rp2

Ed Glaeser on the Future of Employment, Inequality, Poverty, and Joblessness in America

July 2018. GrowthPolicy’s Devjani Roy interviewed Ed Glaeser, the Fred and Eleanor Glimp Professor of Economics at Harvard University, on the future of employment, inequality, poverty, and joblessness in America. | Click here for more interviews like this one.

Links: Ed Glaeser’s faculty page at Harvard | Brookings research | NBER research | Research papers on IDEAS/RePEc | Research papers on Digital Access to Scholarship at Harvard (DASH) | Wikipedia

Growthpolicy.org. Where will the jobs of the future come from?

Ed Glaeser: Over the past sixty years, the U.S. has experienced an enormous shift from manufacturing employment to services. Europe has also followed along that trajectory. At the same time, decreasing transportation costs and an increasingly connected global economy has enabled East Asian economies, like China, to increase their manufacturing employment, but I suspect that in the medium term, machines will replace humans in Chinese industry as well.

These facts suggest that the world is looking at a future of employment largely in the service economy, especially for less-educated workers, but there are some big questions about this process. Most notably, will there be enough service jobs that can be done at a distance from the rich and skilled, or will unskilled workers need to live near skilled workers to find service jobs? Some service jobs can be done by phone or Skype, but many rely upon face-to-face connection.

In the U.S., this question is particularly important because it relates to the economic future of the poorer parts of America. There are good service jobs in San Francisco, but not in West Virginia. If long-distance service jobs are rare, then either the less skilled will need to move to San Francisco, which is hard given restrictions on housing construction, or the wealthy will need to move to West Virginia, which seems unlikely.

These same issues show up when we think about sub-Saharan Africa. It is possible that Africa will never be able to compete in manufacturing. Its low labor costs may just not be important enough as mechanization continues to proceed. If that is so, then Africa must find its own path towards prosperity through services, but that is terra incognita. Certainly, though that path is only imaginable in urban areas, which makes the urbanization of Africa particularly crucial.

Growthpolicy.org. What should we do about income inequality?

Ed Glaeser: I worry much less about income inequality than many of my colleagues. I worry about poverty. I worry particularly about the rising tide of joblessness in America. I think we should tax the rich more, not because it is bad that they are rich, but because we can use the money to fund pre-schools and employment subsidies.

I have a strong view that the policy discussion has overemphasized income inequality relative to joblessness in the U.S., and that overemphasis reflects a misunderstanding of what matters most in life. When we look at happiness data, or data on suicide, joblessness just looks far worse than earning even significantly less money. As an economist, I firmly believe that more money is preferred to less, but it is not a substitute for a sense of purpose, a sense of achievement, or the social connections that are often tied to the workplace.

In many cases, promoting employment and promoting equality are both sides of the same coin. Investing in education for less-privileged children achieves both aims. Promoting job creation with employment subsidies in lower-income areas should reduce both inequality and promote employment.

But policies that make it less attractive to hire new workers, such as higher minimum wages or more employer-based benefit mandates, may increase equality and decrease employment simultaneously, as the recent work of Jeff Clemens suggests. We need to be extremely careful about any policies that make it less attractive to hire marginal workers.

Growthpolicy.org. Your most-recent New York Times op-ed (with Professor Lawrence Summers and Ben Austin) and your Brookings paper have both received considerable press mileage. I want to point our attention to one particular passage in the op-ed which has some stark statistics: “In Flint, Mich., over 35 percent of prime-aged men — between 25 and 54 — are not employed. In Charleston, W.Va., the joblessness rate for this group is 25 percent.” I have two follow-up questions: Why do we need to focus on the topic of male joblessness as opposed to, say, that of both men and women in the work force combined? Second, I’m curious about lexicon: why “joblessness” instead of “unemployment,” or should we understand these as separate issues for economists, with different implications?

Ed Glaeser: The two questions are linked. We use the words joblessness and non-employment interchangeably, meaning not having a formal employer or being self-employed. These words are different from unemployment, because unemployment also means that you are actively looking for a job. Unemployment in this country is quite low, but joblessness is still high among men, because so many prime-aged men have left the labor force entirely. They have given up hope or gone on disability. Ignoring the population that has left the labor force means that we are ignoring one of the most problematic aspects in American society today.

