's research sheds light on feminist movements in the UK and Italy that posed basic income as a solution to discriminatory practices of welfare agencies. Link. (Link also to Frances Fox Piven and Richard Cloward's 1966 article on the gaps in American safety net programs and the possibility of a guaranteed income.)
• There is much ongoing debate within feminist literature about how a UBI might impact the gender division of labor. Some theorists, including Ingrid Robeyns, caution that compensating unpaid care work risks diminishing the political will of women to advocate for more fundamental changes to their social position. Link. Others maintain that a UBI will incentivize men to play a larger role in social reproduction, thereby leveling power dynamics within heterosexual households.Link, link.
• For a more thorough argument in favor of basic income, the late feminist economist Aisla McKay has written extensively on the potential impacts of the policy for gender equity and a reconfiguration of citizenship. Link to an article on basic income and social citizenship, and link to her 2005 book The Future of Social Security Policy: Women, Work, and a Citizen’s Basic Income.

VERIFY ACCESS

Recruitment strategies and representation at public research universities

Public research universities have long been understood as engines of meritocratic social mobility. Relative to other higher ed institutions, public universities remain those with the highest mobility rates. But research over the past decade has shown that these institutions are failing to represent the diversity of their state populations, and adoptingfinancial aid models that cater to the wealthy.

A new report co-authored by CRYSTAL HAN, OZAN JAQUETTE, and KARINA SALAZAR looks at one mechanism behind this trend. Analyzing off-campus recruitment events, it finds that public research universities prioritize recruiting out-of-state students from wealthy, white, urban communities over all others:

"In contrast to rhetoric from university leaders, our findings suggest strong socioeconomic and racial biases in the enrollment priorities of many public research universities. A small number of universities exhibit recruiting patterns broadly consistent with the historical mission of social mobility for meritorious state residents. However, most universities concentrated recruiting visits in wealthy, out-of-state communities while also privileging affluent schools in in-state visits. Although most universities did not exhibit racial bias in in state visits, out-of-state visits consistently exhibited racial bias. Since most universities made many more out-of-state visits than in-state visits, overall recruiting visit patterns for most universities contribute to a student composition where low-income students of color feel increasingly isolated amongst growing cohorts of affluent, predominantly White, out-of-state students. These recruiting patterns and enrollment priorities are a function of a broken system of state higher education finance, which incentivizes universities to prioritize rich out-of-state students with lack-luster academic achievement."

Link to the report.

• The report includes contextual background on the "enrollment management" industry, which advises universities on strategic admissions and recruitment strategies to improve their financial and ranking standings: "While scholarship and policy debate about college access focuses on the final stages of the enrollment funnel—when applicants are admitted and financial aid 'leveraging' is used to convert admits to enrollees—the EM industry expends substantial resources on earlier stages of the funnel." Link to Don Hossler and John Bean's 1990 book on the subject.
• Elizabeth Popp Berman discusses the results in a brief thread: "This is a function of the funding model we've created, in which public university behavior is driven by a toxic mixture of 1) the status economy and 2) state funding cuts… The good news is that there is variation in this behavior: not all schools are doing it to the same degree. There's less in states with strong state support. And there's a difference among schools with similar state support/demographics." Link.
• A 2006 report from Kati Haycock and Danette Gerald charts the trends in decreasing access for low income students. Link. Further work co-authored by Haycock in 2010 details the trend of public research universities offering financial aid to out of state students. Link.
• In our newsletter last year, a spotlight on previous work by Ozan Jaquette and Bradley Curs finds that shrinking state funding leads public universities to increase their out-of-state enrollment. Linkto that paper, link to the archived letter, which includes several other relevant papers.

GAP PROGRESSION

New life in the debates over poverty measurement

In recent weeks, a familiar debate over how we understand the global poverty rate across time reappeared in mainstream op-ed pages. Sparked initially by Bill Gates tweeting out an infographic produced by Our World in Data—which visualizes massive decreases (94% to 10% of people) in global poverty over the past two-hundred years—the notable discussants have been LSE anthropologist JASON HICKEL and Our World in Data researchers JOE HASELL and MAX ROSER.

Hickel published a polemical Guardian op-ed criticizing the publication of this chart, which, he argued, misrepresents the history it claims to communicate and relies on contestable and imprecise data sources to bolster its universal progress narrative, taking "the violence of colonisation and repackaging it as a happy story of progress." Theresponses were numerous.

Among them, a post by Hasell and Roser provided detailed descriptions of the methods and data behind their work to answer the following: "How do we do know that the vast majority of the world population lived in extreme poverty just two centuries ago as this chart indicates? And how do we know that this account of falling global extreme poverty is in fact true?"

In addition to methodological arguments regarding data sources and the poverty line, Hickel's argument emphasizes the gap between poverty and the capacity to eliminate it:

"What matters, rather, is the extent of global poverty vis-à-vis our capacity to end it. As I have pointed out before, our capacity to end poverty (e.g., the cost of ending poverty as a proportion of the income of the non-poor) has increased many times faster than the proportional poverty rate has decreased. By this metric we are doing worse than ever before. Indeed, our civilization is regressing. On our existing trajectory, according to research published in the World Economic Review, it will take more than 100 years to end poverty at $1.90/day, and over 200 years to end it at $7.4/day. Let that sink in. And to get there with the existing system—in other words, without a fairer distribution of income—we will have to grow the global economy to 175 times its present size. Even if such an outlandish feat were possible, it would drive climate change and ecological breakdown to the point of undermining any gains against poverty.

It doesn’t have to be this way, of course."

Link to that post, and link to a subsequent one, which responds directly to the methods and data-use questions addressed by Hasell and Roser.