If we were comparing unemployed men and women, then gender doesn’t loom so large. The two groups are both out of a job and eager to get one. But women and men often leave the labor force for different reasons; consequently, female non-employment is just trickier.

For most of the last 75 years, female employment-to-population ratios have increased steadily as women have entered the labor market. There has been some decrease in that ratio since the peak about twenty years ago. In some cases, female non-employment is quite similar to male non-employment and in that case, it deserves exactly the same policy attention. In other cases, female non-employment is quite different and reflects a relatively voluntary decision to be productive in the home.

The geography of female non-employment is quite different. Rates of female employment follow a north-south division. Rates of male non-employment are highest in the eastern heartland which starts in Louisiana and Mississippi, runs through Appalachia and then ends in the Rust Belt.

When female non-employment occurs for the same reasons and has the same outcomes as male non-employment, it is just as problematic and needs the same attention. When women leave the labor force for family-related reasons, there are also profound policy concerns, such as whether employers are providing appropriate levels of work flexibility. Those issues are also worthy of attention, but they are somewhat different from the issues that surround long-term male joblessness in the eastern American heartland.

Growthpolicy.org. Your essay “The War on Work—and How to End It” depicts such a heartbreakingly poignant picture of joblessness in America it reminds the reader of James Agee’s Let Us Now Praise Famous Men and John Steinbeck’s The Grapes of Wrath. I was struck by your argument that “American entrepreneurs can solve our joblessness crisis only if the U.S. stops incentivizing joblessness” and that “every underemployed American represents a failure of entrepreneurial imagination.” What policy measures, both immediate and over the long term, do you believe would get us out of the morass of the present situation?

Ed Glaeser: I think that the most important step is to start subsidizing employment, especially in America’s most distressed regions. This can be done with a wage subsidy that goes directly to workers, effectively increasing the minimum wage without putting a burden on workers. Alternatively, the money can be paid directly to employers and workers may not see their wages increase so much. Columbia economist Ned Phelps deserves the most credit for pushing the general idea of a wage subsidy. I think that there is at least some case for making such a subsidy larger in regions where joblessness is more prevalent.

A similar policy would be to reduce or eliminate the payroll tax for America’s poorest workers, which was done temporarily after the onset of the Great Recession. This would also effectively reduce the payments that firms need to make and increase what workers take home. Again, the goal is to make it more attractive for firms to create jobs and for workers to come to those jobs.

A third lever is to focus on other barriers to entrepreneurship. We regulate the entrepreneurship of rich people in this country much more lightly than we regulate the entrepreneurship of poor people. It is much easier to start your internet phenomenon in a Harvard dorm room than to open a grocery store in Dorchester. We need to make it easier for those people who would create jobs in the urban service economy to get the permits they need.

Finally, education remains extremely important. We need better vocational training in the U.S. I tend to support vocation programs that wrap around traditional schooling, over summers and on weekends and after school. These skills can be provided by independent entities, including labor unions, professional educators, and private companies. The skills they provide can be readily evaluated at the time of graduation and payment can be made contingent on performance.

Growthpolicy.org. You have written some landmark research papers in the field of urban economics. What are some policy interventions or workable legislation you would like to see related to housing supply and housing regulations?

Ed Glaeser: As you clearly know, I am passionate about over-restriction of new construction in the wealthier parts of the U.S. It will be much easier for poorer Americans to find a future in the service economy if they live near richer Americans. It will be much easier for them to live near rich Americans if there is more housing built in richer metropolitan areas.

There are two plausible reforms. First, within big cities there is already some momentum to allow more construction. I know that Mayor Walsh and BPDA Chief Brian Golden want to create more affordable housing for ordinary Bostonians. The main need is to have a city-wide zoning plan that allows significant densification AS OF RIGHT. If we can avoid a seven-year permitting battle for every project, this will make things much easier.

In the suburbs, there is no appetite for much up-zoning, and so the question is how to create more of an appetite. There are two main possible paths. Following Massachusetts Chapter 40B, the state can just override local zoning. In think that this may make some sense close to state-provided public transportation, where densification is particularly natural. Following Massachusetts Chapters 40R and 40S, the state can also essentially bribe NIMBYist communities to build. My preferred strategy would be to levy from rich communities that don’t build and transfer resources to poorer communities that do build. As in many cases, promoting affordability through increased supply can be both progressive and libertarian.